Don't Be a Hero, Wait it Out

The San Diego Union Tribune reports that San Diego home prices have fallen over 25% in the past year, reaching levels not seen since mid-2003. The median home price in San Diego County now sits at $370,000. Monthly sales volume is down 12.3% from this time last year.

These numbers are a stark reminder of how bad things have gotten in the residential real estate market. Many brokers, television personalities and media outlets are hailing the drop in prices as a once-in-a-lifetime opportunity. Conventional wisdom says its a buyer's market.

Nothing could be further from the truth.

The downward trend in prices these numbers represent is still in full swing, and the underlying forces that caused the downturn show no sign of amelioration. Foreclosures are still occurring at rates not seen for 20 years, meaning that real estate markets will remain flooded with bank-owned properties for the foreseeable future. Lending practices are tight and will remain as such as banks continue to lose money on their loan portfolio's and other real estate investments.

Only those fortunate enough to have saved a sizeable down payment will even be able to consider a home purchase. These conditions alone mean supply far outstrips demand in most markets around the country.

What does all this mean for anyone thinking about buying a home but without any compelling reason to do so immediately?

Wait.

The bottom has been wrongly predicted for months, with each successive group of brave buyers wading into the market, only to be upside down the moment they receive their keys.

It is impossible to call the bottom and predict when home prices will return to a more natural, upward projection. But what is certain is that this “bottom” is many months away at the least, and with the exception of a few well-connected and well-provisioned investors, now is certainly not a buyer’s market.