Real estate prices have been in decline for years.  And we’ve been in an economic recession since December 2007.  Now that the economy has gotten really bad and real estate prices have tumbled to levels unthinkable  a few years ago, the  talk turns to recovery, and housing bargains.

Let me use the stock market as an example that can be applied to real estate prices.  If you remember back in November 2008, the Dow Jones had dropped to around 7500.  And then it staged a recovery, all the way back up to 9000 in January 2009.  But that was not the end of the story.  As you are aware if you watch the news, the Dow Jones has tumbled once again and is now around 6500.

Can a similar thing happen to real estate prices?

Real estate prices have dropped on a nationwide basis by about 19% last year.  Regionally, the damage was much worse.  In bubble states like California and Flordia, some areas are suffering through declines of over 50%.  With prices having fallen so far, and foreclosures becoming a large component of housing sales, many people look at today’s prices as bargains.

Throw in low interest rates and it looks even better.  But wait a minute…

The government is trying to force interest rates to artifically low levels.  Why?  They need people to buy houses to prevent further price drops.

When the spring and summer buying season arrives, many prospective buyers will step up and start looking for homes, assuming that the prices represent bargains.  Combined with historically low rates, these deals will be tempting and could spur demand and cause a bump in prices.  This is where I want to compare to the stock market.

Just because prices bump up (if they do at all) does not mean the price bottom has been reached.  Many analysis feel that prices must still drop another 20%.  There is a potential avalanche of foreclosures still looming as property values decline and homeowners come under pressure from cut-backs in their work hours or salaries, job loss, and resets on their mortgages.

In Long Beach California and all across the South Bay area, there are pockets where home prices have been slashed and other areas where the decline has been much less severe.  I foresee more trouble ahead for the economy and think that housing prices are still on the verge of another step down.