How Much More Will Prices Fall?

Guest-host Leonard Baron, a real estate professor at San Diego State University and principal of LPB Services, a real estate consulting firm, tackles your real estate questions today as part of Savvy & Sage: Buying and Selling in 2009.

Reader SM sent in a note about a short sale he’s about to buy for $500,000. It previously sold for $780,000 in May 2006 — a 36 percent decline in value from the peak. Here’s SM‘s question:

Here is some info I have on a house I’m about to purchase. If you could run it by the Prof. and see how much more he thinks the numbers on this house will fall based on his understanding of what ‘s going to happen.

Hi SM,

I cannot predict price changes, but there are a few specific areas of town that are of concern to me. In these areas there is relatively high vacancy, near 10 percent, and massive amounts of foreclosures. They are typically newly built neighborhoods where almost all the houses are underwater on their current market value vs. loans – not the long settled older areas which comprise the vast majority of San Diego properties.

But I would ask this, when you drive around the neighborhood where the property is located — are there a lot of homes for sale? Are there a lot of “for rent” signs? Are there a lot of vacant properties? How do the comparable homes in the area that recently sold compare to the one you would like to purchase? And also, does this home fit what you are looking for in a home? It is tough to find the “right” home that is a very good match for the buyer.