Here is a shocking article. Not really. "Prices will continue to fall in 2008." "Rebound forecast pushed back to 2009." Well, I have even more shocking news for you, folks. I don't think we'll have any rebound in 2009. Prices may start to level out, but a rebound? No. Let's put a personal spin on an earlier market decline in order to determine how this current downturn may play out.
We bought our second PR in 1992. The market had started to sour and we sold our condo in Point Loma (a beach area in San Diego, not far from Sea World) for a little less than it was worth the year before, but more than what we paid for it in 1987. We bought a tiny old 1,000 square foot house up the hill from Jack Murphy Stadium in a section of San Diego called Mission Village. It had a giant yard and pool, but still no garage for us. All this for $165,000. We needed to move. Having two boys in an upstairs condo was enough to drive our downstair's neighbor to call the police on us. Well, I told him to call them the next time he tried to complain. My little ones were running up and down the puny hallway and jumping off the couch. Like I said, we had to move. We seriously looked into renting out our condo and buying another home, but my dad talked us out of it. I'm sorry we didn't.
In 1996, we drove north up the 15 freeway a bit to a section of San Diego called Sabre Springs. It was just a couple of miles away from the city of Poway. Pardee was the master planner and everything from Poway to the 15 was new. We were afraid to buy in a new development because we "knew" that prices in the first phase were always higher than subsequent phases. That scared us, but it was the only information that we had about buying from builders.
However, we found a beautiful 2,600 square foot house with a THREE-CAR GARAGE!! After 12 years of marriage, it was our first garage. We bought it for $256,000 which included the few upgrades that we put in. However, in order for our deposit to be accepted, we had to agree to use Pardee's contracted real estate agent to sell our current home. The purchase price for it was $155,000--which was $10,000 less than what we had paid for it four years before.
So, we have the decline starting in around '91-'92, and still not recovering by '96. By 1998 the development was sold out and a house like ours went up for sale for $294,000. Wow! That was almost $40,000 more than what we had paid. We did a jig. As the years followed, the prices kept creeping upward until we sold that house in 2004 for $835,000, which was $300,000 more than they were selling when we bought our current home in Temecula and rented out the one in Sabre Springs. (I have a very sad story about that area. I've mentioned it in a prior post, but never expounded. One day, I'll give you more details. In life, as in real estate, timing is everything.)
That was a typical cycle--around six years from bust to appreciation. However, would we call what's happening today typical? With the loan fiasco, many buyers who would enter the market now to pick up lower priced foreclosures are unable to do so because of their inability to obtain financing. Meanwhile, we have more houses clogging up the MLS. Not a good combination.
The peak of this cycle seemed to have been in 2005 (although I noticed a little bit of slowing that year, but nothing too significant). It's now 2008. A typical turn around takes much longer than this and that doesn't account for the lender twist. Therefore, we probably won't start seeing values "rebound," or perhaps merely stabilize, for at least another three years, which takes us to 2011.
Only time will tell the accuracy of my, and the myriad other, predictions. For this one, I hope I'm wrong and the recovery is sooner than expected.