Curious for various thoughts?

http://www.voiceofsandiego.org/articles/2009/04/24/survival/287roundup042409.txt

Her quote:

An audience member referred to the Case-Shiller home price index and asked the panelists for predictions on how much further the index had to fall and when the bottom would be. Toscano, Ratcliff and I more or less weaseled out of the question.

But Klinge dropped this prediction like he’d been thinking of it forever, without any introduction:

“25 percent, December 2011.”

Thanks for getting the info out there.

Upon reflection my statement sounds odd. What I meant to say that for years now I’ve expected a return to mid ’90’s prices, which is 50% off the current CS… and about 70% off the peak CS.

But just to make things more interesting, I’ll go along with this coffee bet.

So what’s the criteria? +/- 1 month, +/- 2.5 on S.D. Case-Shiller?

I’m going to make my guess at late summer, say August 2011 and 25% too.

FWIW the bubble could’ve been avoided had all appraisals been set using rent multiplier comps instead of sales comps. Although rents increased during the boom as a result of the artificially stimulated economy they never disconnected from reality the way prices did.

Toxic mortgages were not a factor until well after the bubble was underway. That said, I totally agree that *all* mortgage loans should always meet the “traditional” requirements.

The current bid on the Nov2011 Case Shiller CME future index for San Diego is 134.75.

All the readers could use their down payment savings to sell that short today and collect the large profit when it hits 111 and then use the proceeds to move up the property ladder.

You don’t have to put up the full amount to trade that contract so you could make a large percentage gain if the index did indeed drop 25% by end of 2011.

The value of a single contract is $250 times the contract amount (250 x 134.75) which is $33,750 for the Nov2011 contract.

You only have to put up 20% of that amount (to make the trade – $6750 (and maintain the 20% equity throughout the holding period).

So you could make about 88% return on cash if the index dropped to 111 ((134.75-111)x$250) if you short it today and Jim’s prediction comes to fruition.

Besides, I don’t think the fact that loan agreements were hard to understand was a root, or even very significant, cause of the bubble. Most people knew what they were doing: trying to get rich quick on the can’t-lose scheme of the decade. Most banks knew what they were doing too: make a lot of money for our executives taking huge risks which will eventually collapse, but not before we get rich and get out. The people really hurt by the bubble were people who bought houses they couldn’t really afford because they were deceived by people they trusted (eg: RE agents) into thinking that the market wasn’t ever going to go down, so they only way they could afford a house was to over-extend themselves and hope for appreciation to bail them out. There will always be people trying to get rich quick and by taking excessive risk; my proposal/plan would only ensure that future bubbles were minimal, to help responsible people be able to afford a house.