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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?

People ask all the time, where are the buyers coming from, and what is motivating them?

Yesterday in a couple of comments mentioned that people are tired of waiting, and want to settle down with their families.

But there will always be the get-rich-quick crowd.

Robert Allen is coming to San Diego May 31 through June 3rd, appearing at four different hotels.  He has been a well-known real estate speaker for years, and controverial.

His pitch from his full-page ad in the U-T:

“IT’S PULL THE TRIGGER TIME for real estate investors and first-time homebuyers.  The tides are turning in today’s real estate market.  Killer deals around every corner.  The time to act is now. Discover how to profit safely with my exclusive moneymaking real estate strategies engineered for today’s market.”

But there are many complaints about the guy.  His main objective is to sell books and tapes, and enroll you into the next program. 

This from Ripoff Reports, a quote from someone who signed up for the 3-day course:

Each day they would bait the hook and drop the line about the importance of purchasing the Executive Package Program (regular 12,680.00, class special 6,995.00) and if you want to protect yourself in the U.S., then the J.J. Childers Wealth Library (regular 2,835.00, class special 1,835.00), as well as furthering you knowledge with classes. The pressure was intense, these people are very good at what they do, and would make a telemarketer blush with their tactics. Succumbing to the pressure, I signed up for both products and gave over my Visa number. The class was done, everyone bid their good byes and we went off to seek our fame and fortune.

The person went on to cancel the program, and eventually received his money back.  But then he was hounded for weeks by different pitchmen to buy other programs, one costing $22,000 for one-on-one tutoring!

Here’s a link to the full report:

http://www.ripoffreport.com/reports/0/287/RipOff0287225.htm

Are some of today’s buyers coming juiced up from real estate seminars like this?

At the panel discussion the other night, the methodology of the Case-Shiller Index was questioned.

Do they include every repeat sale they find, or just the recent ones?

Because the long-time owners, ones who paid $33,000 in the 1960s, and are now selling for $700,000, could really skew the index.  Thankfully, the folks at CSI have published their methodology:

http://www2.standardandpoors.com/spf/pdf/index/SP_CS_Home_Price_Indices_Methodology_Web.pdf

They exclude properties that were resold within six months, though the REOs being held longer than 6 months are going to be included.  The “purchase price” recorded by the banks at the trustee sale, in almost all cases, will be quite a bit higher than the final sales price – their purchase price was based on appraisals almost a year prior to the eventaul REO sale.

The CSI also excludes those sales which they can’t find a previous purchase price, which will eliminate many of the long-time owners, and they also exclude new homes that were resold too.

The CSI also assigns ‘weights’ based on time between sales, but they said that 85% to 90% are unweighted.  If they are downweighting the older ‘sales pairs’, there has to be some extra emphasis in the index on the more recent pairs. 

Wouldn’t that make the index somewhat biased to the negative?

Thursday’s panel discussion at 6pm has been moved to a slightly larger facility, the Joan B. Kroc Institute for Peace and Justice at the University of San Diego.

According to the moderator, Scott Lewis:

There is no charge for parking. You will be directed to the Lower West Lot. Shuttle service runs from the Lower West Lot with a stop conveniently located at the Front Plaza of the Institute for Peace & Justice. On street parking is available throughout the campus, as is a large, central parking facility a few blocks from the IPJ. Please allow extra time for parking.

Here is a link to the map:

http://www.sandiego.edu/webdev/pdf/usd_campus_map.pdf

If you’d like to attend, it’s free, just contact Camille to R.S.V.P. – her info is in this link:

 http://www.voiceofsandiego.org/articles/2009/04/07/opinion/slop/141event040609.txt

Because I am the low man of this esteemed group (Rich Toscano, Ryan Ratcliff, and Kelly Bennett), they are considering bumping me from the panel, in order to help out with parking – they know that I drive a mean shuttle bus!

Hopefully they’ll look like ice cream trucks! 

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.”

Zach Fox at the North County Times has a summary of then-and-now quotes from four economists and a couple of zany bloggers:

http://www.nctimes.com/blogs/minding_your_business/?p=1230

Here is an excerpt:

Rich Toscano, financial adviser, Pacific Capital Advisors, blogger at piggington.com

In 2005: Wrote on his blog that a severe correction was more likely than a soft landing. “When people once again started to see a home as a place to live instead of a lottery ticket, they might start to ask themselves why they were paying so much when they could rent for so much less,” he wrote.

Now: “The issue I’m having with forecasting is, from a fundamental standpoint, I don’t think we’re at a bottom. Homes are still not cheap on the whole, and we’re obviously in a recession, certainly in San Diego. And employment is a lagging indicator, so as it plays out, more people are going to lose their homes. We’re going to have more foreclosures and more to come. That doesn’t seem to me to be bottoming at all. However, the government is coming and they’re just spraying money everywhere in every direction. … They took over the banking system, the foreclosure system. It’s not a free market any more. So that’s a confounding factor.”

Prices: “There’s really so many factors, but if I were forced, I would say 15 percent lower.”

You have written about inflation being a concern. But now we’re hearing deflation is the big problem right now. Which is it? “I have faith, for lack of a better word, that these guys (the government) are concerned that deflation is enemy No. 1. And when that gains traction, inflation could be a very big concern and that’s something everyone seems to be ignoring.”

Jim Klinge, real estate agent, Klinge Realty, blogger at bubbleinfo.com

In 2006: Predicted prices would fall by 33 percent on average. “We’ve seen it happen all year, and I don’t think it’s going to change —- that the inferior properties are taking a bath, but the high-quality houses in great locations do a lot better,” he wrote.

Now: “Many houses are selling at or above list price throughout the county, demonstrating that the demand is there if the price is right.  I think a year from now we’ll still be talking about prices being lower than today’s, but buyers dig the bank deals, so we’ll see if they’ll pay 2008 prices in 2009, or insist on lower.”

Prices a year from now: “10 percent lower, based on the faulty measuring sticks such as median prices.”

We had around 80-90 people attend the discussion at the Escondido Library last night, and generally they were well-educated folks who came looking for answers. 

I’m not sure they got them.

Here are my notes:

Lori Staehling, who had received Sandicor’s latest numbers earlier in the day, mentioned how much higher the sales count was last month, compared to September, 2007.  She didn’t mention that August 2007 was when the mortgage/financial crisis began, and how that probably led to last year’s sales being so low.

She noted from the same stat sheet that the SD County median sales price was $375,000 last month. Dave Hopkins said that, as a result of a lower median SP, the conforming loan limits should adjust downward.  The OHFEO didn’t adjust the loan limit the last time they had a chance, so I’m skeptical that they will in 2009, but the increase that brought our current super-conforming to $697,500 was supposed to be temporary.

Lori also said later that when we’re looking back it’s pretty likely that we’ll see that this was the bottom.

I didn’t comment last night to the ‘bottom’ question, but here’s my answer:

We’ll see ‘bottoms’ in the market every fourth quarter of every year for the next 3-5 years.  Below is the graph of monthly sales of detached homes in SD County.  It compares the last two years to what we’ll consider to be more normal years, the 1997 to 2000 era. 

It’ll only be when we plow through a fourth quarter without much downdraft in sales AND prices that you could say that things have changed – you could probably identify that with approximately 1,300 to 1,400 January sales.  A sustained 12+ month run of improving sales with steady-to-increasing prices would be my definition of what a bottom looks like, because I think it would take that to have a positive impact on buyer psychology. 

For Lori to be right, the red line below will have to continue on it’s current course, take a normal January dip, and power up for the Spring Kick, 2009.  I think we’ll see plenty of lookers next spring, but the only thing that will turn them into buyers is if the prices are extremely attractive. 

If anything the 1997-2000 years were ‘upbeat’ so if we saw similar monthly sales numbers for an extended amount of time then we can probably conclude that the market is ‘healthier’, and prices are getting closer to being right.

Last year the end of the subprime-loan business caused sales, and prices, to plummet.  But as banks began taking back more and more properties, they had to get better on pricing to unload ‘em, and it looks like they have been getting it done.  Prices are down unevenly throughout the county, and how much lower depends on the neighborhood.

Lori also mentioned that 9.6% of California homeowners were in default last month, and that she thought the foreclosures would continue for awhile.

Kelly Cunningham was the economist of the group, and mentioned that retail spending in San Diego County went negative in 2007, and that it usually lags 12 months.  I think his point was that the recession-like experience we’re having could have started as much as two years ago.

 I love the Q&A format, but here’s what one attendee thought of the speakers:

Totally defensive, don’t make any controversial statements, no negative dumping and no addressing the upcoming collapse in the newer developments that had sales peaks(completed sales) in the 2004-2007 time frame.  The impact of LIBOR adjustments was just skimmed over and all that our SDAR leader can say is sales have increased and continual “the bottom is near and we won’t know it until 6 months later”.  Total waste of time.

It made me want to do my own seminar – maybe on a monthly basis?

Would you attend a real estate seminar conducted by yours truly, in order to ask – and get answers to – your pertinent questions?

I’d be interested in hearing your thoughts, either in the comment section or email privately:

jim@jimklinge.com