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."

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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...