Market corrections follow three basic recovery patterns. A V-shaped recovery where a market experiences a sharp, fast decline but comes out strong once it hits bottom; a U-shaped recovery, where prices decline gradually and recover slowly; and an L-shaped curve, a hard, fast fall with paltry price bounceback following the market trough.
The differences between a V-shaped market and a U-shaped one has to do with barriers to growth. High vacancy rates and high investor share can hurt a market, but if the local economy remains strong and housing stock affordable it's only a matter of how long it takes to absorb the excess inventory.
San Diego is portrayed as a V shaped market, albeit one whose recovery is dependent upon external factors. However, the fact that there just isn't anywhere new to build is going to be a major factor, as is the desirability of living in San Diego.
Those who wait for confirmation of market bottom are likely to completely miss out on the best bargains. It wasn't until prices had been decreasing for almost a year that official statistics admitted it. October 2005 is generally seen as having been the top, but the statistics confirming this didn't emerge until July or August of 2006.
This isn't any double-talk. I ran an article just a few days ago telling people that it's a rotten time to sell. Inventory is high, and there aren't a lot of buyers who have come off the sidelines yet. But this precise combination of factors is what makes right now one of the best times possible to buy. But it's not going to last forever. The seller to buyer ratio is nearly twenty percent lower than it was last year at this time (32 versus 39). It's getting harder to find the very best bargains. Stuff that's beautiful is selling, but properties that aren't reach out and grab you beautiful are sitting on the market. Great if you can afford to fix it. Not so hot if you can't. On the other hand, if you're willing to be the one to deal with a few minor cosmetic issues, this is a great time to end up with a great bargain. Particularly if you've got a few thousand in your pocket to redecorate once you've bought, now is a great time to be finding those properties where $10,000 in easy stuff like carpets and paint can add $100,000 in value. Whether you then want to live in it for ever and ever or simply take your profits and run, that's not at all a bad situation to be in.
San Diego is a resilient market, and I'm seeing a huge number of people who want to buy but are "waiting for the market to hit bottom." When you've got a situation like that, as soon as those people see some indication that things have turned, they're likely to come swarming, thereby boosting demand and depleting inventory (i.e. supply) over a very short period of time. I haven't been among those thinking San Diego is likely to see any kind of a double digit gain any time soon, but the longer it takes to start getting people off the sidelines, the more demand will build, and the stronger the turn will be. I still don't think we're likely to see double digit gains in the next couple of years, but I'm starting to see evidence that I could be wrong about that. I predicted losing thirty percent of peak value, and we're at about 25% off peak right now. The number of bad loans could make the housing bear run a little bit further, but there's also a large amount of pent up demand, in the form of people who are eager, willing, and able to buy a home, but are only "waiting for the right time". Based upon purely anecdotal evidence, I think we're at the point where the latter significantly outnumber the former. If you're one of those on the sidelines waiting for the right time, I'd be very careful not to be late onto the field.
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