Panel Discussion

Last night was the third annual panel discussion of real estate at UCSD, put on by the Financial Executives Networking Group of San Diego.  About 60 people attended.

The panel consisted of Bruce Norris, Alan Nevin, Gary London, and a certain part-time blogger. 

Here are some of the thoughts:

Gary London, The London Group Realty Advisors, consults with developers of residential and commercial real estate.  Two weeks ago the San Diego Business Journal featured his article on the commercial market: http://www.sdbj.com/article.asp?aID=142541&link=perm

He noted that the recent ‘Pending Home Sales Index’ that was up 32% was “not meaningful” because last year’s numbers were so anemic.  He agreed that the number of transactions are what counts when surveying the market.  Until we get back to ‘normal levels’ of sales, we really won’t know where we are at.

He mentioned that there is hardly any new homes being built, and when demand returns there won’t be any new-home inventory because it takes a while for builders to identify properties, prepare them for construction, and to build the houses. 

Alan Nevin and Market Pointe Realty Advisors, has been consulting with real estate developers for three decades.

He mentioned that “we don’t learn” from our mistakes, and that California is a cyclical state.  Traditionally there have been around 10,000 houses per year built in SD County, but this year there will only be about 2,000, and almost all of them north of the I-8 freeway.

Bruce Norris, The Norris Group, had a seven-page handout.  He noted that he has purchased about 50 homes to flip this year, primarily in Riverside County.

He had a list of 30 homes that had $10,141,900 in loans against them, that he purchased at the trustee sales for a total of $2,921,717 – many in disrepair or stripped.  He has had trouble with appraisals when re-selling, and has kept some as rentals, rather than lower the price when a buyer is willing to pay $125,000 but the review appraisal comes in at $85,000.

 The most powerful data of the evening was his chart that showed that there were projections of 549,383 foreclosures to happen in California by now, but only 238,054 have happened.  The shortage of 306,329 is what is haunting the market – when will the shadow inventory hit the open market?

He suggested four solutions:

1. FHA 203k rehab loans be expanded.

2. Change the Fannie/Freddie loan limit for investors from a max of 10 mortgages, to unlimited.  If they qualify, why should they be denied?

3.  He supported zero-down financing for qualified owner-occupiers, and allow those loans to be assumed by the next buyer without qualifying.

4.  Get rid of the 90-day FHA flip rule.

He’s convinced that the primary reason that the foreclosures are dragging is because banks don’t want them back.  Currently the average bank loss in California is around $250,000 per foreclosure.

We talked about trustee sales later, and he mentioned Ward Hanigan, and how beneficial Ward’s trainings are: http://www.foreclosureforum.com/

Yours truly mentioned that I thought next year will be exciting, with many more buyers getting in the game, but not much more inventory for them to consider – could be the Big Stalemate.  I also said that I thought buyers will tolerate a mortgage rate under 7%, but higher than that would bring trouble.

As long as the banks stick with the ‘drip system’ for liquidating the REOs, they’ll have us right where they want us – and that this could take 10 years to resolve. 

Lunch with LY

The first segment of Tuesday’s speech in Mission Valley, with 700+ realtors filling up this ballroom (and two other auxiliary rooms), at $25 per person, lunch included. This youtube clip was taken with a hand-held camera while standing in back – it’s shaky so you may want to listen to audio only:

Old Drinking Buddies

from sddt.com:

The worst may be over for the San Diego housing market, but local and national Realtor associations are trying to rally their members to contribute to their “political survival.”

The San Diego Association of Realtors hosted its Regional Real Estate Summit Tuesday and featured guests like National Association of Realtors Chief Economist Lawrence Yun, California Association of Realtors President James Liptak and N.A.R. immediate past President Dick Gaylord.

The Realtors spoke to a crowd of 700 that included real estate professionals, representatives from the offices of local congressmen and San Diego Mayor Jerry Sanders.

Liptak said the key to achieving Realtor goals was for organizations like N.A.R. and C.A.R. to interact with government officials.

He said it is an “amazing” time to be in the residential real estate business since Realtors have a chance to make a change for the better.

“I honestly feel like I won the lottery,” he said about being the president of C.A.R. during what most real estate professionals have said is one of the strangest markets they’ve encountered.

One of the major points of contention between local real estate professionals and the federal government is the Home Valuation Code of Conduct (HVCC), which has led to out-of-town appraisers being required to do appraisals.

Both the Realtors organizations and the California Association of Mortgage Brokers have urged state and federal governments to put an 18-month moratorium on the HVCC.

Additionally, Realtors and other residential real estate-related industry associations have been pushing to extend and expand the $8,000 first-time homebuyer tax credit.

With the credit expiring on Nov. 30, real estate agents have about a month to make sales that will close in time to qualify for the credit.

Realtors hope to extend the duration of the qualifying period to sometime in the middle of 2010 in order to encourage home sales. Additionally, they want it to be available to all home purchasers, not just first-time buyers.

The Realtors said the tax credit is responsible for the number of home sales tripling in some parts of San Diego County this year.

With inventory levels in the area at a two- to three-month supply and median prices stabilizing, Yun said the housing market is improving while the rest of the country lags.

“In my view, the downturn is over” in San Diego, he said.

Even with a slew of foreclosures expected to increase inventory across the country, Yun said in San Diego, there is enough demand to absorb it.

Local real estate agents have said they have received dozens of offers on underpriced foreclosures.

S.D.A.R. President Erik Weichelt said he received 103 offers on a house he listed recently, with the final sale totaling more than $150,000 over the asking price.

With all the competition in the market for mid- and low-priced homes, Yun said there are reasons for potential homebuyers to be optimistic about the current market.

“People who are buying today might see a home equity gain a year from now,” he said. “Further decline in prices could be minimal — if there are price declines at all.”

However, he said sales for higher-priced homes are still sluggish and will likely not improve until financing for jumbo loans is easier to come by.

Mid-Year Reports

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?

Get Rich Quick

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?

Heteroskedasticity

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?

Panel Discussion Moved

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! 

 

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