bubbleinfo.com

Here’s another real estate forecast from prominent financial advisor:

Hat tip to Mr. T for sending in this article from money.cnn.com:

Last year the economic forecasting firm Fiserv predicted that home values would sink around 5% in 2011, and that prices in three-quarters of the nation’s major metro areas would fall. The bad news is, the firm wasn’t that far off the mark.

The good news: In the coming year, Fiserv thinks 95% of the 384 metro areas it tracks will see prices rise.

Don’t expect the market to move much beyond first gear, though. The median expectation among more than 100 economists and real estate pros surveyed by MacroMarkets is that home values will inch ahead by a mere 0.25%, compared to their 2011 median forecast decline of 2.8%. They also foresee annualized gains through 2015 of just 1.1%, as the real estate market slowly works its way through a mountain of foreclosures.

Those foreclosures will continue to weigh on the market. According to Core- Logic, there are 5.4 million homes that are for sale or part of the market’s “shadow inventory” — which includes bank-owned properties, homes in the foreclosure pipeline that haven’t hit the market yet, or properties where owners are seriously behind on payments.

To put that in perspective, Freddie Mac forecasts that only 4.8 million homes will be purchased in all of 2012. A market with six months of inventory is considered healthy. That there’s more than a year’s worth of housing stock now tells you what a tough slog this will still be. “It’s analogous to a flood,” says Mark Fleming, CoreLogic’s chief economist. “The water is very deep in the living room, but it’s no longer getting deeper and is starting to recede.

Helping that process along will be low-interest-rate mortgages that are expected to remain cheap. Jay Brinkmann, chief economist at the Mortgage Bankers Association, says the 4.2% rate on a 30-year fixed rate in late October might not last long. Still, he expects the 30-year fixed mortgage rate to stay below 5% throughout 2012.

Buyers: Downsize the dream.  For those gearing up to make a purchase, 2012 could be a great opportunity, what with cheap prices, low borrowing rates, and little competition among prospective bidders.

Before you take the plunge, remember that the price you pay matters, as does your ability to easily resell that home down the road.

This means it’s best to focus on smaller properties in your area near restaurants and retail. McMansions of at least 2,600 square feet, which were the ideal in the boom years, are coveted by a mere 18% of households today, according to a recent survey by Trulia. And that figure could fall even more.

A separate survey by the National Association of Home Builders found that home-construction firms expect U.S. houses to average 2,152 square feet in 2015 — down 10% from last year.

Some of this is attributable to the lingering effects of the past recession, which has eaten into housing budgets. But there’s also a permanent change at play. “Baby boomers are trading down. They don’t need the McMansion, and they don’t want to drive as much,” says Trulia chief economist Jed Kolko.

Sellers: Price it right. The longer you can wait for prices to stabilize in your area and for demand to pick up, the less likely you’ll need to entertain low-ball offers. If you have to make a move in 2012, though, the trick will be to price your home correctly out of the gate.

According to a recent national survey of real estate agents, 75% of homeowners believe their house is worth more than what agents put the fair market value at, and nearly one in two homeowners still overestimate their home’s value by more than 10%.

Meanwhile, Trulia reports that about one in four homes in its database has gone through at least one price reduction, and the average price cut for those homes is 8%.

Joe Magdziarz, president of the Appraisal Institute, says you and your agent should stick with comparable sales data just within the past 90 days, as that’s what lenders expect appraisers to use.

If you don’t trust your agent’s recommendation, shell out $300 to $400 for an outside appraisal. That will be money well spent if it pushes you to list your home in sync with current market valuations and you sell faster.

Owners: Shorten your loan. Refinancing your old mortgage to a new fixed-rate loan could have you smiling for years to come. If there’s any chance you can refinance into a 15-year loan, go for it; the 3.45% rate in late October was near an all-time low. On a $250,000 mortgage, going from a 30-year mortgage at 4.2% to a 15-year loan charging 3.45% would save you $120,000 in interest over the life of the loan.

What if the added $560 monthly payment is too steep to handle? Shop for a 20-year loan. The rate is likely to be only slightly less than on a 30-year loan, but the faster payback will save you in the long run.

Just another old beater in Carlsbad, but price is attractive if you need the space:

From dailyfinance.com:

By the end of the year, financial-services-technology firm Fiserv expects housing prices to stabilize in two-thirds of metropolitan areas, according to the latest analysis of home prices in 380 U.S. markets – based on the Fiserv Case-Shiller Indexes, released Tuesday.  That number will increase to 95% of all metro areas by the first quarter of 2013. 

“Relative to family income levels, the average U.S. home is now only 5% more expensive than it was in 2000″, said David Stiff, Fiserv’s chief economist.

He added that Monday’s S&P downgrade of Fannie Mae and Freddie Mac could hurt consumer confidence, but ‘the resurgent demand for Treasuries could cancel out’ the downgrade.

During the next two years, Fiserv projects that these markets will see the biggest price increases: Tacoma, WA (24.9%), Palm Bay, FL (18.3%), Seattle (10.2%), Tucson (10.2%), and Memphis (10%).

The company also expects prices to grow in areas such as Washington D.C., San Diego, and the San Francisco Bay Area, where strong labor markets and desirable geography will prompt home buyers to get in at low prices. 

Hat tip to Kwaping for sending this along from the U-T:

With a roiling stock market and stagnant housing market, it may seem premature to think about another boom and how to cope with a potential housing shortage in San Diego County.

But that’s what area builders of for-sale and for-rent homes are talking about.

The concern is that supply will lag behind demand and lead to low vacancies and spikes in prices and rents.

Alan Nevin, vice president at MarketPointe Realty Advisors, a consulting company to the industry, says a shortage already exists in apartments, as evidenced by a 4.1 percent vacancy rate recently reported, and a looming shortage in for-sale homes in three to five years once renters with good credit want to buy.

“If we continue to grow 15,000 to 20,000 jobs a year in the private sector, I think we will definitely result in a shortage,” Nevin said. “There will be an imbalance between supply and demand, and that will gradually drag up prices, and most of that increase will come at the bottom end of the market, starter homes.”

The area has been losing jobs in recent years, but SANDAG projects a growing job market over the next few years.

The solution to shortages in the past has been to:

• Speed up development in master-planned communities;
• Sprawl out to southern Riverside County, Imperial County and even into Mexico;
• Liberalize building regulations and lighten up on developer fees to stimulate production.

But Nevin said the conditions have changed and some of these actions aren’t feasible. The result, he fears, is a reduction in homeownership — going from the present about 55 percent to 45 percent. The national rate has tended to be two-thirds owners, one-third renters.

“To me, that’s sad,” he said, but he doesn’t think Generations X or Y will lose the American dream of ownership once they start families and pine for a home of their own.

On the other side of the debate are the demographers at the San Diego Association of Governments. Chief economist Marney Cox said a shortage of for-sale homes is not likely “because prices will be too high to afford.”

He agrees with Nevin that San Diego is headed toward a renter society and points to large urban areas like New York, where less than a third of residents are owners. He figures even fewer than 45 percent of households will be homeowners.

But to handle that shift, he said, more land will have to be zoned for apartments.

“That’s where the change has to occur,” he said.

No one knows what will emerge from the economic storms. SANDAG simply tries to look at the long term and ignore monthly gyrations.

But already, their projections are off-kilter. Their current draft of 2050 population projections indicate that 7,822 dwelling units will be approved by local jurisdictions this year. But for the first six months of the year, only 2,977 have been authorized, according to the Construction Industry Real Estate Board. Even if that pace continues in the second half of the year, which history shows usually doesn’t happen, the 5,954 total would be 23.9 percent below expectations. Next year’s projection of 10,298 homes could only result if there is a sudden burst of job growth and economic recovery.

“When we forecast average growth that’s going to occur,” says SANDAG’s Edward Schaefer, “there’s no way we can hit the cycles. That means sometimes we can be a little low and a little high.”

And, he acknowledges, current economic projections point to job growth that is “pretty slow.”

“I think the housing industry will have plenty of time to react,” he said.

Click on link to read what builders have to say at bottom of article:  LINK

There are many different pieces to the puzzle, here are a few more.

Jiji has posted this thought a couple of times:

Housing is broken, Agents , insurance, remodelers , landscapers, finance, escrow, builders etc… the list goes on and on.  What must never be said,

YOU WILL NEVER HAVE AN ECONOMIC RECOVERY UNTIL THE MAJORITY OF UNDERWATER HOME OWNERS ARE NO LONGER UNDER WATER.

I’m not sure we’ll recover any of the old economy; instead those who are creative and desperate enough, will find a new way to get by.  It will need to be independent from housing, because once the underwaterness is resolved, those who are left probably aren’t going to be moving much either.

Here’s why:

1. UP OR DOWN-SIZING – Price-wise, to move up or down, you need to change by 50% or more to make it worth it. 

It doesn’t make sense to sell for $600,000, and buy for $750,000 – you don’t get enough extra house to make it worth it, and the closing costs are prohibitive.  But even if the costs got down to 1-2%, very few homeowners need a slightly-bigger house.  Don’t be surprised if you see in the future a JtR-supported remodeling enterprise to assist those who just need an extra bedroom or two.

2.  DOWN-DOLLARING - Sellers who want/need to bank some real money will have to leave town.

Those hoping to cash-out will need to leave town, and possibly the state, to net a few hundred thousand dollars.  How many homeowners are willing to leave?  Those buying now are here for the duration, so the down-dollarers who do leave are part of the cleansing.  How many weak hands are left?  Admittedly, it could be a large group, but they will likely hang on as long as possible.

3.  MORE RENTERS – There is going to be increasing pressure on rents.

Those in both the categories above who do sell, will try to stick around, and renting is a great temporary option.  For many it will be permanent, especially those who have family here because as they get older they aren’t going to leave town, just to buy a house.  Others moving here from out of town will prefer to rent, mostly because of the difficulty with buying smart.

Upward pressure on rents will impact the good-looking family homes in quality school districts.

4.  STAYING PUT - Baby boomers are prime candidates to be moving. 

According to Wiki, baby boomers control over 80% of personal financial assets and more than 50% of discretionary spending power.  Do they have one more move in them?  I don’t think so – after investigating the three categories above, many, if not most, will end up NOT moving, and make due with that to which they’ve become accustomed.

There will be great reluctance to selling from now on. 

Hopefully we’ve learned a big lesson in this downturn, and people will be more reluctant to load up on debt too. 

Which leaves just the out-of-towners, and first-timers, for homebuyers.

Those underwater are just part of the equation, and may just help with expediting the inevitable.

This guy has experience in the mortgage industry, so that makes him an expert about housing demand.

Here’s the link:

http://www.pimco.com/EN/Insights/Pages/Are-There-Any-Rungs-Left-on-the-Housing-Ladder.aspx

My takeaways:

1. He ignores the fact that tough underwriting today has much to do with the lenders’ paranoia about buying back mortgages from Fannie/Freddie.  As we transition to private lending, the underwriting will make more sense.  You can already get a seven-year interest-only mortgage in the mid-4% range up to $2,000,000 with 20% down payment (and up to $1,000,000 with 15% down).

2.  He makes his whole down-payment case based on people saving the money from scratch.  What about the buyers who are using money from previous home sales, bonuses, inheritances, gifts, businesses, and sales of other assests?

3.  He notes that the average student borrows $23,118 to get their bachelor’s degree, to only then make $27,000 per year (the median salary for college graduates in 2010).  At that pace, college will stop being seen as the holy grail before long.  Thankfully there are plenty of folks who already have degrees and well-paying jobs who want to buy.

4.  Looming retirement will take older folks out of the buying pool, and/or cause downsizing.  I agree that downsizing is a major trend currently, and likely to dominate the landscape for the next 10 years.

5.  New regulatory hurdles could further impair the mortgage market, and in particular, the securitization of loans.  The banks who are willing to keep their loans will be in a great position.  Higher rates may result.

If demand dwindles, and sellers don’t want to lower their prices, then sales will drop further, and everyone will stay put.  Some will live for free for years, others will struggle to keep up, and most will forget about this crazy housing talk and go to the races!

Pemeliza suggested that sellers might be better off staying put and locking in a low interest rate now, rather than reduce their list price.  Shadash added that sellers should look closer at the other houses for sale, and price competitively (I’m paraphrasing).

Should sellers wait?

And wait for what, exactly?

If you are waiting for prices to magically come back to peak levels or higher, make yourself comfortable.  If you are enjoying the home, and won’t move unless you get your close-to-peak price, no problem, but any market rebound is out of your hands.  Do what pemeliza suggested, lock in a low rate, and shorter term and pay off the mortgage sooner.

If you want to do something to improve your chances of getting top dollar, fix up the house.

If you want/need to sell in the next 2-3 years, here are my thoughts:

1.  You may not be that far off on price. 

For those who are keeping their list price high because they’re heavily-encumbered and are hoping to get enough to get out, good luck – because you need a ‘lucky sale’, which are becoming more unlikely.  Now that the law has changed and you can sell with no recourse, consider a short sale.  Yes, your credit gets dinged, but if homeownership is too much of a financial burden now, waiting isn’t going to change it.

For sellers on the market longer than two weeks - your listing is now stale in the eyes of the buyers, and they will expect a healthy discount from now on.

The summer season is almost over.  Drop your price 5-10%, and it should be enough to generate offers – if not, keep dropping until it does.  At least you’ll be ahead of the other active listings, who are paralyzed with the shock that they haven’t sold and August is two weeks away – or ignoring the calendar altogether.  Get a jump on them.

2.  If you can’t, or won’t lower your price, then do home improvements.

The biggest problem with waiting is that your house looks more dated every year.  Are you keeping up?  Buyers will want discounts for work they need to do, so you might as well get some of it done now.  Do your best to convert to the newer granite/stainless/travertine look.  If your house is so old that it is functionally obsolescent, just clean it up and concentrate on pricing.

3.  The new-home tracts are where the buyers cut their teeth on the latest designs. 

Yes, in the last video, the only Plan 3 available is on the worst lot in the tract, and they probably have people in line for future releases.  But buyers will consider those as competition, so the more you can look like them, the better.  If you don’t want to spend big money on home improvements, at least consider installing new flooring/paint, ditching the old furniture, and removing all clutter.  Spruce up the front-yard landscaping too.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

We were looking around La Costa Valley/Oaks over the weekend, and it appears that a glut of mcmansions is forming.  But the problems were obvious - every house either had a funky floor plan, or looked dated even though it may have only been 10-12 years old.  The houses purchased new without upgrades, and haven’t been improved since, look like fixers to the buyers.

Those sellers can wait, but they’ll need to upgrade sooner or later, if they want top dollar.

From sddt.com:

San Diego County seems to be in the best shape in California and in better shape than most around the United States when it comes to recovering from the recession in terms of residential construction.

Jonathan Smoke, executive director of research for Hanley Wood LLC, gave a forecast of new home building in San Diego County at a Building Industry Association breakfast program Thursday and said San Diego County is closer to recovery based on data and research.

Smoke, a builder-turned-researcher, first mentions that San Diego is set to recover sooner rather than later since the county was one of the first infected by foreclosures, which led to people renting instead of owning and current supply versus demand data.

“Homeownership declined first in San Diego,” said Smoke, to a room full of homebuilders. “Expect San Diego to recover first in California because it got into this (mess) first.”

Smoke said to have avoided the vacancy of almost no new home construction the past few years, builders should have stopped building in 2006, based on supply versus demand analysis at that time. He added that supply of homes for sale was greater than demand in 2008 and 2009, but that in 2010 supply and demand for home sales and homeowners has started to level off.

“San Diego banks outsold builders five-to-one in 2010,” said Smoke, adding that he expects one more year of foreclosures, and then it will take 18 months for banks to sell them before builders are out selling again. “You, followed by San Jose, are the best home-buyer markets in California right now.”

Smoke added that the bright spots in San Diego County for homebuilders right now are Carlsbad and the city of San Diego, and traditionally the coastal region and the North County inland area are the most stable areas.

Smoke finished his discussion by telling new homebuilders in the audience that they should pay attention to age demographic trends, especially to the baby boomers now because the younger generation that does buy homes tends to buy used or foreclosed homes.

“Baby boomers are retiring at an older age than their predecessors,” Smoke said. “You need to find out what will they do? Will they buy a new home? Remodel their current home? Retire in a rest home? Will they move out of San Diego? Probably not, but baby boomers have different tendencies than their predecessors.”

Smoke said to avoid the same mistakes as before, homebuilders cannot go off their gut instinct. It is not a winning formula anymore when it comes to knowing where and when to build.

“Construction industry officials need to understand why one community is better than another so builders can make better business decisions,” Smoke said.

“I hear builders say, ‘I know a good piece of dirt when I see one,’” said Smoke, comparing it to the quote “I know talent when I see it” in the book “Money Ball.” He added that builders need to go away from gut instincts and follow leads based on research and data to tap new market opportunities.

I think we’re going to see sales slow to a crawl for the rest of the year, due to sellers being unwilling to lower their price enough.  Then the media will blame it on the loan limits going down.

Our friend Nick at the Wall Street Journal worked on this article for a couple of weeks about the loan limits going down in October, but no conclusive evidence yet as to what we can expect. 

An excerpt:

In San Diego County, loan limits will decline to $546,250 from the current ceiling of $697,500. Greg Demgen and his wife are trying to sell their 5,200 square-foot home for $900,000. While he says he’s confident the home is priced to sell quickly, finding buyers who can qualify for cut-rate loans “can only help the cause,” says Mr. Demgen, 51, of Vista, Calif. “We should get it done before that $697,500 ceiling goes away.”

One in 12 home sales during the past year fell within the county’s proposed and current limit, assuming a 10% down payment, according to MDA DataQuick, a real-estate research firm.

Some lenders say they will soon ease lending rules at the margins for jumbo loans. Banks sharply tightened standards three years ago on jumbo mortgages. Wells Fargo is preparing to reduce down payment standards to 20% from 25% in more markets and to relax the amount of liquid assets that borrowers must have after closing the loan, said Brad Blackwell, national sales manager for Wells Fargo Home Mortgage.

Mr. Demgen’s real-estate agent, Jim Klinge, says the decline in loan limits is overdue for loans backed by the FHA, which allows minimum down payments of 3.5%. Borrowers need to earn nearly $140,000 to qualify for the largest FHA loan in the county. “With that income, if you only have $25,000 for a down payment, then you shouldn’t be buying a house with virtually no skin in the game,” he says.

Still, the overall effect of the decline in the limit is hard to gauge. “The impact is going to very regional and how it all adds up is going to be hard to tell,” says Guy Cecala, publisher of Inside Mortgage Finance. “Dollar-wise and percentage-wise it’s not a big change, but that’s easy for me to say. I’m not living in San Diego looking for a new house.”