“It’s not great, but it’s less bad than it was six months ago,” said Alan Gin, a University of San Diego economist who addressed USD’s annual real estate outlook conference yesterday.
Gin said his glimmer of hope means that San Diego “is on the verge of bottoming out” in the economic downturn. USD economist Ryan Ratcliff’s dim light means, “The recovery is about to begin, but we have a long way to go.”
Alan Jay Brinkmann, chief economist at the Mortgage Bankers Association in Washington, said California will find recovery difficult because it, along with Arizona, Florida and Nevada, saw high housing price appreciation and construction during the boom and now is wrestling with massive foreclosures and widespread construction shutdowns.
He said homes for sale have dropped from 322,000 in October 2007 to 187,000 this past October. That’s a sign that buyers have reduced the large inventory of unsold properties that existed at the outset of the recession. But, over the same two-year period, distressed properties that are 90 days delinquent or in foreclosure have skyrocketed to 690,000 from 160,000. If 75 percent of those properties — 517,500 — eventually end up on the market, that would swell inventories and depress prices.
“I see the market holding on in the low end,” he said, but falling at the high end, above the $700,000 mark.
Operating against such a big boost in distressed properties, Brinkmann said, is the Obama administration’s preference for mortgage modifications rather than working to streamline short-sales — deals in which homes are sold for less than the mortgage balance.
“Washington sees people in their homes, and short-sales are not favorably viewed,” he said.
But there might not be much choice to foreclosure, he said, because distressed properties carrying 30-year, fixed-rate prime loans are multiplying fast as unemployment lingers above the 10 percent level. Those are the most difficult mortgages to modify because they are generally held by households with plummeting income and no easy replacement close at hand.
While low prices should entice buyers, Brinkmann forecast a rise in interest rates starting in March, when the Federal Reserve plans to stop buying mortgages from lenders. Rates are at or near historic lows — 4.7 percent for 30-year fixed-rate loans last week, according to one survey — so a half-point increase that Brinkmann expects would raise rates to 5.2 percent or more. He did not agree with some economists who expect rates to rise one to two percentage points when the Fed exits the secondary mortgage market. Either way, higher rates mean less affordability to buyers.
And making purchases more difficult will be continued tough lending standards, he said.
Even with all these forces working against a rapid housing recovery, Ratcliff said economists are watching the housing market closely, because it is historically one of the first sectors, along with car buying, to emerge from a downturn and then serve as a trigger for more general economic growth.
Gin expressed the most optimism at the conference, citing his index of leading economic indicators for San Diego, which has risen for seven straight months — more than enough to indicate a turnaround.
Next year, he said, home sales should rise from the current year-to-date total of 30,000 and prices may go up, too, despite continued high levels of foreclosure. The current median price for San Diego County calculated by DataQuick stands at $325,000, up 2 percent over the last 12 months, and Gin said he believes it will rise in the single digits in 2010. That would carry the median price, potentially, up as much as 9 percent to $354,250.
But Gin cautioned against any expectation of a quick turnaround. He characterized the likely housing price recovery as a chart with an “elongated ‘U’ ” rather than the “V” shape seen in the past.