In the Palm Springs area, the only homes that are selling are at 30-50% discounts. Many would-be home buyers seem to be holding back in fear (or hope) that prices will fall some more. If you believe in Buy Low you should be wary of trying to buy at the bottom – that is very hard to do. It’s better to get most of the benefit of the low, than to miss it altogether. Median prices were actually lower last year than now.
It does look as if prices may fall again, but I may be wrong . In the opinion of some, we saw prices rise last year due to various government stimulus programs, and they could rise again if private investment increases. We have seen unemployment increase and that will increase the number of foreclosures. The impact of new foreclosures should be minimal because we have seen the banks meter them onto the market about as fast as they are selling, which has kept prices stable.
Could a meaningful drop of 20% or more still happen? If a Mid-Century Modern home was $500,000 at the peak, it is possibly worth around $300,000 now (a 40% drop). I don’t believe it can go down to $200,000 (down 60%). Could it go down 15% from $300,000 to $255,000? It is possible, but a slight market improvement could keep the price steady or slightly increase it, as happened over the last year. Meanwhile the buyer is still looking and we are getting closer to the time when prices will definitely increase.
Some sellers are waiting too. If they need to sell, there isn’t much point in waiting for the return to high prices. That won’t happen for many years. They are likely better off selling now to start a new financial or housing base rather than dealing with an uncertain future.
For both Buyers and Sellers, there is a financial risk of doing nothing, and you may miss the chance of finding that perfect Kreisel Alexander or Walter S. White.
We see a lot of news about home prices, both good and bad. Nobody can predict the future, but we might find clues about it in the past. The Case-Shiller Home Price Index, captured the California home price collapse in 1990, as shown in the first chart – for high-tier Los Angeles homes. Then the prices had increased by about a factor of two, just like our last bubble, as shown in the second chart. The scale in the first chart has been expanded to show they were very similar bubbles, even to their relative size, shape, duration and the false recoveries in 1991 and 2007. Maybe we can use the 1990’s experience to project our current recovery.
If so, the blue bars show that it took seven years from the peak to just get to the point where prices began a true recovery. Our price recovery may not start until 2013, and this is a worse economic situation than in the 1990’s. In between now and 2013 we may see still lower prices. It is difficult to tell if the small peak we see today is a false recovery or the reaction to an overshoot in the drop, but from the last bubble it is not likely the beginning of recovery. Again historically, that increase around 2013 will be at the rate of inflation, which in the long term is around 2.5% a year. If so, this is relative price stability and isn’t bad news – volatility in home prices is the bad news because neither sellers or buyers know what to expect. – Wayne Longman
A significant drop in the number of sales of large homes over $3,000,000 can be attributed to falling sales prices, fewer buyers, or both. There is no doubt prices have fallen at the high-end, so many have dropped out of this niche, but it also shows that high-end sellers should attempt to price below this no-man’s land.
Sale prices could drop more in any given development if they haven’t returned to circa-2003 levels that deflate prices back to their non-bubble growth rate. This has happened in several local high-end communities, so there are some good deals around, but not all.
Those holding out for a return to the top, may wait a long time. It took LA ten years to recover from the 1990’s housing decline. Housing appreciates at the inflation rate, around 2.5%, so it could take even longer than that. This applies to all price ranges. If you want to sell, price to market. Most buyers are then confident that they can buy safely.