So Cal Real Estate News

(2/13/09)  In a report released earlier this month, Moody’s “Economy.com” predicts a nationwide home price bottom in metropolitan areas in the 4th quarter of 2009.

While we think that may be possible, we think there are a number of red flags Moody’s may be neglecting.  We’ll explain our own theory of when to buy or sell after we discuss Moody’s new report

Giving some evidence that there’s no recession among economists, you can buy the report for only $3,995 from economy.com, or you can read Moody’s summary and key findings below for free: 

Housing in Crisis: When Will Metro Markets Recover?
Near-term prospects for housing markets in a recessionary environment

SUMMARY:

Despite the darkening national economic outlook and the weak conditions in the housing market, some positive signs give hope that housing is about to hit bottom. Housing in Crisis: When Will Metro Markets Recover?, a comprehensive new study, evaluates the near-term prospects for housing markets in a recessionary environment.

KEY FINDINGS

• House prices will stabilize by the end of this year.
• The national Case-Shiller house price index will decline by another 11% from the fourth quarter of last year for a total peak-to-trough decline of 36%.
• By the end of this unprecedented downturn, house prices will have declined by double digits peak to trough in nearly 62% of the nation’s 381 metro areas. In about 10% of metro areas, price declines will exceed 30%.

AUTHORS

• Mark Zandi, Chief Economist
• Celia Chen, Senior Director, Housing Economics
• Cristian deRitis, Director, Credit Analytics
• Andres Carbacho-Burgos, Economist

Dave here again. If you’re dying for more info from Moody’s but don’t have a spare $3,995 lying around, here’s the teaser Economy.com supplied for free on their website:

Executive Summary

The U.S. housing market downturn has gone from bad to worse, dragging the broader economy into what threatens to be the worst economic setback since the Great Depression. Policymakers have not yet been able to break the downward spiral that has developed among the sinking housing market, job losses, frozen credit markets, and rising foreclosures.

Almost three years into the housing downturn, most indicators of the market’s performance continue to worsen. By the end of 2008, construction had fallen to its slowest pace since the Census Bureau began collecting data in 1959, inventories of homes were at a record high, and house prices had plummeted. Home sales seemed to be stabilizing, but only because of a surge in sales of foreclosed properties. Rising job losses and mounting negative home equity, combined with lax mortgage underwriting standards earlier in the decade, have rapidly eroded mortgage credit quality, further depressing the market.

The housing bubble was inflated by numerous forces. The most important were the flawed process of mortgage securitization, a lack of regulatory oversight, and old-fashioned hubris. The bubble is now deflating with a vengeance. The boom began to recede in earnest in the spring 2006 selling season. The surge in prices during the first half of the decade, along with monetary tightening by the Federal Reserve, had made housing unaffordable, even with anything-goes mortgage lending. House prices have since fallen by 25%, bringing prices back to where they were at the beginning of 2004.

The erosion of credit quality fueled the financial market crisis, which further depressed the housing market. Financial institutions are taking hundreds of billions of dollars in losses from the bad mortgage-related investments they made during the boom. These losses fed the financial panic that hit a fever pitch at the end of last summer after the government took over Fannie Mae and Freddie Mac. Credit markets froze, hurting not only mortgage borrowers but also disrupting nearly all businesses. These forces sent a mildly contracting economy into a full-blown recession.

Not only is this housing downturn unprecedented in depth, but it reaches across the nation. House prices have fallen in about 70% of all metro areas over the past several years. Although prices in most metro areas declined modestly during this period, price depreciation from peak exceeded 5% in 116 metro areas and exceeded 20% in about 50 metro areas. Those metro areas with the most exposure to nonprime and investor lending, and that consequently experienced the greatest runup in prices during the boom, are suffering the greatest declines on the downside of the housing cycle. California and Florida prices, for example, have descended by 50% or more from peak, but no area of the country has been spared.

Despite the darkening national economic outlook and the weak conditions in the housing market, some positive signs give hope that a bottom in the housing market is coming into view…

For an additional summary of the report by Reuters, click here.

What do we think?

1. We will see multiple bottoms, not one nationwide bottom.  In Southern California, we expect the bottom will come earlier for most communities in the coastal plain, later for condos and inland areas.   (See “A Southern California Bottom?“)
2. A few months ago, before the bottom fell out of the whole economy, we thought there was a good chance of a bottom this winter.  We now think that, although prices may move upward this spring in Los Angeles and Orange Counties, they may also decline again this summer and fall.
3. The Case Schiller index lags by about 6 months (click the link for details), so a turnaround this spring in prices going into escrow might not be reflected until the 4th quarter Case Schiller reports, which is about the most optimistic scenario possible.
4. Most economists now seem to be predicting a bottom in real estate prices sometime next winter.    You might want to compare Moody’s report with a January interview of P.M.I.’s director of economic analysis LaVaughn Henry, who sees a bottom in Orange County home prices early in 2010.  Click here for the interview, in Jon Lansner’s excellent OC Register real estate blog.
5. The current economic crises is unprecedented, and nobody can be certain how the current situation will unwind.   (See our classic post from November 2007, “How low will prices go?”)  Nobody knows for sure.  We think there’s a chance that we’re passing the bottom right now, in terms of what’s going into escrow, but that bottom may still be a year away, or many years away.  Just too many variables.   What’s a buyer or seller to do?
6. In uncertain times, your personal situation should be primary.  If you find a home that you love and can afford, and if  your income is secure, why not take advantage of today’s extremely low prices and interest rates?  (See our classic post on what to do in uncertain times.)
7. To discuss your specific situation, give Blair or myself a call at 562.822.SOLD.  We’ve been selling Greater Long Beach and Orange County real estate since 1980, and know how to get the job done in any market.  We’ve seen it all, but we’ve never seen anything like this!

Tags: Real Estate Market Bottom, real estate projections

This entry was posted on Friday, February 13th, 2009 at 3:21 pm and is filed under For Buyers, Market Trends and Projections. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.