I didn’t say cars. Cars lose value the instant they’re bought, and can even rachet your financial status down, not up. I don’t have one.

“Bubblies can wait for that day, while the rest of us can take reasonable risks and ratchet up in the world”

So you are telling me that by owning material things such as homes and cars, I can “ratchet” myself to a higher spot in society than someone else? Especially those people who have opinions other than my own? I HAVE to get on this gravy train!

San Diego’s prices are much higher than ours (even now), and extremely out of whack with incomes. Also, they’ve built far more units than we have.

Miami is simply building 10 times the number of condos we are. Or something like that.

Seattle has stagnated and might even decline a bit. But even the national analysts are projecting that we’ll hold up far better than those other two cities, and possibly better than any other city (per Forbes’ projection the other day, which projected slow growth to 2008).

Seattle has a fairly fast-growing population and a reasonable total number of units getting built (thanks to growth management in part). Rentals are getting tight and will get tighter (and pricier) until 2009 when new inventory starts to fill demand.

Meanwhile, construction prices are up 50% in the last few years alone. The value of any RE investment is always tied (via elastic) to its replacement value. When demand falls (with a population decline for example) the rubber band can stretch downward, but in a growing market, prices rise until new supply is built, and new supply is always priced over replacement cost. Construction prices are still rising.

Will prices fall by 40%? Not a chance in hell, unless Microsoft leaves and interest rates rise to modern-day highs, both of which are farfetched. Bubblies can wait for that day, while the rest of us can take reasonable risks and ratchet up in the world.

are you able to breakdown the charts above into complex or do you still want to consider your unsold condo “absorbed”?

Existing homes won’t take much of a cut (>15%). New condos and Snoqualmie Ridge homes will take the greatest hit (25%+). These developements are a commodity with readily available supply, many alternatives and high prices which creates a very elastic demand curve. Developers will have to undercut their profit lines right into bankruptcy/auction.

You are correct in your assumptions, but by assuming the current course of Fed action is correct, you are very wrong. By continuing to cut rates (and deflating the dollar) the Fed is actually increasing long-term interest rates, which most ARM’s are adjusted to. Short-term rates have decreased, which only helps the banks in their overnight lending practices to each other. Joe Consumer is still stuck holding the bag and still getting screwed on their liar loans, but the Banks profit. Shorting financials is smart, but I wouldn’t hit it too low, the government will bail them out (just like the airlines) at the expense of the general population.

When you talk about real inflation, it is not actually “real”. The CPI, the marker the Fed uses as an economic indicator, does not include food or energy prices. Have you checked the receipt of your groceries or gas compared to six months ago? Bet you see a 15-25% increase. By continuing to cut rates, the Fed will singlehandedly lead us into a dollar collapse as they don’t take into account REAL inflationary pressures on current wage increases.

On RE prices: I don’t believe existing homes will take much (25%). A commodity with readily available supply, many alternatives and high prices has a very elastic demand curve. Developers will have to undercut their profit lines right into bankruptcy/auction.

While I agree that a decline in prices is likely, you need to think about the relative price of a condo when measured in other commodities, not simply in dollars. Condos are built with steel, concrete, copper, glass, and a lot of expensive labor and fees. While the Fed may devalue the dollar to keep the financial system solvent, other countries will continue to buy commodities to fuel their economies.

The scenario you describe would be _worse_ than the Great Depression, since the average SFH in Wallingford is about $750k now, and even at the depths of the Great Depression the decline for desirable areas was only about 50%. And that’s the Great Depression.

Ben Bernake’s claim to fame is his study of the Great Depression, and you can bet that he will do everything possible to prevent it from happening again. As an academic, he even proposed dropping dollars from helicopters to prevent the kind of deflation that occurred in the Depression.

So he will most likely keep cutting interest rates, which will allow banks to pay out less on their deposits, while continuing to bring in some interest on their loans (including mortgages.)

The declines over the next few years will be much worse in real, inflation-adjusted terms. In other words, home prices won’t drop as much as the value of the dollar.

At least if you’re going to be such a housing bear, you should put your money into something that will hold up as the dollar continues to deflate.

What, exactly, are you doing with all of the money that you are saving up by not buying now? I’m bearish on real estate over the next few years, but I’m also realistic about how much new construction costs. While I do already own a condo, I’m shorting the financials because I believe that we’re only in the beginning of the great unwind.