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Yesterday reader jd asked for an opinion:  Given the way our govt. and financial institutions work, how do you see the next 4 to 5 years going in housing (in San Diego)?

I have a big interest in the future, mostly because I intend to turn over this enterprise to the kids.

The government intervention hasn’t worked much, and I don’t think there is anything left to try – at least anything that will get passed by Congress.  Between them and the banks, they might come up with one more watered-down proposal to grab votes this year, but that should be the end.

We as a society have become numb to the intervention – and now ignore it.  Yes, the low mortgage rates are enticing, but once you see the low inventory and analyze all the other reasons not to buy, the ultra-low rates are a sideshow.  You have to find a house to buy before they serve any benefit.

I think we’re going to see a new phase develop this year around San Diego:

Because the inventory is so tight, recent comparable sales are hard to come by.  All participants will be increasingly reliant on their experience, and have only sketchy data to back it up.  As a result, sone buyers will overpay – or at least so it’ll seem.  But they become the next comp that future buyers, sellers, and agents will try to digest as real or not real.

In some of the hotter neighborhoods, this will lead to a flurry of sales that build to a crescendo – and voila, we’ll see 10% appreciation or so over a six month period.  But it will be short-lived, because the pent-up supply will flood the market, and thwart any momentum.

The end result?

For the next few years we’ll see dramatic swings in pricing – with wild rollercoaster rides up and down.  It will be even more exaggerated by the greedy sellers who won’t be happy with 10% more, they’ll lop another 5% to 10% on top of that, only to be disappointed – though they caused their own demise.

Other things you can count on over the next few years:

1.  Lousy, inaccurate generalized data being spewed forth as reliable truth.

2.  A growing group of uninformed, ill-equipped realtors – which is already the majority.

3.  The big corporate residential real estate companies get out of the business, as agents flock to smaller boutique firms with better commission splits.  The corporate guys have no way to compete, unless they cut mid-and-upper management.

4.  Rampant short-sale fraud that tempers any pricing upswings.

5.  More upstart internet gizmos.

Things we could really use:

1. Either realtor.com revamps and takes charge, Redfin takes over, or a new real estate portal that focuses on what the consumer comes in and crushes all competitors.  This is the big game-changer that would define the future of realtors, and the role we play.

2.  Rules and regulations – or just some uniform guidance on how to handle short sales, multiple offers, exposing a new listing to the market, showings, etc.  Currently it is the wild, wild west.

3.  I think financing availability is fine the way it is, if any new lenders want to take a chance on riskier underwriting, go ahead.  A good indicator to watch – if you see it happening, it’ll bring in more amateur buyers and agents.

4.  Transparency would really benefit from a realtor feedback website, with sales history.

5.  I think the real estate bust and re-defined who everyone looks at housing, but it doesn’t make the future any more certain – probably less.  Those who have learned the most lessons are those likely to stay out of the game, so it’ll be the lesser-schooled who make the market.

What do you think?

Click here: Realtor survey  – scroll down to page 14 for comments from agents about the market.

Here are the garphs from page 10 - the realtors surveyed say that most homes sold have languished on the market for more than three months - which shows how bad realtors are with pricing correctly:

An excerpt from Yun – he is trying to bully the mortgage industry into making riskier loans:

Consider the following loan performance after one year from the time of origination on Fannie Mae and Freddie Mac backed mortgages.

Loan default rates were 0.3 to 0.4 percent in the more “normal” housing years of 2002 and 2003 – before the housing boom, before all those exotic mortgage products (subprime, no-doc loans) and well before the developments of any housing bubble. In the immediate years after the bubble burst – 2007 and 2008 – default rates rose to 2 and 3 percent.

Now examine the performance for those loans originated in 2009 and 2010.

The default rates came in at 0.1 and 0.2 percent after one year of seasoning. Those are exceptionally low figures – in fact, even lower than those for the normal housing years. The data for 2011 is not yet available, but several indications point towards possibly an even better loan performance than we saw in 2009 and 2010. While the headline mortgage default data are driven by the souring loans from the bubble years, the default rates among recent borrowers have been at historic lows.

Banks and the regulators need to understand this important distinction and permit more loans to flow into the market.

My estimation based on credit scores of those who are being approved for mortgages today vs. those who were approved 10 years ago suggests that home sales could easily rise by 15 to 20 percent if the underwriting standards were to go back to normal.

That would be a sizable gain in home sales and would result in a commensurate decline in inventory. A decline in inventory and increased sales would help bolster home price appreciation. If underwriting standards return to normal, the housing market will approach a more normal state as well.

A normal housing market would help fuel a continuing economic recovery, help bolster household wealth, spur consumer spending, spawn more job creation (thus providing more fuel to the economy). It would, in effect, be a win-win situation. This is what we aim for. This is what we hope for. This is what NAR continues to work towards for its members and America’s homeowners.

From Lawrence Yun, NAR economist – I just want to have this on record:

I participate in the Blue Chip Consensus forecast with around 50 other economists representing organizations such as FedEx, Dupont, Ford Motors, the U.S. Chamber of Commerce, Wells Fargo, Bank of Tokyo, Swiss Re, and UCLA. This forecast is often mentioned by the Congressional Budget Office, Administrations, and various politicians to say that their outlook is (or was) not too much different from the private sector forecasts.

Forecasting can be a hazardous sport at times. Interestingly though, this Blue Chip average consensus forecast value generally tends to be more accurate than any individual economist’s forecast over the long run. That is to say, it is better trust the consensus forecast more so than an individual economist’s forecast.

So, what is the Blue Chip consensus saying about the bottoming of home values? In the latest January issue, a solid majority of economists said the Case-Shiller home price index will finally bottom in 2012.

The exact phrasing of the question and the response tally are below:

Technically, if counting the small decimal point, the price may in fact bottom out in 2012. But as the graph below shows, for all practical purposes it looks as if home prices started to stabilize from 2009 onward. Of course, there will be local market differences (with markets like Washington, D.C. showing price gains while Las Vegas is showing price declines). It is therefore not surprising that mortgage loans originating from 2009 on show exceptionally low default rates.

From the latimes.com:

The mortgage market told a sad story throughout 2011: record low rates, but few people taking advantage of them to buy homes.

The likely scenario in the new year, according to many analysts, is more of the same. Although the Federal Reserve has pledged to keep rates low through 2013, the experts say high unemployment and home prices that are still falling in many areas provide little incentive for stressed-out consumers to surge back into the housing market.

“I think there may be a little bit of an uptick in units sold,” said Doug Duncan, vice president and chief economist at mortgage finance giant Fannie Mae. “But home prices will probably be down again, so the total dollars spent on purchases is likely to be pretty close” to 2011.

Freddie Mac, the other big government-backed mortgage company, had predicted two years ago that lenders would write $1.8 trillion in home loans in 2011. They later revised that estimate to just over $1 trillion.

In the end, home lending last year totaled $1.3 trillion, down from $1.7 trillion in 2010 and an all-time high of nearly $3.3 trillion in 2005.

Last year’s better-than-expected finish had nothing to do with home purchases. Instead, a decline in 30-year fixed mortgage rates to historic lows of less than 4% triggered a massive wave of refinancings.

Read the rest of this entry »

I made this statement at the end of 2010:

The average cost-per-sf for detached sales in SD County rose 9% in 2010. I think it’ll increase another 9% in 2011, fueled by the red-hot lower price ranges. But sales will struggle, possibly 20% fewer sales overall, because buyers will want to hold out for the best. The bar is rising on what buyers are willing to tolerate, but they’ll spend the money on a top-quality house.

I’m not sure where I got the 9% YOY increase in 2010, because looking at the detached MLS stats below, the average cost-per-sf change between 2009 and 2010 was only +7.4%.

The year-over-year change in the average cost-per-sf between 2010 and 2011 went DOWN 4.5%, not up. Maybe that had something to do with the 2011 sales actually increasing slightly over 2010.

Our focus is on selling detached homes between La Jolla and Carlsbad.

How did North San Diego County Coastal do?

Changes of 1% or 2% can be considered noise, and they reflect that the NSDCC market has been flat for the last two years. Sales are holding their own, thanks to the low rates and just enough decent listings.

What is JtR’s prediction for 2012 around NSDCC?

There were 188 REO listings and 275 short-sales closed in 2011, or about 18% of the overall sales. Short-sellers should abound, due to the expiration of the tax exemption on debt relief at the end of the year, because if it is extended it probably won’t happen until the last minute. There will probably be commotion around the election and politics, but it won’t stop buyers from grabbing the deals.

My 2012 guess: NSDCC detached sales +10%, and their avg. cost-per-sf drops 5% from 2011.

What is your prediction?

Happy New Year!

Will 2012 get off to a fast start? It is somewhat predictable, let’s consider some data.

The quarterly detached sales in NSDCC:

The first half sales have been stronger the last two years, but it’s probably due more to the improvement we’ve had since March 2009 in both housing and the stock market.

Will we have 500 sales in the first quarter of 2012?

Let’s review the categories to estimate:

1. The MLS shows that are 275 listings in the pending category, and 187 of those were marked pending on December 13th or prior, so they are beyond their 17-day contingency period and pretty likely to close. Let’s say 170 will close in 1Q12. Of the other 88, let’s say half will close, or 44.

2. There are 119 listings marked contingent, but they tend to be flaky, and drawn out. Let’s say only 50 of those will close in 1Q12.

3. There are currently 1,100 active listings – how many will close in 1Q12? They are a picked-over bunch, so they will have to be lowering their price aggressively to get back in the game – but how many sellers will resist, thinking that the spring selling season is just around the corner? Plenty, so let’s say only 10%, or 110, will close in the first quarter.

4. There were 137 listings that closed in 1Q11 that also listed in 1Q11 – they weren’t messing around. Coincidentally, there were 136 like that in 2010, so let’s use 137 for 2012.

170 + 44 + 50 + 110 + 137 = 511 estimated sales in the first quarter of 2012.

I think 511 sales in the first quarter is conservative. With 30-year mortgage rates averaging under 4%, the market is ripe for a quick start – it will take a boatload of stubborness of behalf of sellers for us not to sell more NSDCC houses this quarter, than in recent years.

But that seller stubborness is certainly possible!

From HW:

The National Association of Realtors is in the midst of revising its core home price index. While the move may be a concern to some, fellow HPI service Zillow said it isn’t affected by the revisions.

“NAR’s rebenchmarking is not impacting Zillow at all,” said Zillow Chief Economist Stan Humphries. “We look at closed sales from public records. NAR is a survey. We’ve never used NAR’s numbers for our analytics.”

NAR is currently revising downward its index in what it labels a normal rebenchmarking process. Humphries said Zillow requires no such revisions and stands by his firm’s numbers.

The economist also denies the Zillow numbers, what it calls Zestimates, look at housing through rose-tinted glasses. Zillow calls May 2007 the peak of the housing boom. Since then prices collapsed 23.7%.

Other home price indices are more severe than Zillow’s. CoreLogic calls the peak in April 2006 and accounts for a 32% decline. Lender Processing Services calls the peak in June 2006, with a 30.2% decline.

(JtR’s prediction from September, 2006 here)

Zillow’s numbers follow 83 million homes in about 2,500 counties nationwide, Humphries said, but aren’t as harsh as other HPIs for one simple reason: they don’t include distressed properties.

Read the rest of this entry »

From the sddt.com:

 The nation’s economy is five years into a 10-year recovery cycle, according to Douglas Duncan, Fannie Mae chief economist and vice president.

National housing prices have another 3 percent left to fall, excluding distressed sales, and could fall another 7 percent altogether, he said, speaking at the annual real estate conference held by the University of San Diego’s Burnham-Moores Center for Real Estate.

The housing market’s problem is too much supply, much of which is comprised of distressed properties, and too little demand. The lack of demand is driven not only by the nation’s stubbornly high unemployment rate, but also the lack of movement in wages of those that are employed.

Together, those factors have influenced on-the-fence buyers to decide there’s no motivation to move right now, while others aren’t in a position to enter the market in the first place.

In addition to the 8.6 percent of the population that’s currently unemployed, there’s another 26 percent who fear for their job security, according to a survey conducted by Fannie Mae, cited by Duncan. That means more than a third of the country is unsure of their immediate earnings prospects.

“Employment is the most important factor in my belief system in how you understand real estate,” he said.

Read the rest of this entry »

Does seeing articles like this cause buyers to get in the game? From Albert Bozzo at cnbc.com:

After half a decade of withering sales and slumping prices, there are strong and diverse signs that the single-family housing market is poised for a rebound.

In some metropolitan areas, the market has bottomed, with both sales and prices on the rise and foreclosures on the decline.

This contrarian — and largely overlooked — thesis flies in the face of the persistent gloom that has nagged the industry since 2007, when the subprime crisis flared.

Industry analysts and players cite a number of reasons — some traditional (employment), others unique to the post-credit bubble era (foreclosures)  — for the long-awaited sea change. An analysis of industry and government data also support the forecast.

Proponents admit that the nascent rebound could easily be derailed, but stress that after years of government efforts to support sales and prices as well as the volatile impact of foreclosures, the market has regained a measure of normalcy.

Read the rest of this entry »

Excerpted from cnbc.com:

Diana:  Anecdotally, I was doing a report on a residential street in Northwest DC last week, an area that is still holding its own and didn’t lose much in the housing crash. I was standing in front of a “For Sale” sign, when the Realtor from the sign came out of the house. She wanted to know what we were saying about the neighborhood, concerned of course that there were any signs of cracking. I assured her there were not, but asked about the house she was selling.

The Realtor told me it was actually under contract, after about 35 days on the market. I asked why there was no “under contract” sign, which used to be so commonplace before the “sold” sign goes up. She said they hadn’t had the inspection yet, although the house looked, at least from the outside, to be in very good condition. When I asked if she worried about that, her answer was, “You never know these days.” Apparently the jitters are widespread, even in one of the nation’s most secure housing markets.

With so much of the current housing market comprised of distressed property sales, and with the Realtors unable to capture so much of that share in their data, uncertainty is certainly understandable if not mandated. I read a report today citing Barclay’s analyst Stephen Kim of Barclays Capital, who is upgrading builders and raising price targets on the premise that we will see a housing “rebound” in 2012.

 I read a report today citing Barclay’s analyst Stephen Kim of Barclays Capital, who is upgrading builders and raising price targets on the premise that we will see a housing “rebound” in 2012.

“In the absence of a government homebuyer incentive, prices for non-distressed home sales have stabilized for almost a year. In our opinion, this is the most important trend in the housing industry right now,” notes Kim. “We are amazed at how little attention it has been getting from the media and the Street. This stability on the part of non-distressed prices has occurred despite a very high share of distressed activity and continued declines in overall prices.”

I’m not sure where he’s getting that stabilization. CoreLogic reported home prices in September, excluding distressed sales, fell 1.1 percent in September. Their chief economist Mark Fleming cites a supply and demand imbalance and adds, “Distressed sales remain a significant share of homes that do sell and are driving home prices overall.”

We obviously have to be very careful reading today’s housing market tea leaves. There are so many different indicators and so many different entities reporting these indicators, that it’s often hard to find out what’s really going on.

That’s why I always go back to the Realtors on the front lines. They are telling us that this market, distressed or not, is skittish and undependable. A 20 percent cancellation rate for existing sales is shocking and does not suggest a rebound on the horizon. At best, I’m looking for simple stabilization.

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JtR: Skittish and undependable are qualities included in ‘stabilization’. 

When there are fewer sales to begin with, and wider variety in the quality of what’s selling; there are going to be hot spots – and low spots.

I don’t think Diana or others in the mainstream media are open to seeing the hot spots.  They focus on national stats – even though about a month ago she did an aboutface and suggested that the only stats that matter are local.  But since it has been more of the national blend.

She says she “always goes back to the realtors on the front lines”.  She did in this case and her interpretation of what she heard seems biased.  Not that my fellow agents are that adept at judging actual market conditions, but let’s see how many times Diana quotes a local realtor in 2012.