There were a couple of panel discussion this week, one at USD, and the other sponsored by USC.
USD’s Mid-Year Economic Update provided some rather revealing scientific quotes:
“When the history is written, historians and economists will decide Wiley Coyote was really the mascot of the last eight years or so,” he said. “Both in terms of strapping ourselves to the housing rocket to get out of the last recession and unfortunately, Wiley Coyote always ends up in the same place: able to sustain hanging over the cliff as long as he doesn’t look down.”
“I think, out of 10,000 economists, maybe a dozen foresaw this,” he said. “On behalf of all of us, sorry, we were wrong.”
http://www.sddt.com/News/article.cfm?SourceCode=20090611czg
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The USC Marshall School of Business sponsored their Southern California Real Estate Mid-Year Report on Wednesday night. There were several speakers, including J. Bradley Forrester of The ConAm Group, Gregory R. Hillgren, President, CALVEST Realty Advisors, Inc., Gary H. London, President, The London Group Realty Advisors, and John P. Wickenhiser, Senior VP, Wells Fargo Real Estate Group.
Hat tip to T who was in attendance, and filed this report:
1. San Diego has the 2nd lowest vacancy rate in the nation, behind Washington DC. In addition, San Diego was the first to crash and seems to be the first to correct. Keep an eye on San Diego to find out how the rest of the coastal communities (SoCal?) will follow.
2. The 3 panelists who are/were investors, liquidated 75%-80% of their real estate holdings from 2005-2007. They are hesitant to buy, but are definitely looking.
3. The investors are primarily looking at multifamily complexes (apartments). The reason being is that in the 1994 crash, there was a lot of extra space built out and it took a long time to fix the cycle. In preparation for this real estate boom, many builder relied heavily on options that gave them the ability to quickly halt construction. In 2006, that’s exactly what happened and construction has not picked up. In 12 month, construction is expected to pick up slowly with new home/apt phases slowly being introduced in 2011. They all expect the new 18-34 yr olds to have a shortage of rentals and expecting a “landlords” market from 2010-2013 (one guy said it could be 2010-2015 or even 2020 depending on how agressively construction happens).
4. When builders start building residences again (12 months), then lenders will start lending again. Finance should be more available by 2013.
5. One dude (Hillgren) was pretty nervous about how Sacramento is going to take the recession. He is generally worried about what taxation laws will go into effect on real estate investments and would like to figure out Sacramento’s direction before investing again.
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Here’s JtR’s Mid-Year Report:
Demand for housing has been strong all year, and especially since the beginning of March when interest rates dropped under 5%. Mortgage money is readily available to those who qualify under the traditional underwriting guidelines, and prices of homes that are selling are lower than they used to be.
There are major concerns:
1. Buyers are somewhat paralyzed by the anticipation of new bank-owned inventory coming to market in the near future. Yet banks have been very tight, dribbling out new listings little by little. The standoff has kept sales activity lower than it could be, and once listed, any quality REOs should sell just because their price is likely to be attractive.
2. Sellers (and listing agents) who list high and wait for the lucky sale, are faced with diminishing returns. Not only are there very few lucky sales, the longer a house loiters on the market, the chance of it selling plummets. Yet sellers (and their agents) are slow to read the market signals, and many end up not selling, or renting it instead. The likelihood of them being undermined in the near future by more-motivated sellers nearby is extremely high. The seller’s ego wants to chalk it up to, “it wasn’t meant to be”, and most agents do nothing to dissuade them. There will be tough lessons ahead for both. Have the ability to hold out long-term? Great, plan on it.
3. Rising interest rates have the ability to squash any momentum. They have the same effect as rising prices, because buyers will have to pay more to buy the same thing. In this environment, buyers will be reluctant to endure that, and will instead have one more reason to not buy.
4. Divorce is rampant – it is everywhere, creating more supply.
5. The number of long-time owners who are selling is surprising too, far higher than I would have anticipated. it was mentioned here last year that I thought by now that REOs and short sales would be the only homes offered for sale. But there are many long-term equity sellers trying to sell.
6. Will there be enough buyers to soak up the supply? Nobody knows, but I’m looking forward to the second half of the year. If the banks would smarten up and unleash some, or most, of their inventory during the peak selling seasons, I think they be surprised at how many buyers are waiting.
Though the second half of the year should enjoy more sales, the 4Q08 inventory was lacking in quality homes. If all that comes on the market is more junk, the standoff will extend – buyers are focused on both price and quality, and are resistant to compromise on either.
What’s your report?
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