Prices are already plummeting in the Bay Area. I plan on moving back home to the East Bay (Antioch/Brentwood, to be exact) after I separate from the Air Force in the Spring, and I’m licking my lips when I see housing prices. Southern Antioch has the highest foreclosure rate in the country, higher than Stockton (who has the highest city-wide rate), and there are already homes down 40% from their sale prices in 2005 and 2006. This one sold for $750K in September of 2005 and is now listed for $450K. My favorite is this one, sold for $615K 12 months ago and is now on the market for $400K.

Now, East Contra Costa County (primarily Antioch, Brentwood, and Oakley) has always been considered a bedroom community, with residents getting a nice home and the Delta waterway’s recreational amenities at a cheap price, in exchange for a 45-min. to 1/ 1/2 hr. commute to a high-paying job in San Francisco or San Jose. When the housing boom hit, a lot of people sold their dilapidated homes in crime-ridden parts of San Francisco, Oakland, Fremont, Richmond, etc. to flippers and moved out to the exurbs. At the same time, immigrants in the Central Valley discovered that they could buy a home without any documentation (no income, no job or assets — A.K.A NINJA loans) in Antioch/Brentwood/Oakley/Stockton/Tracy, etc. And without documentation, anybody wanting to buy a home is going to have to go sub-prime.

These refugees from bombed-out inner cities and from the poorest region in America (The San Joaquin Valley) were told by the good people at Countrywide and elsewhere that they could simply refi before the rates went up as their equity grew (with housing prices going up): buy a $400,000 home with 0% down, watch it appreciate 25%+ in two years time, and refinance into a conventional 80/20 loan at a low long-term rate. Little did they realize they’d be upside down and bankrupt when the appreciation gravy train stopped.

Since these “sub-primers” were hit first, fringe areas like Antioch and Brentwood are depreciating first — prices are returning to affordable levels of 3 – 4 times your annual income. Now, people higher up the economic ladder who thought they were smart and would (1) get a 3.5% teaser rate on a $1,000,000 home in Pleasanton or San Ramon then (2) use their equity to refi before rates went up are discovering that they can’t refi unless they have 20% in equity. Oops!

So, the 50% reduction has basically already hit the edges of the Bay Area and is creeping inward — and I can’t wait to get a steal on a home. But I don’t think we’ll see a 30 – 50% drop in the more established parts of the Bay Area until all the Baby Boomers retire and downsize or move to Oregon, Arizona, Colorado, or Idaho — most of them have a lot of equity and don’t need to sell right now; but I think this period will hit in the next 5 – 10 years when Boomers born in the mid-1950s (the peak of the Baby Boom) retire. For the generation that has always gotten what it wanted, the bill will come due at retirement.