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This article is great news and suggests a bottom now or in the near future — near being, a year or two, not five. I’ve been assuming a bottom before 2010. Even I have to admit that California house selling prices have fallen WAY faster than I had anticipated. I am familiar with Sacramento, so I’ll speak to that.

Sacramento area house prices have fallen to August 2002 levels, down about 37% from peak. Of course, a drop of 37% of peak value wipes out a gain of 60% on the way up.

$220,000 x 1.6 = $320,000
$320,000 x 0.63 = $222,000

My point being, the meteoric collapse of house selling prices around Sacramento at least is steering us to the bottom much sooner than would otherwise be the case. If a bottom came soon, I would not be overwhelmingly surprised. The prices can’t fall forever. At least, I don’t think they can.

You have brought up the single best point why we may be at a bottom and the bottom. With most sub-prime foreclosures in the bag, and with the government pulling out all the stop to bailout the banks, we are at a calm point. A bottom. But we have yet to work through all the Option ARM and Alt-A loans yet, and that could start a new wave of foreclosures.

I’ll add 2 anecdotes to your valid prediction that a bottom can’t come in until we worth through Alt-As and Option ARMs.

The first is: All of the inventory is CLEARLY not on the market. On my way home from Sacramento to Yuba City, a little cowtown north of Sacramento, I stopped in at the “Plumas Lake” development because I had never seen it. In one upscale subdivision by KB home of perhaps 300 homes, I counted 12 homes for sale. But there were another 25 vacant homes with completely burned lawns overgrown with weeds and NO for sale sign. These were all bank owned or jingle mail that the banks haven’t bothered to list or gotten around to listing because repossessed foreclosures are occuring faster than they can process. This is Shadow Inventory.

I can’t possibly know how many other homes in this subdivision were occupied by people who are in default but have not yet been evicted, so they are living their merry lives with nice green lawns until they get a bank’s lock put on their front door.

Still, two out of 3 vacant homes in the subdivision were not yet listed among the MLS homes. So the inventory stated in this article, while perfectly accurate, is still vastly under-reporting the number of vacant homes that need to be sold before we bottom out.

The second anecdote is a study in pure madness...

I was listening to a finacial program today, might have O’Donnel? A woman called in to ask how the new Housing Rescue Bailout might help her save her home. You are not going to believe there are people on earth this stupid.

This woman bought a home with her daugher in 2006 in a nice older part of downtown Sacramento called “Curtis Park”, in the Land Park area of town.

She paid $530,000. The entire 1st loan was Option ARM and the downpayment came from a second on the home. In other words, $0 down, with an Option ARM and a second. Naturally she paid only the minimum required. The house is now worth $450,000. The loan is more than $530,000 since she was not even covering principal. Now that she lost her job from a physical disability, she is wondering if the housing bailout bill will help save her in her $450,000 home with the $550,000 loan that is being serviced ONLY by her daughter’s $60,000 salary.

I laughed until I cried and then I felt like crying in earnest.

These are the types of morons who have no financial sense whatsoever, who are going to drive the next wave of foreclosures and home inventory escalation when the Option ARM and Alt-A loans blow up. They will generate again as many foreclosures as sub-prime did.

This article is not lying about a thing. California home sales are up over last year and stabilizing. But the article completely ignores shadow inventory and the huge wave of defaults to come from Alt-A and Option ARM.

I don’t suppose we are near a bottom, despite the relative affordability of California homes. Sacramento area homes are at August 2002 levels. I expect to see 1999 prices or below by the time we hit bottom after all the Alt-A and Option ARM loan foreclosures are through.

It is not a bad time to buy a California home. I don’t think it will crash from here. I don’t think Sacramento home selling prices will drop another 38%. But they will go down at least 10%. And they could go down 20%. And they should not but may go down 25% if there is a perfect storm of tight credit and massive foreclosures and job layoffs and hits to income.

I don’t see a bottom before 2010 with all this to come. I hope and pray I’m wrong. I really hope this is nearing a bottom and that the numbers of Option ARM and Alt-A loans heading for default is minor.

Good lord, we haven’t even considered the impact of credit card debt or debt on trucks and SUVs that have plunged in street value.