Reader ‘Native sd’ asked,

What do you think the appreciation will look like as we plateau?  Given 21% yoy in sd, half of that or 10% in the next 12 months and halved again or 5% for the 12 months after that or a steeper drop off?  Also zillow not only had their zestimate but also their appreciation forecast.  How accurate do you think their forecast is?

We did the same frenzy-to-plateau at the end of Summer, 2004.  Countrywide had kept the market pumping with interest-only loans, and when the market began to stall, they rolled out their toxic neg-am mortgages. Later they just went to no-doc, FICO-only qualifying, and squeezed out another 2-3 years worth of business, while the median sales price levitated between $450,000 and $500,000:

US Median Sale Price

I don’t think the increase is going to continue this time, and predict that the SD median price will stay in a range of $400,000 to $425,000.

In other words, not much appreciation for the next 12-18 months.

Why will pricing slow down? We’re overdue for more inventory.

The one constant in all markets, good or bad, is that sellers hold out for top dollar. Now that prices are stagnating, sellers who decided to wait for more money are inching closer to the launch button.  Their wives are telling them, “you better not screw it up again, like last time.”

I’m guessing that we will endure a flood of inventory next spring.

A flood?  Why?

Here’s who will be coming to the party:

1.  Banks won’t panic, but there will be more spring in their step.

2.  Flippers will panic, but try to hide it.

3.  Previously-underwater folks.

4.  People who did the loan-mod-for-now program.

5.  Legitimate move-up sell-and-buyers.

6.  Early-stage baby-boomer liquidations.

One factor that might keep a growing inventory in check is that the recent purchasers won’t be involved.  The SF FED touched on it yesterday as a possibility, but those on the ground know it to be a fact – today’s buyers are in for the long haul. There won’t be any panic selling by those who purchased in the last 6-36 months, which should help to temper the impact.

My guess for 2014?  Appreciation will be close to zero around NSDCC.

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