From sddt.com
A housing shortage once the market fully recovers is one of the biggest concerns facing San Diego real estate, according to an economic forecast delivered to local agents by the chief economist at the National Association of Realtors (NAR) on Friday.
Reiterating many issues familiar to anyone in the local market, Lawrence Yun — speaking at the San Diego Association of Realtors’ Real Estate Summit — said the shortage of housing created by the historic lows in new home construction pose a potential crisis two to three years from now.
He said the conditions for an economic recovery in San Diego are in place, though it’s unclear what the recovery’s pace will be. And if the job situation improves considerably, the all-time lows in homebuilding will be a big problem.
“I’m concerned with the lack of new housing,” Yun said. “There’s always volatility in home prices in coastal areas due to the difficulty of building. It’s possible if the job situation gets better, we could face a shortage when the distressed inventory is out of the system.”
This scarcity of supply would result in quickly escalating home prices that would be good for current homeowners, but bad for the industry. “There would be more people priced out of the market and far fewer transactions,” he said. “Home building needs to reflect population growth.”
Before his speech, Yun said it was possible for San Diego to recover much faster than the rest of the country. “Coastal markets recover a little faster in terms of prices. All of real estate is local.”
“America is fortunate that it can print money and not have inflation, because foreigners still trust the dollar,” he said. “If the low-probability event happened and countries started to distrust the dollar, mortgage rates would increase very fast.”
On the national market, Yun observed that the mortgage crisis hit VA loans far less than others, even though VA loans don’t require any down payment. “If people stay in budget, you will be OK,” he concluded.
He predicted that Fannie Mae and Freddie Mac will not exist as currently constituted in a few years. “Fannie and Freddie got arrogant,” he said. “Twenty or 30 years ago no one knew they were alive they were (so) in the background. Then they created a huge hedge fund.”
He called for a return to their original business models, in which they used their implied government backings to borrow money cheaply and pass it along to consumers who couldn’t otherwise afford a home. “Without government backing, things would dry up real fast,” he said.
Yun said he was pleasantly surprised that mortgage rates were capable of reaching their current lows. He doesn’t anticipate an inflationary period, despite the Fed’s monetary policies.
Yun’s baseline forecast for the national economy included moderate GDP growth for the next two years of 2.5 percent, less than the historic average of 3 percent, but growth nonetheless.
He predicted the economy would add 1.5 million jobs annually, cutting unemployment to 8 percent by 2012, and eventually reaching the healthy watermark of 6 percent in 2015.
“Directionally, the worst is over,” he said.
Home values won’t move substantially in the next two years either locally or nationally.
He predicted that housing starts would jump 40 to 50 percent in 2011 to 900,000, still far short of the historic norm of 1.5 million.
He offered a best-case scenario forecast, as well: 3 million jobs created annually, with 4 to 5 percent yearly GDP growth resulting in an explosive increase in pent-up housing demand.
Answering an audience question on the oft-discussed shadow inventory of distressed homes, Yun said he believed the delay in their reaching the market wasn’t strategic, but a product of banks not having the personnel to complete necessary paperwork.
“The question will be if there are buyers willing to pick up the properties without a tax credit,” he said. “If not, naturally that will put downward pressure on prices.”
Repeatedly referring to the current market as being in a “period of pause” following the expiration of the homebuyer’s tax credit, Yun said an indication of general market health in the short term will be the market’s performance in the traditionally slow season from October through December.
If the market is 10 percent below those three-month periods in 2002 and prior — with adjustments for population growth — that would indicate that the market is recovering.
It would be cause for concern if the market performs 30 to 40 percent below those periods.
He included the 2009 fourth quarter as a relevant comparison as well.
It would be a positive indicator if the market is only slightly worse than last year, despite the absence of the tax credit that drove demand then.
“America is fortunate that it can print money and not have inflation, because foreigners still trust the dollar.”
Wrong. Inflation is government theft of private assets. $10,000 in Federal Reserve Notes would have paid for the house in which I grew up. What does that same $10,000 buy today? More to the point, what will your savings today buy tomorrow?
He predicted the economy would add 1.5 million jobs annually, cutting unemployment to 8 percent by 2012, and eventually reaching the healthy watermark of 6 percent in 2015.
Wow, that is some premium psycho-babble for sure. Even the administration doesn’t serve koolaid that strong.
TJ – Hey, come on now, I’m sure the esteemed Mr. Yun engaged in rigorous, exhaustive research and analysis before pulling these numbers out of the air.
“Home building needs to reflect population growth.”
I don’t get what he is trying to say. That is the most useless statement I have heard – ever. Is that going to be the new Realtor mantra?
He is less of a cheerleader than Lereah, but he conveniently overlooks stuff, like the 5,011 vacant homes for sale currently.
Also:
6,513 owner-occupied active listings
1,703 tenant-occupied listings
13,227 total active listings, all residential property types
Printing Money = Inflation — by definiton!
before pulling these numbers out of the air.
If he pulled them out of the air, why do they smell so bad? 😉
I was at a convention in 2007 and he said 2008 was the bottom in housing and we would go up from there… He spins it the best he can which is what he is paid to do.
The 1.5 million jobs/year number is not unrealistic. That’s about the pace of growth during the second half of the Bush administration and just half of the job growth during the Clinton presidency. But 1.5 million jobs/yr would do almost nothing to the unemployment rate. You need 1.5 million jobs just to keep up with population growth so not sure how he sees the unemployment rate dropping so dramatically.
Printing money does not equal inflation when the country is in a liquidity trap:
http://krugman.blogs.nytimes.com/2010/07/30/inflationistas-and-deflationistas/
Yun is on the optimistic side. But if you look carefully at what he says (job growth just keeping pace with population, no change in home prices for 2 years) – it’s not even that optimistic.
Trying to discern any meaning whatever from any of those statements may cause one’s head to explode. wow.
You’re either just trying to piss people off or I’ve been wasting my time here for the past couple of years.
You should interview my 3 year old niece about the state of the socal economy. It would be every bit as insightful.
Later.
My personal fears about job growth (reducing unemployment) are twofold.
First, large companies have been stockpiling cash during the downturn, putting off hiring and big purchases, which would spur the economy. Instead, they’ve been using the money for mergers and acquisitions, which will likely result in more layoffs as they streamline.
The second problem might be more serious. When will there be significant growth from new or expanding small businesses? It just doesn’t seem like small businesses have access to enough capital to expand.
I’m sure things will turn around, but I think it will be long, slow process, and it will also be local. Which cities or states will dangle to greatest incentives for businesses?
Yun looks drunk in the picture.
Come on, I called it Psycho Babble! I like posting news from the mainstream so you know what the majority is hearing.
Realtors will be out telling people today that the conditions for an economic recovery in San Diego are in place, and we’ll recover faster, and first!
P.S. Photo was from the last time he was here.
I hope you burned your shirt after brushing up against him.
Ronald, I don’t believe that liquidity (i.e. credit) is the main constraint for small business as I see significant liquidity opportunities out there. Its the lack of final/end user demand for the small business’ product/service that is non-existent.
If end user demand was there, small business would be increasing their revenue capabilities (or reaching their capapcity) and liquidity/credit would be there to unleash their growth.
No demand = no need for credit. Lenders dont want to lend credit just to pay a business’ bills.
I think the ‘lack of credit’ is a red herring as that seems like something that the gov can throw $$$ at (i.e. give away to the banks) and it looks good, and sounds good in lieu of doing the hard work of passing policy to spurr demand.
what policy you ask, how about allowing business to expense the purchase of equipment into year 1 vs. depreciating it over 7+/- years? business would purchase that durable equipment, factories would ramp up and hire to produce, tax base would expand due to marginal jobs thus producing a net tax gain over the course of a few years (albeit not in year 1).
Just one actual, specific action from an average joe…
So a guy with a clear track record of being unable to se 6 inches in front of his nose is now an authority on the future. Nice work if you can get it.
Clearfund you are almost right. Lending has nothing to do with it. I’m not hiring or expanding because my customer demand is not there, but I still wouldn’t increase cap ex if I could depreciate over 1 vs 7 years. The only that will cause me to ramp up is increased customer demand, and the only thing that will increase consumer spending is JOBS, JOBS, JOBS. I don’t know of a single business owner who is just waiting for cap ex depreciation reform so that they can buy new equipment and hire to meet nonexistant demand.
Jim, Jim. . .throwing red meat in front of a pack of hungry wolves. . .maybe you should have published an old picture of David Learah (sp?)just for old times sake.
Consumer spending (and thereby business revenue) will increase once people believe the worst is over and they don’t need to hoard cash. Also, people are paying down their debt, so once they are done doing that, that will unleash alot of cash needing someplace to go.
If people perceive that home prices or interest rates will be going up, people with stable jobs will get off the fence and buy a house.
To a certain extent, once it is clear we are pulling out of the recession and things are improving, the speed of recovery will increase due to the above factors.
Kathy,
I was at a Fidelity Seminar yesterday, and one of the main items talked about was how well large corporation are doing, and the amount of cash they are sitting on. They of course did this by cutting expenses (staff), and cutting non-productive product lines, etc. Large corporation are going on a buying binge (Intel buying MacAfee, etc.), and handing out larger dividends. This will be a “corporate recovery” according to Fidelity, not a consumer recovery. . .but, sooner or later corporations will start hiring, then consumers will jump off the fence. Who knows? Yun could be right on the money in about a year to two years. Even downtown, nothing new has come on the market in over a year, and the last large project – Bayside by Bosa is 60% sold. When that is gone, there is NO new construction even in overbuilt downtown.
Thank you for the info Mark. I do think individual consumers who stay employed will increase spending at some point. Right now they have cut out all the “extras” and are hunkering down. I think that will change once the fear is gone. I remember people saying during the Carter era that everyone will be non materialistic forever, then we got the Reagan era where materialism became extreme. Not sure if it will be the recovery taking hold, a change in administration, or some other event, but I do believe we will experience the free spending/McMansion days again at some point in the future, and maybe even more so due to people’s current feelings of having to do without. Eventually people will stop shopping at Wal-Mart and return to Saks Fifth Avenue.
The “piles of cash” notion has been discredited many times over.
Otherwise, as clearfund — way too smart for an average joe — states, it’s all about final demand, and there just isn’t enough to warrant hiring.
That pic is priceless!
Capital Gain – Obviousoly my policy suggestion was 1 example of spurring demand. Remember that a machine makers end demand is the business buying the machine.
Most importantly, I offered a precise proposal to chip away at the problem from one perspective.
I don’t think I read a concrete demand stimulation proposal from you besides “Jobs Jobs Jobs”…How How How??
I say this because I am always intrigued to hear different views of how to make this mess turn around…
clearfund,
I was actually thinking more of mom-and-pop small businesses, who have been doing all they can to stay above water with their business and their home. If they’ve tapped their homes equity to be able to stay in business, they will have a more difficult time coming up with money to expand and hire more people. I don’t think there is any problem with liquidity at the moment, but there may be a problem with finding enough qualified applicants.
While the savings rate has been increasing, like Kathy points out, there has also been an increase in people tapping their retirement nest egg or 401k.
Kathy says, “… I do believe we will experience the free spending/McMansion days again at some point in the future, and maybe even more so due to people’s current feelings of having to do without.”
The problem I have with that statement is that it sounds as if we’ll return to the free spending days before the credit bubble burst, because everyone was spending money they were earning. The problem is that the spending during that time was as a result of cheap and easy credit. I don’t think that people are going to be as free and easy with their own savings, especially after they’ve had to work so hard to build it back up. In other words, the economy after it recovers will not look like 2006. It will be several decades before the world forgets the lessons learned and repeats the same mistakes.
What exactly will the recovery look like? I definitely think it will be sluggish for quite a while. Even when hiring picks up again, it will be a while before wages increase. There are so many people unemployed or under employed that there is a lot of pressure keeping wages down for those who still are employed.
Ronald – Agreed….100% FUBAR.
Jim, what in the world made you decide to pose with such a douchebag?
I hope you are correct Ronald McMansion. I would prefer that to another boom/bust cycle. Have lived through way too many. I am glad to see changes made to the laws to prevent another economic catastrophe – hopefully they will work and help temper the economic pendulum swings.
Maybe that explains this listing in oceanside esp. the first phrase
“No more showings at this time, multiple offers received. Rarely on the market, quiet, serene 2 Bedroom, 1 & 3/4 Bath with fenced patio yard in the back and a view of lake from balcony from Dining Room. All Living Space on 1 floor with large 2 car Garage under unit with great storage. No one above or below. Full size Washer Dryer closet. “
“…maybe even more so due to people’s current feelings of having to do without.”
I don’t know about this. From my view, other than the huge loss I have on my SD property, there is no recession. Up here in SF, it’s still hard to get into a good restaurant for dinner, or even at a place like Town Hall for lunch. Up in wine country, wineries are very busy ($25 tastings!), and some mid/high-end hotels in places like Yountville are SOLD OUT at $500/night, 2 night min. Same town, total teardown 700 sq ft shacks on 5000-7000 sq ft lots are $450K. Meanwhile, a landscape architect I know in Santa Barbara is very busy, working long hours at $150/hr. Various contractors in SD are sticking to their usual prices for their work on our future home down there. Used cars and boats seem to be about priced as always.
Obviously, there’s a recession/high unemployment — the stats bear it out. But I don’t really “see” it.
Oh, and I forgot the Apple store. It gets so busy that the Fire Marshall limits access. They’ve been holding the line outside and bringing the goods out to you if you know what you want (they ring you up like a car rental place when you return a car).