Sunday, January 21, 2007

L.A. Times: Remember 'normal'? Housing market shows signs of stabilizing, forecasters say

If you've been reading my blog long enough, you know what I think of forecasters, and you are aware of the tremendous amount of bandwidth I've wasted disparaging them. Diane Wedner in this January 21 story reports on what forecasters are saying lies ahead for 2007. I plan to continue monitoring what the forecasters say, *NOT* because I think they spew gems of wisdom from their lips, but because I think they are representative of the frame of mind of the real estate transacting populace.

So what do the experts say? Big hikes in mortgage rates are "not expected." They admit that there is a glut of resale homes, because they feel that "barring a bigger glut", we'll see maybe as long as three quarters of ugliness, then things will "pick up" again before the end of 2007.

The market is returning to "normal." Sales and prices are returning to the "middle of the grid." (I wish they'd show us this grid!) "Normal" in their dictionary means a return to single-digit appreciation, then a dip, then leveling off. This is just another way of saying (excuse me, I feel nauseated...) "soft landing."

DataQuick thinks prices will hold the current level of growth, which was recorded as 5.7% at the end of last year. Michael Carney at Cal Poly Pomona isn't quite as Pollyannish optimistic as most of the crowd. He actually sees - be sure you're sitting down and holding your chair firmly - he actually sees prices falling about 5% from last year, with buyers continuing to wait on the sidelines.

And how about sales? Leslie Appleton-Young of CAR predicts a 7% drop in sales, compared to the 23% drop in sales in 2006. (I am not sure she is talking strictly southland here or the entire state.) She claims "we're close" to absorbing some of the home sales left over from 2006, and that "the worst is over." Sound familiar?

OK, the experts are leaving themselves wiggle room here, saying inventory is the "wild card." They note that many homesellers have decided not to compete with builders, choosing to wait to list their homes. So how much will inventory go up this spring? Dolores Conway at the Casden Real Estate Economics Forecast at USC states that we will see a surge in inventory "only if something bad happens in the job market." Really?

The experts expect home purchase loans to remain relatively down while refinancings will trend up, with borrowers converting to fixed rate mortgages. The loans that will be the rage this year are hybrid five year loans, with a fixed rate the first five years and an adjustable rate thereafter. The experts claim that "a lot depends on what the Fed does."

Where should people be buying? Jack Kyser, an economist in Los Angeles, points out La Mirada, Whittier, and Downey as nice boring places that aren't trendy (and don't have the prices of the trendier areas), have good schools and a good public safety record. San Dimas is cited for quality of life. What does he say about the South Bay and westside? "Still hot, but pricey." Still hot, really? And where should first time buyers go? "South L.A."

And what's in store for homebuilders? Well, builders will see a return to a better market by the end of Q1. So you better get your great deal now now now! Permits issued for last year fell in the 155,000-170,000 range, and at the peak, in 2004, 212,960 permits were issued. So the permit range we're seeing now is "solid." Construction will be slow in Q1 as builders sell off last year's inventory. But things are looking much rosier for the second half of 2007. "Builders aren't focused on affordable, entry-level homes, which are less profitable for them."


Where does one begin with the problems in this piece? It's more of the same talk as last year, dismissing any glitches now as "temporary", with a resolute determination that things absolutely will pick up by the end of this year. How can they be so sure???

The experts call this a market returning to "normal", but what is so normal about a market at near-historically low affordability?

Let's keep in mind that Leslie Appleton-Young wasn't saying anything about a 23% drop in sales in January 2006, and not even in May or June of 2006. So why should we believe her now? She's obviously been reading from the David Lereah script.

If inventory levels depend *only* on the job market, then how does USC explain the big surge in inventory in 2006 while the job market was still so good? When they call inventory a wild card they almost trivialize it. Inventory is not just a back seat passenger along for the ride, it will be one of the key drivers of this market, depending to substantial degree on the financial solvency of homeowners.

More crappy lending, pushing the pain out into the future as far as possible. The solution for a hangover is more alcohol, yep.

Yes, let's buy in South Los Angeles, and let's keep bubblifying those areas too. Let's not leave any area out!

While you're at it, builders, start digging your financial graves. Had you thought about building something affordable for entry level buyers, reducing your profit somewhat, you might be able to say later that you still have a profit. But if you continue to insist on building what you are building...

7 Comments:

Blogger bearmaster said...

Read about the latest trendy new mortgage financing:

12MoDef -- hip hop for a U.S. housing bubble on the edge.

And when I read this article about a big condo construction project in north San Diego county (Escondido) that went up in flames, it makes me wonder if some builders are feeling tempted to torch their projects for the insurance money.

11:20 AM, January 21, 2007  
Blogger Mike said...

rather than pick apart the article why don't you just mark it on your calendar to do a follow up at the one year mark to see how their forecasts panned out? then you could send it off to the l.a. times where of course they would never publish it.

3:14 PM, January 21, 2007  
Blogger bearmaster said...

Mike,

I could do that now with articles from nearly a year ago, but I really doubt the L.A. Times wants me to get in their face and tell them how pro-housing biased they are. They must get a ton of advertising revenue from realtors and builders. Their motivation is to keep the newspaper operating, not say the market stinks and piss off the hands that feed them.

4:00 PM, January 21, 2007  
Blogger Mike said...

i wasn't really serious about sending it back to them, but i really would be interested in seeing an update a year from now.

do you think that there really is editorial pressure to print rosy housing articles, or that it's more likely just lazy journalism? heck, the l.a. times doesn't even get quotes from chris thornberg anymore.

6:38 PM, January 21, 2007  
Blogger Chris said...

There isn't any way mainstream real estate "reporters" are going to write about possible large downsides. In fact, I cannot imagine mainstream writers that report on the stock market, the economy in general, or any other type of investment marketplace prognosticating an impending implosion. Those types of reporters are best at closing the barn door after the horse is gone and covering their own arse's.

BTW, as I continue my rough number tracking of listings and open houses in Manhattan Beach, it appears fairly obvious that listings are on the rise and prices on the decline. There were quite a few vacant (many new construction) open homes this weekend in the $1.5 - $2.5+ million range. One intersection (Meadows and 17th, I believe) had 3 of the 4 corners open and none of them advertised in the Beach Reporter. Before this, I believed almost all open houses in that area were listed in the BR. This makes me wonder what the REAL number of listings are, what price "adjustments" have been made and how long many properties have actually been for sale?

8:48 AM, January 22, 2007  
Blogger David said...

This is ridiculous. You are just bitter and upset. You want the RE prices to fall because you refused to buy when you had the chance. That was your fault. I have run into enough clients to know. "I dont want to buy right now" "We are still waiting" "We are not sure". Now they all wish they did.

If you have a problem with our new prices here there are still affordable houses in the Midwest.

There is no place left to build in Los Angeles. That is a fact. Space is at a premium. Everyone wants to live here. That will never change.

There will be a slight correction -sure. That is just normal. We have already seen 2-5% and perhaps it could correct a little more - but overall prices have stabilized. From that point we are forcasting the next move up. If anything now is the time to buy because we have low interest rates and better selection than 2006.


If there is a burst it will be very short lived and only because of negative people like you. Stop wishing the worst on everyone. Nobody is creating new land in Los Angeles nor houses for that matter. Space is non-exisitant. What dont you understand about that?

We also have a strong local economy in Los Angeles. AND none of you have even considered the effects of the upcoming amnesty for the undocumented Mexican workers here. Los Angeles has the largest population of Mexican immigrants. This will force prices up even more.

I would advise you to get in now while rates are low and selection is good.

Again this "bears" repeating -
You are all just jealous because you did not buy when you had the chance. People have always said the same thing and overall it is rare and short lived. There have always been small obscure drops but they quickly rebounded because Real Estate always goes up. That is a fact. Especially in Los Angeles.

You live in Redondo Beach? If anything Redondo is under priced. Look at the location. It is inbetween Palos Verdes and MAnhattan Beach. The fact that there are still houses left for under a Million is a golden oppurtunity. Better scoop one up.

You people need to quit being so negative. Real Estate (overall) always goes up. You can buy and build equity or be a "renter" (aka loser) and be shut out forever. Wake up and take some responsibility for yourselves.

12:09 AM, January 27, 2007  
Blogger bearmaster said...

Hi David!

Thanks for the best laugh I've had in a while! Hmm, it wouldn't surprise me if you are a realtor.

I am a very happy and satisfied renter, in a quiet building, with a nice landlady sbove us who is picking up the bills for the plumbing repairs she just had done to our place, paying a fraction of what my neighbors are paying in housing, living debt-free and putting the difference away in savings. We have freedom. I love it.

Maybe a complete idiot would be jealous of staggering house payments, utility bills and $10K a year property taxes.

Thanks again for the humor! It made my day!

4:44 AM, January 27, 2007  

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