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Housing prices have hit bottom in five large cities that were walloped in the real estate mayhem: Las Vegas, Phoenix, San Diego, Miami, and Los Angeles, according to Forbes.com, which used data from Mountain View's Altosresearch.com. In January of this year, 45% of San Diego homes had suffered price reductions; by Sept. 11 of this year, that was down to 30%. Similar declines took place in the other four cities. Five years from now, San Diego metro area prices will be up 25.41%, says Forbes. That's better than the other four cities, whose prices five years from now will range from minus 2.93% (Miami) to up 12.36% (L.A.) San Diego home prices are down 42% from the peak of November, 2005.

San Diego's Robert Campbell, who writes the Campbell Real Estate Timing Letter, doesn't agree with Forbes. "The current upturn in prices may be more short-lived than many believe, or want to believe," says Campbell. Once a prime borrower fails to make a payment, there is now a 94% ability of a default. Between 2000 and 2006, only 55% of loans that fell behind would go into default. Unemployment, which is certain to last for some time, is a major reason for the stark decline of the cure rate, says Campbell. Further, 32% of properties are worth less than the mortgage owed. "Southern California housing prices are likely to fall for the next three to six months," says Campbell.

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Comments

whyigotahaveid Sept. 26, 2009 @ 11:44 a.m.

when we hit bottom , itll be back to normal where only %10 percent could afford a home. and with the tighter lending the bubble will not happen again. it was the banks n rush of fools that fueled the fire. everybody thought they had to get a home now or never afford in the future.

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Don Bauder Sept. 27, 2009 @ 7:23 a.m.

Response to post #13: Even in a downturn, the building industry keeps shouting that San Diego is short of homes for the future. Developers will keep building as long as they have access to money. They don't seem to look at the market -- never have. When Wall Street latched on to the same mentality -- selling housing-based derivatives and claiming housing prices never go down -- all hell broke loose, as it eventually had to do. We're living in that hell now. Best, Don Bauder

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stumo Sept. 27, 2009 @ 10:41 a.m.

It is simply amazing to me how everyone forgets about seasonality! Of course we would see "positive" numbers in the summer - but you have to take that into consideration in your projections. Funny enough, the following was published on bloomberg.com the very same day as this SD Reader article:

"Existing-Home Sales Unexpectedly Fall...Purchases dropped 2.7 percent in August to a 5.1 million annual rate, the second-highest level in the last 23 months, the National Association of Realtors said today in Washington. The median price dropped 12.5 percent from August 2008. A government report showed unemployment claims declined."

7 (Visduh): I completely agree, however you are assuming free market dynamics. Sadly, with all of the government intervention this market is not behaving like (and in fact is not) a free market.

2 (bburito): I hope you are right! And if you are, my first-born's middle name will be Bburrito!

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Don Bauder Sept. 26, 2009 @ 5:18 p.m.

Response to post #11: The bubble was based on a lie: that housing prices only go up. They had gone down in San Diego as recently as the early 1990s. At the peak of the market in late 2005, prices were insane, and so were the mortgages that people took on. Those mortgages are now leading to much higher monthly payments during a period of very soft income and high unemployment. Defaults and foreclosures will continue in San Diego County. Best, Don Bauder

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Don Bauder Sept. 27, 2009 @ 5:24 p.m.

Response to post #15: You HOPE that bburrito's gloomy prediction is right? I don't think you can take a short position in San Diego residential real estate. Perhaps you want to buy a home at a much lower price. Best, Don Bauder

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Visduh Sept. 26, 2009 @ 8:47 p.m.

That housing price downturn in the early 90's was painful for many. I knew several folks who were under water on their mortgages, yet kept paying them. The local real estate "rag", the U-T, kept printing stories in 1993-95 about the collapse of home building and the fact that the builders were only able to put up and sell "starter homes." What those were was never clear. In recent years most homes built were two stories and at least 3500 square feet, a far cry from the starter home of yesteryear which was unlikely to exceed 1500 square feet. But those tough days of the 1990's were soon forgotten in the crazy days of this decade.

Doesn't anyone remember anything?

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SurfPuppy619 Sept. 25, 2009 @ 1:06 p.m.

I say we have not hit bottom, we MAY have, but I highly doubt it. I predict the bottom has not been hit, and won't be hit for another 12 months.

But it hardly matters-because when we hit the bottom, where ever the bottom is, we are going to stay there for 2-3 years-maybe longer, before housing starts to go back up.

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bburrito Sept. 25, 2009 @ 1:52 p.m.

From the way people talk about a bottom, it seems like they think that once a bottom is hit, prices are going to go right back up to where they were. Something to keep in mind is that when the Great Depression hit so many years ago, there was a similar drop in prices. It took 40 years for prices to get back to the level they were at at the peak of the market before the depression.

Personally I think there is going to be about a 70% drop from peak to trough, and that we still have another year or two of dropping prices before they stabilize. One of the problems right now is that the ONLY game in the mortgage lending area is the government through FHA and Fannie Mae. What happens when the government can no longer support them? FHA has already announced that their capital reserve is below %1.0. Yes ONE percent. So if the government drops out of the lending game, there is not many lenders left. The ones that are left are likely going to require 20-30% down minimum and with stricter credit and documentation standards. So if prices at that point are still up around $200,000... that means you would need a minimum $40,000 down payment to buy the home. Also factor in raised interest rates, because they cant stay near 0 forever. As lending standards and interest rates go up, the prices are going to come down. Just as when lending standards were relaxed and interest rates went down, prices went up.

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Don Bauder Sept. 25, 2009 @ 1:54 p.m.

Response to post #1: Housing permits are back to levels of the 1930s, when San Diego was 1/12th its current size, according to the post below. So there could be a STATISTICAL jump in housing starts that would look impressive -- say, 100%. But if you plummet from 10 to 1, then come back to 2, you jumped 100%. Big deal. You're still deep in the hole. If the Fed continues to buy mortgages, keeping rates artificially low, there will be some improvement. But it won't be meaningful improvement. It will be funny money improvement. That's going on throughout the economy -- not just in housing. Best, Don Bauder

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Don Bauder Sept. 25, 2009 @ 2 p.m.

Response to post #42: Wow. Prices are already down 42% from the Nov. 2005 peak and you expect a 70% drop from the peak. You are correct in noting that the government is doing almost all the mortgage lending these days. And there is a question whether it can continue to do so. It could print more money, and inflation often ignites a housing recovery or boom, but life would not be pleasant. Best, Don Bauder

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shizzyfinn Sept. 25, 2009 @ 3:48 p.m.

That's nice of Forbes to predict the five-year appreciation rate down to the hundredths-of-a-percent level. Apparently they're working with a crystal ball that can out-Nostradamus Nostradamus.

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SurfPuppy619 Sept. 25, 2009 @ 5:41 p.m.

The ones that are left are likely going to require 20-30% down minimum and with stricter credit and documentation standards.

That WAS the lending standard 15 yuears ago. Strong credit and 20%+ down payment.

After the commercial RE crash in the early 1990's, when almost ALL new commecrial space back then was spec built with no money/skin of their own in the game, caused the bubble. After that commercial the lenders pretty much required 30% from all developers before one penny was allowed to be borrowed from lenders. Again, that USED to be the standard in the residential market too-and now we will have come full circle.

I don't think we will drop 70% from high to low-but then again I didn't think we would drop more than 30% and I was off by a country mile on that one.

I think there is a possibility of a drop as high as 70%-because I think the lack of meaningful job creation in this downturn is going to be unlike any we have seen in 80 years, and lack of meaningful jobs could drive prices down further (by meaningful jobs I mean manufacturing-not service sector).

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Visduh Sept. 25, 2009 @ 8:03 p.m.

If you accept the notion that SD home prices have been too high (as measured by the incomes of the buyer/occupants) for thirty or more years, and if you can accept the notion that SD cannot forever buck the economic reality, then bburrito in post #2 could be right. What he/she describes is just a housing market coming back into line with where it should have been all along. In some ways I hope that happens, yet in other ways (such as my own home equity) hope that doesn't ever occur.

Inasmuch as SD is still a preferred place to live, many of those who bring their own money to town can and will bid up the prices of homes. But as some point, there cannot be enough outsiders to keep a housing market propped up, if the local job situation is in the tank. Just yesterday I was hearing on local radio that some authority on RE prices declared that La Jolla was the highest priced place in the US for buying a rather ordinary home, at over $2 million. It beat out even such spots as Beverly Hills.

Local incomes just don't explain these stratospheric home prices. So, if local income patterns don't explain these prices, they have to do with money from elsewhere that is seeking the SD lifestyle. And spots like La Jolla just may be an almost permanent exception to any sort of rational home price adjustment.

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Don Bauder Sept. 25, 2009 @ 9:31 p.m.

Response to post #5: An economist was overlooking a vast chasm at a national park and said to his wife, "That is exactly five million and five years old." His wife said, "Darling, I know you can correctly forecast GDP out to three decimal points, but how do you know it is five million and five years old?" Replied the economist, "Because I was here five years ago and the guide said it was five million years old." Best, Don Bauder

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Don Bauder Sept. 25, 2009 @ 9:35 p.m.

Response to post #6: I agree: a plunge of 70% peak to trough sounds extreme. But who knows these days? Best, Don Bauder

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Don Bauder Sept. 25, 2009 @ 9:37 p.m.

Response to post #7: Yes, I read that La Jolla regained the lead. And keep in mind that many of those La Jolla homes were built hastily after World War II. Best, Don Bauder

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