Possible timeline for next 7 years' real estate market

1) First stage: From 2006 to 2007, builders got hammered first. Massive investers or flippers dumped their signed contracts and walked away, their deposit got forfeited by the builders. But builders got a huge inventory of fully finished new houses with no buyers. It has taken them a full year to try to liquidate them. This process is now more than half-way done. It may take until early 2008 to fully liquidate them, completing the process. That means if you want to get the best deals from new home builders, next 6 to 8 months may be your last chance. Once builders are done liquidating the inventories, a few builders may get bankrupted, majority will scale back from building any new houses. They only dig dirt when they have a sales contract. If they don't have to build new houses, they can delay and avoid liabilities. The crisis for them may be over by end of 2008, at least on the inventory front.

2) Like cultslate said, Subprime reset may culminate till end of 2008, therefore, foreclosures, REOs and short sales may continue to worsen till early 2009. By that time, in individual locations, 50-60% off 2005 price may be common for REO properties. But will investors go to pick these bargains at that time? Some will do, but I don't think the majority will do. Investors are human's too. They get spooked real hard by that time. Therefore, 2009 may be the best year to find true bargains without much competition. I hope investors will have jobs by then to act on them, rather than spending time on writing resumes.

3) After 2009, I don't think the market will recover quickly. The market by then will have already affected the whole pricing structure, knocking down the price by 20-30% from today's level depending on which market is concerned. The true recovery may not happen until 2013. However, all the subprime related mess like foreclosures, bank REOs or short sales may become history. Don't think you may get the best price from bank at that time, banks will have taken care of all their troubles, few discounts may be left. You might have to buy the market price, not REO price.

4) If market starts to recover by 2013, it's a full 7 year painful journey. But if that's the case, then it's a very normal housing boom->bust->boom cycle. I've seen it last time. This is just my speculation, not even a prediction. So, don't blame me if it doesn't happen like that :-)