So Cal Real Estate News

Excerpts from his prepared remarks to Congress today, with my attempts at decoding and summarizing in italics preceding each segment:

We’re not out of the woods yet:

Although our recent actions appear to have helped stabilize the situation somewhat, financial markets remain under considerable stress. Pressures in short-term bank funding markets, which had abated somewhat beginning late last year, have increased once again.

It’s harder to get any loan because of all the losses due to the mortgage mess:

Credit availability has also been restricted because some large financial institutions, including some commercial and investment banks and the government-sponsored enterprises (GSEs), have reported substantial losses and writedowns, reducing their available capital. Several of these firms have been able to raise fresh capital to offset at least some of those losses, and others are in the process of doing so. However, financial institutions’ balance sheets have also expanded, as banks and other institutions have taken on their balance sheets various assets that can no longer be financed on a standalone basis. Thus, the capacity and willingness of some large institutions to extend new credit remains limited.

Even “conforming” loans (Fannie Mae & Freddie Mac) have gotten pricier, and non conforming loans are almost non existent:

Another market that had previously been largely exempt from disruptions was that for mortgage-backed securities (MBS) issued by government agencies. However, beginning in mid-February, worsening liquidity conditions and reports of losses at the GSEs, Fannie Mae and Freddie Mac, caused the spread of agency MBS yields over the yields on comparable Treasury securities to rise sharply. Together with the increased fees imposed by the GSEs, the rise in this spread resulted in higher interest rates on conforming mortgages. More recently, agency MBS spreads and conforming mortgage rates have retraced part of this increase, and conforming mortgages continue to be readily available to households. However, for the most part, the nonconforming segment of the mortgage market continues to function poorly.

The housing market remains weak, and that’s hurting everyone:

These developments in financial markets–which themselves reflect, in part, greater concerns about housing and the economic outlook more generally–have weighed on real economic activity. Notably, in the housing market, sales of both new and existing homes have generally continued weak, partly as a result of the reduced availability of mortgage credit, and home prices have continued to fall.¹ Starts of new single-family homes declined an additional 7 percent in February, bringing the cumulative decline since the early 2006 peak in single-family starts to more than 60 percent. Residential construction is likely to contract somewhat further in coming quarters as builders try to reduce their high inventories of unsold new homes.

Things are worse than we thought, but we think they’ll start getting better later this year. But nobody really knows. [We've been telling you that since November!]

Overall, the near-term economic outlook has weakened relative to the projections released by the Federal Open Market Committee (FOMC) at the end of January. It now appears likely that real gross domestic product (GDP) will not grow much, if at all, over the first half of 2008 and could even contract slightly. We expect economic activity to strengthen in the second half of the year, in part as the result of stimulative monetary and fiscal policies; and growth is expected to proceed at or a little above its sustainable pace in 2009, bolstered by a stabilization of housing activity, albeit at low levels, and gradually improving financial conditions. However, in light of the recent turbulence in financial markets, the uncertainty attending this forecast is quite high and the risks remain to the downside.

We think inflation will start dropping later this year, but we’re not really sure about that either:

We expect inflation to moderate in coming quarters. That expectation is based, in part, on futures markets’ indications of a leveling out of prices for oil and other commodities, and it is consistent with our projection that global growth–and thus the demand for commodities–will slow somewhat during this period. And, as I noted, we project an easing of pressures on resource utilization. However, some indicators of inflation expectations have risen, and, overall, uncertainty about the inflation outlook has increased. It will be necessary to continue to monitor inflation developments carefully in the months ahead.

We think we’re finally on the right track, and expect to turn a corner during the second half of this year. (“Things will turn out fine in 2009?”)

Clearly, the U.S. economy is going through a very difficult period. But among the great strengths of our economy is its ability to adapt and to respond to diverse challenges. Much necessary economic and financial adjustment has already taken place, and monetary and fiscal policies are in train that should support a return to growth in the second half of this year and next year. I remain confident in our economy’s long-term prospects.

At least, that’s what I think he said. Click here for Bernanke’s complete prepared text.

Click here for the L.A. Times’ report on Bernanke’s remarks.

And feel free to use the “comment” option to express your opinion, but in relatively polite language, please.

We sure hope he’s right. Could be.

Update added 4/7: Lots has happened since we wrote this post about two weeks ago, but it hasn’t resulted in any major changes to our projections. We did, however, release an updated projections post over the weekend: “A Change in Our Projections?”

The roller-coaster ride continues with this morning’s news:

1. Nationwide February resale closing numbers from the National Association of Realtors mirror DataQuick’s So Cal Numbers from last week: Sales up, prices down.

Why the sales increase “caught economists by surprise” is completely beyond us. January closings were the lowest on record, homes that went into escrow during the Thanksgiving to Christmas slowdown in a terrible year. They had nowhere to go but up as we move into spring.

We’ve been predicting the increase since we saw sales picking up in our market in January, & we also think March will reflect an additional increase in sales and possibly at least some firming of prices, maybe increases.

You read it here first–which is our goal, bringing you Los Angeles and Orange County real estate news from the front lines– not the ivory towers! Click for Blomberg’s reporting of NAR’s data.

2. Bear Stearns’ bad loans apparently weren’t as bad as originally thought, since Morgan-Chase this morning quintupled their bid from $2 per share to $10. Maybe things aren’t as bad as they seem? (Click here for our take on how we got into this mortgage mess & on Bear Stearns’ culpability.)

3. Stocks are up. But so are foreclosures. (For some insights into buying foreclosures, click here for our initial “Foreclosure Tips” post.)

This is just more evidence to us that we were right when we said last November that this downturn was wildly unpredictable. But we also told you What to do When Nobody Knows What’s Next.

Sellers, you may also want to review our summary of our workshop on “How to Sell Your So Cal Home for Top Dollar in 30 Days.”

That said, if you’re still intent on market timing to the exclusion of all else (that is, you don’t have a life?) we continue to expect a window of opportunity for sellers for the next several months, followed by opportunities for buyers through this winter. We still think there’s a significant chance (20%?) of a major price collapse of an additional 15 – 25% , but there’s also a possibility that the worst is behind us.

Sorry the picture isn’t clearer, but we’d rather tell you the truth than make something up. Feel free to post your comments, thoughts or questions, we try to respond to every one. Or call us if you want to talk further (562.430.0262).

Added 4/3: If you want to read excerpts from Ben Bernanke’s April 2 testimony to Congress about where he thinks we’re at and where we’re headed, check out “Bernanke Predicts Bottom Later this Year?!“

We even translated some of his remarks into English, for those of us who don’t speak economist. He pretty much agrees with us, except he’s a little more optimistic. But we think that’s part of his job. Being moderately optimistic, that is, not agreeing with us.

4/7: For our updated projections post, check out “A Change in Our Projections?

Sunday’s New York Times had an interesting article on“How a Bubble Stayed Under the Radar,” dealing with economic theory and herd mentality.

Basically, it said what any long term observer of either the real estate or stock markets must have already concluded: Market prices get too high near the end of most up cycles, and too low at the end of most down cycles.

I figured that out at least three cycles ago, when another Realtor mentioned the insane bidding up of home values in 1989 was typical of the last, overpricing gasps of a market about to collapse. I thought our market had peaked in 2004, which was obviously too early. Still, in 2005 I made my ill-fated effort to beat the market by exchanging for out of state property (see my recent post on out of state investing). It’s the same herd mentality that created bubbles from internet stocks to silver.

Ironically, as our southern California prices drop, people tend to forget the flip side of the same herd mentality: The lows become irrational as well. Which either will at some point create or is currently creating opportunites to “buy low.”

I don’t think anybody can know with certainty if that time of opportunity is now or yet future. Once we know for certain, it will have past, and the best bargains will be gone.

But I do know that thousands of homes are on the market for prices 20% to 40% below the highs of a few years back. And I do know that many sellers are willing to take far less than they’re asking. And interest rates are also quite low.

I also know that prices tend to go up in the first half of the year and down in the second. So it appears that this year’s great opportunity may be passing. December of 2009 may present even greater opportunities. Or not.

But at some point, this market will overcorrect. Maybe it already has.

We love Southern California, we love real estate, and we also love to write. So we’ve been writing about the Southern California real estate market since 1980. Through this blog we can now deliver our thoughts, perspective, and insights at the speed of light. Even better, now you can add your thoughts, insights and questions too.

Who are we? Well, we’re both native Southern Californians, SoCal homeowners, and Realtors ™ who have also served as professional educators.

Dave Emerson, the lead writer, grew up in Lakewood, CA, graduated from UCLA back when their football teams didn’t routinely lose to unranked teams, and currently live in Los Alamitos. He’s an investor who owns dozens of local rental units, primarily in Long Beach, and he’s been #1 in sales out of 500 agents in his company seven different years and has been elected “Agent of the Year” by his peers 4 times.

Blair Newman has the perspective of a younger generation. He has helped dozens of his friends and clients buy and sell property, and is a member of Prudential California’s “Cutting Edge Society,” putting him in the top 15% of all agents. He graduated from Biola University in La Mirada, then lived in Anaheim until buying his present home in Lakewood.

Over the years, we’ve sold homes everywhere from the San Fernando Valley to Orange County. We specialize in Southeast Los Angeles County (Long Beach, Lakewood, Norwalk, etc.) and West Orange County (Los Alamitos, Rossmoor, Cypress, Garden Grove, etc.).

Over the years we’ve developed contacts in most So Cal areas we don’t service ourselves. We’re excited about finding this fast, interactive way to share our perspective on what we see going on every day in the So Cal Real Estate Market.

We’ll also use the expertise of others we know in real estate and related fields, from finance to property management. And we’ll gain the expertise of our readers as well, as you choose to contribute.

Our non-blog website, which features a direct link into the SoCal Multiple Listing Service and more info about us, including brief resumes. We can be contacted directly by phone, 562.822.7653, and we also respond promptly to all comments and questions left on this blog.

Thanks for visiting.