Monday, July 02, 2007

SF - Oakland to fall 61% to 97 levels

Experts say that prices need to fall to 1997 levels to be sustainable. Experts also say that areas which experienced the biggest run-up in prices are most at risk for the biggest price drops. If this is the case, the states of California, Florida, and New York could be in trouble.

In certain cities within these states, home prices increased by more than 50 percent between 1997 and 2007. It is these metropolitan areas where the housing bubble will most likely bust. The following chart shows an overview of how much prices have increased and how much they would need to decline to return to 1997 levels.


Anonymous Anonymous said...

That's crazy. If prices fell to 1997 levels, there would be another bubble as previously priced out renters, or investors with cash cushions snapped up properties. That's not to say I wouldn't be one of them if I could get a 3/2 1600sf SFR for $300k...

1:27 PM  
Blogger Jim Driscoll said...

"experts say" - What experts? Got a cite?

It's certainly possible that prices could go down that far, but that would put prices at 80% of rent, which is lower than it's been since the Great Depression. It would certainly require another depression to happen for prices to sink that low.

I'd love to hear which experts are predicting a depression - even Roubini and Shiller haven't dared to do that yet.

7:07 PM  
Anonymous Anonymous said...

That's totally feasible. First of all, rents will come down too, because of the glut of rental properties on the market (rents always decline in a housing market crash). Second, there would not be too many buyers at this price point, because not too many would be able to qualify for a loan at 18% interest, so most sales will be either cash or owner financing. And as far as another depression, we are certainly heading into one right now. Debt/GDP ratio is already higher than 1929, except for, in 1929 some of the debt went into building railroads/infrastructure, as opposed to 2005, when most of the debt is going into speculation on housing, BMW's and plasma TV screens all made in foreign lands, not to mention illegal wars.

9:33 PM  
Anonymous Anonymous said...

I agree. When you look at the fundamentals and what people are paying for rent it has to go down 40%. It did last cycle in the Bay Area, people just have short memories. The option ARM's masked the real cost of holding property and the 100% drove the market higher. Housing in my area in 1989 dropped 20% by 1991 and I was upside down. Not a nice feeling. The neighbor sold in 1998 40% less than what he paid in 1988. The market is like a Aircraft Carrier. Very slow to turn but once the reality sets in then you are back to fundamentals.

12:04 PM  
Anonymous Anonymous said...

ya bla bla. All the predictions made here in the past two years, not ONE of them turned out to be real. Come on folks, this is just a 'sky is falling' hype type of blog, so don't take it seriously but look for reality somewhere else. Like in your back yard. Or your front yard.

10:55 PM  
Anonymous Anonymous said...

Front yard and Back yard?
I live in the Bay Area and when I look out..I see homeless people, or people who homes are in and on the street. I guess thats the reality, huh.
Remember the Hoovervilles, get ready. I'm going to stake out my little spot, now. I need a place to plug in my Foreman grill.

1:19 PM  
Anonymous Anonymous said...

I am looking at my front yard, and my neighbors' front yards, as well. And, what I see is "for sale" signs, everywhere. Homes that have been for sale for over 6 months, now, without a single offer. And the inventory keeps going up every month, interest rates keep going up, ARMs resetting, foreclosures going up. This is the reality for me (a renter), and a nightmare for my desperate FB neighbors, still trying to sell their overpriced chicken coops. The predictions were all 100% correct, and now they are all coming true.

9:07 PM  
Blogger marinite2 said...

Drastic drops like that could only occur in tandem with a squeezing off of credit to a trickle.

5:02 PM  
Blogger marinite2 said...

ya bla bla. All the predictions made here in the past two years, not ONE of them turned out to be real.


But they are all happening... slowly but surely. Don't you read? I am astonished that there can still be denial. Or is it just that it hasn't happened all at once in a short period of time?

5:06 PM  
Anonymous Anonymous said...

denial.. is a river in Africa (da nile).

Reality is, that Bay Area real estate prices are going up in most neighborhoods, and have been going up over the past two years, while some people make predictions like "Oakland to fall 61%..."

Ok, there are places like Oakland or East Palo Alto where people get shot frequently; it is quite possible that real estate investments in such neighborhoods are not doing that well. But that can not be representative of the entire Bay Area.

9:07 AM  
Anonymous Anonymous said...

no the median is going up. but that is only because the median has shifted up due to fewer low end sales. i dont seriously think you will see a nominal drop of 50% but if you factor in inflation over the nest few years you may see a real drop of 50%. thats the only way you will get the affordability back to resonable levels. only 11% of the bay area can qualify to buy the average house and thats after the NAR adjusted the numbers it was really 8%

11:24 AM  
Blogger Telemill said...

How come we can watch property go up 100%-200% in 5-6 years and think it's perfectly normal and great. But let anyone say it can fall 50% or more and everyone just "can't believe that will happen." It's just silly really. After the craziness we've been through economically, we know "anything" can happen.

3:40 PM  
Anonymous Anonymous said...

Even though I wish I could buy at those levels, it's not likely. Why? As some have mentioned, deflation would have to go crazy for that to happen. Is that possible? Yes, but! The Fed, government and even world economies have an interest in keeping a stable currency and so far that's the dollar (although I have my concerns about that switching to Euro in my kids lifetime).

I believe there will be enough global cooperation to prevent this type of deflation. Housing is not in a vaccuum and it the resulting pain in the overall economy would be too much for the money grubbers who run society to bear. Until these money grubbers sufficiently offshore their assets and future prosperity, they won't let it happen.

More likely, a credit bubble is bursting before us, but we'll convince China, India and others to keep the money supply plentiful enough to prevent financial armaggeddon and simply create a "correction" of 10-20% which is significant, but not deadly.

3:54 PM  
Anonymous Anonymous said...

Let's be objective. Adjusted for inflation, prices would only need to fall about 40 percent to be equivalent to 1997 prices. They won't drop that much for three reasons: The 1997-2000 boom wasn't that big when you do a 10 year review of prices, prices really weren't that much higher in 2000 than 1990 when adjusted for inflation. In addition the cost of construction and site preparation has doubled, even when adjusted for inflation and there is very little entitled land available in the Bay Area. Therefore, prices are not going to drop much at all in the Bay area.

That's why prices still went up 30 percent in the Bay Area from 2001-2005--when there was a huge loss of jobs.--the bay area lost a bunch of jobs, but the lack of housing supply (and the overheated credit market) staved off a recession induced adjustment.

The best proof that there is no supply in the Bay Area was the staggering jump in prices in the Valley--even with no job growth, bay area residents were still having to move to the Valley.

Yes, the Bay Area may catch a small cold, but the Valley is where the prices will can't have an area jump 150 percent in five years and not have a huge hangover...particuarly since much of the profit the home builders made in that era was plowed into entitling even more land.

Prices are going to crash in the Valley, but you still have

5:10 PM  
Anonymous Anonymous said...

When you still see people in denial, that means we are just at the beginning.

No I don't believe prices will go back to 97, but it is amusing to read about NAR types saying it will not happen because it has not happened yet. Some much for the myths:

Home prices for the nation never goes down.
Home prices never goes down unless we are in a recession.
blah blah,

Looking back at your back yard of course, it still looks like 2005. But the front yard is littered with "For Sale" signs.

Yeah and enjoy it before we go into a recession. The recession in 2002 was short and rescued by funny money. And it has last for 5 years, how long the average economic up-cycle lasts?

Will homes get so cheap that a cherry picker can afford it? (Apparently it has happened in the last couple of years with funny money) Nope, remember the 90s recession was coupled with 18% interest rate. At that rate even a 300,000 loan will cost more than a 1 million one today.

Let's just hope that will not happen, for nobody will fund Bush's trillion dollar war games.

11:18 AM  

Post a Comment

<< Home