squawk

Talk of a Real Estate Bottom Already Is a Waste of Breath

Your ball analogy illustrates a complete lack of understanding of the real estate market. First, as an early poster comments, real estate prices are driven by LOCAL economic factors. In markets like Ohio, Michigan, where there is little or no economic growth, your analogy might have a bit of merit. However, in continually proven high growth markets, your ball analogy comes crashing to the ground, as it should.

Granted, high growth markets, particularly markets like South Florida, Vegas, Phoenix, Inland Empire (San Bernardino-Riverside), where price appreciation has clearly outstripped economic growth, a correction was, & is, inevitable. However, in certain traditionally strong markets in California, such as Los Angeles, Bay Area, where there has been a LONG TERM shortage of "affordable" housing due to a CONTINUAL influx of population, you cannot expect prices to fall 50% as you postulate.

Yes, an "equilibrium" will be reached. But to say that such equilibrium is a "ground level" after a period of years of significant price appreciation, shows a basic lack of understanding of real estate economics. Beyond the cost of capital, which is still at historically at low levels despite relative tight underwriting standards, look to the LOCAL economy for a better understanding of how supply and demand interact to determine real estate prices.

Local markets with historically growing economies and limited supply of housing will continue to appreciate, where your so called "ground" equilibrium is not flat, but "climbing" over time.