From the U-T, note the last paragraph:
CAMBRIDGE, Mass. – The nation’s housing market may begin to recover this year, ahead of the general economy, but only if a lot of “ifs” go the right way, according to a co-author of one of the most-watched housing indexes.
Karl “Chip” Case, who helped create the Standard & Poor’s/Case-Shiller Housing Market Index, struck a guardedly upbeat tone yesterday at a conference at the Lincoln Institute of Land Policy.
“I’m optimistic,” said Case, an economics professor at Wellesley College in Massachusetts. “I think we’ll see housing turn around before other people do. I think we’ll see it turn up this year or next” before the rest of the economy improves.
The conference focused on the future of cities after the recession, and the advent of the Obama administration in Washington.
Case said various indicators point to stabilizing prices, particularly at the starter-home end. If that happens, he said, the rest of the economy is likely to respond similarly.
But Case couched his sunny outlook against a cloudy set of preconditions that must be met for the housing slump to end: rising housing starts, removal of the “toxic assets” weighing down lenders and investors, and renewed trust in banks’ balance sheets.
If housing does not recover, he warned, a general economic upswing “could take a very long time happening.”
Case also said the national housing picture is somewhat distorted by conditions in what he dubbed “Flocazn” – Florida, California, Arizona and Nevada – where more than 50 percent of all resales involve auctions of foreclosure properties, versus about 12 percent in the other 46 states.
He took particular delight in needling Californians for their undying belief in ever-rising home prices. But this faith is understandable, he said, because downturns in the 1980s and ’90s were followed by robust price recoveries and the 2000-01 recession did not result in any price declines.
“People in California know it’ll come back,” Case said.
This California article of faith is shared by many outside the Golden State. He cited an economist friend who complained that he had not sold his house even after two years on the market. Case gently reminded him that if he lowered the price, it might sell.
Of course things will come back… to 2001 pricing. That’s where prices will rise to after the overshoot.
The video the other day of the house on Winter that I was trying to sell?
It sold for $295,000 in 2002. Today’s list? $224,800.
Oceanside must be in the overshot stage, or a little past. 17 offers in so far.
Of course things will come back… to 2001 pricing. That’s where prices will rise to after the overshoot.
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Bingo! You win the prize, again, Rob. 🙂
Are people not losing their jobs any longer?
Are houses within the reach of first time home buyers in San Diego?
Are businesses posting growing profits or are they “meeting lowered expectations”?
Is government/the fed still manipulating markets to produce positive returns?
I don’t like being gloom and doom but you have to me realistic. Prices have gone up uncontrollably for over 10+ years. It doesn’t make sense that after two years everything better again.
My crystal ball tells me that prices will rise above the prior historic high – it’s just VERY cloudy as to which decade that will occur in.
Real Estate has traditionally been a long term investment – when we recognize it’s value is best when it’s not swinging violently up and down and we get back to just good ol’ fundamentals we’ll all be better off.
Hi from Seattle all,
I just wondering has the Commercial Real Estate market been hit there yet?? is there a lot of empty office space etc? I read that a mall in Florida was heading for possible foreclosure…any sign of that down there?
Cruiser,
Re: CRE (commercial real estate)
For office space, there are several new games you can play driving around town:
1) Cushman and Wakefield vs. Grubb and Ellis
-Each person in the car gets to be on or the other. Count the # of “for lease” signs in the business parks for each broker. Whoever gets the higher # wins.
Variations:
-If 3 people, someone can have ” all other brokers”
-Sorrento Valley vs. UTC – Count total # of available SF in each zip code or total # of available offices
-UTC vs, Carmel Valley – ditto
(Yes, these are the 2+ areas of town that created 90% of the local high tech and biotech jobs over the last 10 yeas (CV is just a extension of Sorrento Valley)
2) First person to 100 wins
-Repeat he above and first person to get to 100 wins; this should take less than 15 minutes of driving in Sorrento Valley
3) How many new “Available” signs do you see on my way to work each Monday
For retail space,
1) Try to find any mall or strip mall anywhere that does not have at least one retail space available right now; You would hard pressed to find any strip mall of 10+ properties that does not have at least one empty space right now
For restaurants:
1) Try to find at least one “high end” restaurant that is not currently offering a discount for mid week dining and then try to predict which one will be the first to close. Epazote in Del Mar would have been my top choice but I guess it’s too late to pick that one. Staying in Del Mar, I’ll go with Paradise Grille as first pick and Tabu Sushi as my second. (Knowing the lease expiration would help here with this exercise, but if an ocean view restaurant with the best sunset views in the world could not make it to track season, then it is certain that more will close soon)
Suffice is to say is that CRE is in a downward spiral and most CRE REITs will have problem paying the mortgage notes from rental income (especially those that made debt based acquisitions in the last 3 years). I can elaborate if you want more detail.
LOL Futures!!! This is what I’m hearing all over..I think CRE is only starting to decline and will see as big a correction over time as residential is now . I’m an avid stock market watcher and am looking at taking some short positions in CRE.
I’ll be down that way next month to see the outlaws and as the mrs. wants to move there I’ll be having a good look around.
Thanks again and I can’t wait to play your game:)
As far as retail goes–I guess the good news for SD is that we only have to re-absorb the space that has, or will become, vacant–we really don’t have much NEW construction space to absorb–the largest retail project built or under construction as of 1st quarter 2009 was Bressi Village in Carslbad at 123K sf–small compared to MILLIONS of SF of newly built and under construction square footage in Phoneix/Scottsdale or some other markets.
I’m going to go out on a limb here: someone will make the same upturn prediction next year. This is the much ballyhooed 4th half recovery in action.
Wow, both Rob Dawg & CA Renter are sounding a tad bit optimistic today!
Good mood? I’m at a birthday party in LA that’s louder than jim’s was. Of course I’m in a good mood!
“1) Cushman and Wakefield vs. Grubb and Ellis”
This made me laugh hard. “Great for kids!!!!”
(CRE is almost as bad here in San Jose, by the way.)
I was in San Diego for the past few days at a conference. Met a guy there who said he had 4 properties in La Jolla that he was renting out. My ears perked up, as we are looking to move down there and rent in the June/July timeframe. Asked him if any were available, and he said, “Well, no. I stopped paying the mortgage on all 4 a couple months ago.”
He wants “at least a 30%” principal reduction, and if he doesn’t get it, he will let them all go into foreclosure.
La Jolla homes for everyone!
We aren’t even close to the bottom. This kind of shenanigans is exactly why the banks should never have offered principal reductions. Ever.
-Erica
There seem to be a lot of people, lately, calling a bottom to housing prices in 2010. The thing to remember, IMHO, is that there can be a big difference between the bottom and a “recovery” in housing–especially in you are selling or if you are thinking of buying. Recovery infers steady upward movement to me.
I think Case went WAY out on a limb here, calling for a “recovery.” Maybe if he’s EXCLUDING Flocazn…. but those states alone are too troubled to cause the average, nationwide, to recover soon.
But he did add in all those amazing caveats–all not likely to happen smoothly or easily, if at all.
tj said:
Wow, both Rob Dawg & CA Renter are sounding a tad bit optimistic today!
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Note that Rob Dawg didn’t specify **when** we’d go back up to 2001 prices. It might be a couple of decades from now. 😉
shoppingaround,
There’s lots of reasons to identify a bottom and possibly even buy early. First owner occupiers get a year older every year they wait. If you can save a year of private school tuition your “bottom” is $15k higher. And we investor types have incentives to start cash flowing sooner and accruing depreciation sooner once we feel comfortable that our investments are no longer at risk of being under cut. And don’t forget possible interest rate increases that might make sooner at a higher price a better deal than later lower prices with expensive money.
And don’t forget possible interest rate increases that might make sooner at a higher price a better deal than later lower prices with expensive money.
I expect rate increases to have an out-sized impact on pricing due to the additional havoc they’ll wreak on the market overall, so I don’t expect there to be any benefit whatsoever to today’s cheaper financing.
That little game can be quite addicting (kinda’ like having an annoying song in your head that you can’t shake).
CRE is interesting from an investing perspective b/c most of the larger offices/malls, etc are owned by REITs. REITs must pay out 90% of their earnings every year by law, so none of them save cash for a rainy day to weather a downturn in rents or occupancy. So it could snowball pretty quickly.
Surprisingly, several large commercial REITs were able to issue new shares to raise cash in April and that has buoyed the whole sector for now.
I had expected the recent GGP bankruptcy to put more downside pressure on the CRE office and mall REITs (like SLG, VNO, MAC,CBL, RWT, SPG etc) but that has not happened. I think that is because the bankruptcy has not settled out and the new low prices for the old GGP properties has not been discovered in an auction yet.
SPG has $18b in debt most rolling over in the next 2 yrs. CRE and REITs have not even started to hurt. Too many opaque side deals, too many tappable lines, too much debt.
CA Renter,
LOL, yes I realize that.
Still, I find that any time I start to question my bearishness on housing (or the economy) I’ll go back and revisit the fundamentals and find that I’m not nearly bearish enough. When I say mid 90’s pricing is my “best case scenario” I mean I think we’ll be unbelievably lucky if we stop there.
I find it very strange when supposed “experts” declare that for the economy to get better, first the housing has to recover. That’s ass-backwards. Housing will get better when people are not scared of losing their jobs any more, and those who have, find employment again, and people can actually afford to buy homes, and qualify for those loans.
Anyone know what’s going on with The Summit project in RB?
http://www.calculatedriskblog.com/2009/04/cre-easter-bunny-found-in-field-of.html
The weird thing is that the site plan and google maps doesn’t seem that match up. There is an existing building in the middle of the site, but it extends beyond the site plan?
Is anybody investing in this lack of confidence in CRE?
tj,
Exactly. We’ve known a few people who’ve bought fairly recently, thinking they were buying low…then one or both lost their jobs or had pay reductions.
After a brief flirtation with wanting to lowball and buy in (wasn’t going to happen, as there were always eager buyers ready to outbid us), we’ve decided to hop back on the fence for the time-being. The bubble mentality is still too strong, and we just don’t see any reason to get into bidding wars with people who think “the recovery” is just around the corner.
Cruiser,
I am short one CRE REIT (SLG) and I write naked calls against that stock just about every month. I find collecting option premium a whole lot easier than collecting rent.
Shorting is difficult as most brokers don’t have REIT shares to short and you have to pay the dividend.
Selling out of the money calls is my favorite strategy at the moment as the time premiums are high. But selling naked options can be dangerous so I would not advice it unless you have experience.
Additionally, it is very difficult to find very localized CRE portfolios to short. Most of the publicly traded ones are diversified geographically -or- are not local.
On the long side, check out HTS and NLY. These two mortgage REITs are huge beneficiaries of the government’s support of the housing market. You can get a reliable dividend yield of 14 to 16% right now from these 2.
Futures,
Will do some dd on those I did go long SRS this morning,up 13% today..more luck than skill though
Looking like we may move down that way…the mrs wants her Mammy:)
“The bubble mentality is still too strong, and we just don’t see any reason to get into bidding wars with people who think “the recovery” is just around the corner.”
The time to buy will be when the zeitgeist shifts and the average man in the street wouldn’t touch RE investment with a ten-foot pole. When the common wisdom says that you’ll lose your money, or are better off renting.
I don’t know when that will happen, but if the economy continues its steady decline for another year _and_ you still have the wherewithal, you’ll at that point have a pretty good idea.
Everyone “knows” the market will come back..right after they close escrow. Jokes aside, the question is not if it will come back but when and to what level.
During the First Great Depression, stock values did recover. It took 25 years to break even.
shoppingaround, lots of people have been calling a bottom since 2007. They’ve literally been calling a bottom since the top.
“I did go long SRS this morning,up 13% today..more luck than skill though”
I went long red at the roulette table this morning and it hit…more luck than skill I suppose. No making fun, but at this point I would seriously take my chances with casino gambling over daytrading leveraged ETF’s.
My only caution to those tempted to buy investments (rentals) now, is that unless you are experienced in doing so, and/or you have a lot of financial cushioning in case the tides turm (most ARE predicting rents to go lower, as unemployment rises and more “excited” buyers bid up and snap up REO “bargains” to lease out) that the market is not going to return quickly to the “well, if we can’t rent it, it we can always sell it and take a profit” place it may seem to be in now.
If it’s going to be tight if you have any vacancies or if rental prices take a nose dive, you’d best think twice.
Rob Dawg, excepted–I bet he’s already thought thrice, and has seen as much as I have. (I may even be olde rthan Rob Dawg! yikes.) 😉