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What can we expect for 2010? Let’s review the stats (2009 numbers are up-to-this-morning):

Even though we’ve had 20% fewer listings this year, detached closed sales have already surpassed last year’s total. It looks like the intensity is rising, but is it? We saw on video a bunch of high-enders get marked pending recently, has the whole market been cooking?

Here are the number of detached homes that were marked pending each month:

This month’s decline of new pendings could have been due to buyers rushing to buy in the previous months due to the tax credit, or just sheer exhaustion of seeing few deals and lots of junk all year.  Plus, 92% of this month’s new pendings are still pending, where most of the previous months have already closed.  The final tally for December is likely to be under 900.

While there’s been a flurry of activity since the first quarter of 2009, it looks like we lost some momentum right here at the end.  But if there were more good homes for sale at attractive prices, sales would be better.  The latest tsunami warning from B of A is to expect an upsurge in REO listings around April 1st, which will likely be another cruel April Fool’s Day joke. As long as the inventory is restrained, the market’s urgency is likely to stay like we’ve been seeing it – full of frustration and anxiety!

From the emailbag:

I’m still confused why you said you think the real estate market is going to take off like a rocket in 2010.  Was this sarcasm, or did I miss something in the video?  And why do you think we had this run up over the last few months in home prices (at least I seem to feel like RB and 4sranch homes went up about 10% from the bottom).

There is heightened anxiety these days among those who are actively pursuing a home purchase. 

They are seeing the good buys receive multiple offers right away, and get bid up over list price.  Yet there are more bank deals appearing, which could mean that prices will go down too.

What will happen in 2010?

The main event from where I’m standing is that we’re not just seeing crack houses and mold farms getting foreclosed – there are some good-looking bank deals at attractive pricing.

For the buyers who have been making offers all year and still haven’t bought one, the market seems to get better and better, yet more elusive at the same time.

How buyers manage their expectations/emotions vs. increasing bank inventory will determine the market for next year and beyond. 

Will buyers bid up every decent bank deal in sight, or cool off if the flood begins?

Here’s more evidence for your consideration:

Over the weekend I was discussing with a new client my outlook for 2010.

He said that in person I sounded more optimistic about the market than on the blog, and I agreed.  Some is due to trying to provide all evidence and let you decide, but more is due to recent activity.

Watch this youtube, and you’ll see reasons why I think the local real estate market is going to take off like a rocket in 2010:

Here is a report on the seller-assisted down payments, where the seller donates an amount of money (equal to the buyer’s down payment) to a “non-profit entity”, who then gifts it to the borrower. 

From NMN:

WASHINGTON-It was well known inside HUD that a special program where nonprofit housing groups arranged downpayments for low-income homebuyers was bad news for the Federal Housing Administration mortgage insurance fund. Department of Housing and Urban Development officials tried to stop the seller-funded downpayment assistance program several times over the past decade – only to be blocked by the courts or supporters in Congress.

The homebuyer assistance program allowed sellers to fund the downpayment and then turn around and inflate the home price to recoup the expense. The seller also paid a fee to the nonprofit for qualifying buyers and arranging the transactions. HUD saw it as a scam, though the DPA providers denied it.

It was well documented that DPA buyers generally paid too much for the properties and ended up in high LTV loans that were generally three times more likely to default than other FHA single-family loans.

And default they did. The latest FHA actuarial report calculates the damage the seller-funded downpayment program inflicted on the FHA Mutual Mortgage Insurance Fund with startling findings. If the government had never endorsed SFDP loans, the economic value of the fund would be $13.2 billion as of Sept. 30 – instead of $3.6 billion – a difference of almost $10 billion. In other words, FHA would be in much stronger financial shape today.

The government began insuring SFDP loans in 1998. Over the years the program grew steadily, accounting for nearly 20% of coverage from fiscal 2004 through fiscal 2008.

Congress finally banned seller-funded downpayments and FHA stopped insuring the loans on Oct. 1, 2008.

“On the positive side, following the elimination of this type of high-risk loan … the performance of the FY 2009 and future FHA books of business will be much improved over what would have been the case if these loans were still being endorsed in significant amounts,” the actuarial report says.

The actuarial report also points out that credit scores on FHA single-family loans have improved recently. The average FICO score in September hit 689, up 10% from September 2007.

Lenders originated a record $328 billion in FHA loans in FY 2009 and 44% of the loans have FICO scores above 680 and only 13% have FICO scores below 620, generally considered subprime. In FY 2007, when FHA endorsements totaled $55.5 billion, only 19% of the loans had FICO scores above 680 and 47% of the loans had FICO scores below 620.

“The improved credit quality of FHA’s recent originations debunks the myth that FHA is being overrun by subprime loans,” said Brian Chappelle, a mortgage banking consultant in Washington. The founding partner of Potomac Partners noted that loans with FICO scores above 680 perform four times better than loans with FICO scores below 620.

FHA still has $30.7 billion in reserves (and set-asides of $27.1 billion) – but that’s after auditors made a $4.9 billion positive adjustment in recognition of the improved credit quality for FHA’s current originations.

“No one can dispute that FHA defaults are increasing. However, the cause is the worst housing market since the Great Depression and not that FHA is insuring poor quality loans,” said Mr. Chappelle.

Back in 2000-2001, there were some of us long-time real estate people that thought we were due for a downturn.  Historically the market ran its full cycle every ten years, and 1990 was the previous peak.

But thanks mostly to the 1997 rule that allowed homeowners to be exempt from capital gains’ tax on their first $500,000 of profit (if they had lived there two out of the last five years), the market kept rolling.

The mortgage industry, led by Countrywide, started pushing the more exotic loan programs, first the interest-only in the 2001-2003 era, then the option ARMs from 2003-2005.  This extended the euphoria, beyond its normal life expectancy.

Yesterday’s graph by IHS Global Insight showed the ‘normalized value’ line continuing straight up, without any natural downturn/correction. 

But the market was already getting overheated by 1999 or 2000 just due to the amateur speculators who were empowered by the 2-out-of-5 rule, and by year 2000 they were already onto their second flip.

A ‘normalized value’ estimation should include what should have been some sort of downturn early in the decade – this chart has an additional red line to approximate what might have been normal, if it weren’t for the wacky chain of events that artificially spurred the market.

Now that their prices have dropped substantially, Oceanside has been on a good run this year. There wasn’t an unusual drop-off in sales during the 4th quarter either, despite the grim economic news.

I calculated the averages from the last thirteen years, and compared to 2008’s numbers – look how steady it is in Oceanside:

Oceanside, CA 92054, 92056, 92057, 92058

Not only are the number of sales above average, the pricing is back in line historically too. Here are other signs that Oceanside’s market is finding equilibrium:

575 Actives / 277 Pendings = 2.08 to 1 ratio (2:1 considered the healthiest market)

46 closings since Dec. 15th = $200/sf (right in line with quarterly average)

25 of 46 closings sold over list price.

No matter how you slice it, Oceanside’s market looks good. How does pricing compare to the peak?

The dollars-per-sf average declined 37%, which sounds about right. We know there have been some houses selling for 50% to 60% off peak pricing, and there had to be some at 25% off too.

I think it’s safe to say that if other areas experienced the same, their sales would be cooking too. If all it takes is a 37% decline from the peak to get Oceanside back to frenzy-like statistics, how far off is your area?

There aren’t any of the prime coastal areas that are approaching -37% yet, and probably why their sales are more sluggish. Yet you can verify with any buyer in Vista or So. San Marcos that the market is active with lookers, and we’ll see if they turn into buyers.

But wouldn’t they perform better than Oceanside? The Big O probably had more subprime loans than all of these other areas combined, but all that did was exacerbate their price decline.

Will the other areas follow?

If you feel that all areas will decline approximately the same, then you have the chart above to guide you as to how much further your area has to go.

If you thought that there should be a premium added for premium areas, then add some cush to the -37% decline. For instance, Carmel Valley is only showing a 10% drop from peak to 4Q08. If you thought that the supply and demand for CV was strong enough that the -37% expectation should really be more like -20% to -25%, then we’re about half way there.

This is a general statistical overview – I think what is happening more and more is that, as prices get lower, buyers are shifting their focus towards finding a property with all the extras, and one that fits all their needs. Statistically, further declines in pricing are likely to be choppy, because I think there are buyers willing to pay today’s prices if they could just find a really good house.

Fortune Magazine published their list of the 10 worst real estate markets for 2009, and San Diego was ranked #8.

http://money.cnn.com/galleries/2008/fortune/0812/gallery.worst_markets.fortune/8.html

Their sources were Moody’s Economy.com and N.A.R., so take it with a grain of salt.

In fact, take ALL prognostications with a grain of salt.

Today’s buyers are so discerning that they are buying only if they find a great house at a great price, and you can’t blame them. But if we saw a trend of closed sales that demonstrated ONLY ONE of those two, it could be a sign that the market is heating up.

In other words, if you saw a bunch of inferior homes close escrow, then you can figure that pressure might be building on the buyer side of the equation.

So keep an eye out for those quirky properties selling. If there is ever going to be some market stability, that’s one place where you could see it beginning.

Here’s an example of one that went pending this week, after 191 days on the market. It is 2,091sf listed on the range $718,888 to $748,888 (original list price $768,888):

You could say that selecting this property was cherry-picking, and of course it hasn’t closed yet either. Another house was mentioned in the beginning of the video on Sago in Carlsbad that has already fallen out of escrow, so we won’t belive it until we see ‘em closed.

If you are looking for a sign that the market might be improving, keep an eye on the eventual closed sales prices on those that seem like the ‘lucky pendings’. Later I’ll submit a host of others that went pending in the last 7-10 days that may leave you shaking your head.

How about sales in general?

There were more SD detached closed sales between 12/1 and 12/15 this year compared to 2007, but you can guess that it’s only those properties that are being given away that are closing:

Could the local real estate market heat up in 2009, in spite of the prognosticators? Common sense would say, “Not a chance”, but let’s keep our eyes and ears on the lookout, and see what happens.

Here are other indicators of a market that’s heating up (or not):

1. New listings going pending in the first three days of listing.

2. Properties going pending that have been on the market for a long time (4+ months), and closing.

3. Sales closing at or above list price (but check for possible seller credits).

There are a lot of uncertainties out there, so none of the indicators matters much until it’s a closed escrow.

From the Union-Tribune:

Buyers flock to resales amid glut of new condos

By Lori Weisberg, staff writer

The ubiquitous construction cranes that not long ago pierced the downtown San Diego skyline have largely disappeared, leaving in their wake hundreds of unsold condos that were planned years before the current real estate slump.

Developers who once snapped up downtown land with almost giddy abandon have retreated amid falling prices and low demand. Of the 22 condo buildings in which developers are offering units for sale, all but three have completed construction, and 1,549 condos remain unsold.

It would take more than five years to sell that many condos if the sluggish pace of sales during the past year were to continue, according to MarketPointe Realty Advisors, which tracks the new-home market.

Meanwhile, nearly two dozen additional apartment and condo projects with more than 3,400 housing units have been approved. But none are slated to begin construction anytime soon, according to downtown redevelopment officials.

“Those projects won’t be developed mostly forever,” real estate analyst Gary London predicted. “This market is in lockdown, as well it should be. It needs time to resuscitate. Except for the few cranes in the air, that’s the last you’ll see of them for at least six years.”

The full article:

http://www3.signonsandiego.com/stories/2008/dec/24/1n24downtown235834-downtown-feels-effects-housing-/

from sddt.com

With public opinion going sour on purchasing foreclosures, the housing market will hit bottom in 2009 and begin a slow resurgence in 2010, predict real estate Web site spokesmen from RealtyTrac.com and Trulia.com after releasing new survey data.

JtR: Buyers would have to love foreclosures for the market to bottom out, wouldn’t they?

Pete Flint, CEO and co-founder of Trulia.com, and Rick Sharga, senior vice president of RealtyTrac, spoke during a conference call with media Tuesday morning to reflect on this year’s wave of foreclosure activity across the country and how individuals are responding to it.

The two Web sites’ results from a recent survey show that 80 percent of U.S. adults feel there are negative aspects to purchasing a foreclosed property including fears of hidden costs and the property value decreasing after purchase.

“In terms of the concerns people have, I think they’re well founded,” Sharga said. “It is a little more complicated to buy a property particularly in foreclosure or in short sale than it is to buy a traditional piece of real estate.” 

Only 47 percent of U.S. adults said they would buy a foreclosed home compared to 54 percent six months ago, according to the survey.  “What’s significant about our findings is that just as the market is being flooded with more foreclosures, homebuyers are more hesitant to buy them. Misinformation around foreclosures abounds and that’s dangerous for the market and for homebuyers,” Flint said.

JtR: This statement is unfounded - misinformation abounds? What? Where?  There’s no misinformation with REOs, the only difference is that you don’t get a disclosure statement from the sellers.  Big deal, you shouldn’t trust the sellers’ disclosure anyway.

The result of the perceived risk is three out of four consumers think they should pay at least 25 percent less for a foreclosed home while 30 percent of those surveyed said they should get a 50 percent discount.

In San Diego, one in 244 homes is in foreclosure, according to RealtyTrac, and both Flint and Sharga said that number is likely to increase in 2009.

JtR: Foreclosures equal 0.4% of total?  OK, I’ll live with that.

According to Credit Suisse (NYSE: CS), a wave of Alt-A loans is scheduled to reset in 2010. However, Sharga said some may reset as early as 2009.  In a report Monday, Fitch Ratings downgraded Alt-A loans and Option ARMs in their Alt-A classification.  It expects average cumulative losses of 2.72, 6.78 and 9.58 percent on vintage Alt-A transactions in 2005, 2006 and 2007, respectively.

As prices continue to slide downward, sales of attached and detached homes in San Diego have been up more than 100 percent as of October, according to statistics from the San Diego Association of Realtors.

However, the increase in sales could cause the market to flatten rather than improve due to an increased number of foreclosures from defaulting Alt-A loans flooding the inventory.

JtR: Huh?  How can increased sales be a bad thing?

Sharga said government actions, foreclosure moratoriums and banks slowing down the foreclosure process have all likely led to a pent up supply of housing resulting in a “horrific” January. 

Though Sharga and Flint’s outlooks were self-described as “gloomy,” Sharga said some areas around the country may have already bottomed out.  “The market situation is going to be very, very much a local one there are parts of the country that have probably more or less bottomed out at this point because they didn’t have the explosive appreciation rates some years back,” he said. “I think the continuing falloff is going to be felt in those harder hit states (like California)… and the recovery there will be a little more problematic.”

from sddt.com

Most speakers at the University of San Diego’s Ninth Annual Residential Real Estate Conference: Outlook 2009 were not optimistic about the coming year, describing the current market as “extremely weak,” a “web of terror” and a “death spiral.”

While speakers touched on the issues in the residential real estate market next year throughout the conference, a panel discussion held at the end of the conference called, “Oh My Gosh, What Next? How You Can Take Advantage of the Opportunities Ahead,” primarily focused on what the market may see in 2009.

Panelists Joseph Anfuso of Florsheim Homes, Anthony Botte of Hearthstone Advisors, Jason Hall of RE/MAX Associates and Michael Schuerman of San Diego Regional Economic Development Corp. agreed that stabilization of a “rational” housing market is key to recovery.  “A rational market would be great,” said Golovato. “‘04 and ‘05 made no sense.”

However, there was some disagreement about when recovery would occur.  Alan Gin said the market might reach a bottom in the latter part of 2009 at the earliest, Anfuso and some of the other panelists said the market might not return to “normal” for some time.

“I come from the opinon that we lived in a fake economy for more than a decade,” Anfuso said. “I would just say we’re in for some trying times, not that you can’t take advantage of them … but you need to splash some cold water on your face and look what’s happening and make your business plans accordingly.” 

Anfuso said creating strategic partnerships and making cuts in one’s business is key to surviving in an economy where people are trying to scramble for market share.

However, not all in attendance said the market is as bad as it seems. Lori Staehling, president of the San Diego Association of Realtors, was in the audience and voiced her opinion on the market during the question and answer session with the panel.  “There are a lot of positives going on and there will be positives that come out of this for our industry,” she said. “Prices are incredible. Interest rates are incredible … and I don’t think anyone who has a fixed rate loan is going to regret it.”

The panel and Staehling agreed that building fees in the city of San Diego are too high for new building to be profitable now that prices have come down from their 2005 peaks to encourage construction.

Hall said it is a positive sign that home sales have increased over the past few months, though the market is currently seeing a seasonal slowdown.