'Long time real estate guru Bruce Norris spoke last night in San Diego about the likely future of CA real estate. Gave a wide-ranging analysis of why we are only in the initial stages of a "perfect storm" that is hammering real estate and will create opportunities galore once the bottom is reached.
First, as to why this guy commands respect--his forecasting record is near perfect, as far as I can tell. In 1997, after 7 years of housing prices declining then stabilizing, he predicted they would double in 8 years. He was mocked for that call, but as we now know, they actually about tripled. Then he turned bearish in 2005, and in January of 2006 published a prediction that prices were wildly overblown and would fall radically. He really caught hell for that call. If others here can chime in with any other evidence of his record, then please chip in.
Anyway, here is a summary of some of his observations and predictions:
1. The bottom will be in about 2010 or 2011, with the steepest decline occurring in 2008.
2. 50 - 60% of sales in 2008 will be REO's.
3. Auctions will be a growing segment. Suggests investors only play that game and buy when "absolute auctions" are held.
4. Rents are falling rapidly in the most hard hit areas of Riverside. We in San Diego are helped by our fires (!), and less overbuilding.
5. Watch out for BK judges pushing "cramdowns", which I believe is when he simply tells the home lender to wipe out a portion of the principle on the loan and renegotiate it. (Correct me if I'm wrong on this interpretation).
6. Look for interest rates to get a bump up due to (5) above as investors naturally flee from lending in the future. Expect same fallout effect from current and feared future tendencies by gov't to interfere with existing loan contracts. This will prolong the decline, and rub salt in the wound of those responsible savers who have waited to buy a home. Law of unintended consequences.
7. Outmigration from CA due to our still-insane housing costs will accelerate. People will start coming back only when price/income ratios revert to the mean, about 2011. An interesting prediction is that Phoenix and Las Vegas will bounce off the bottom sooner than SoCA, since demographics favor them, i.e., many refugees from here will tend to prop up their housing markets, speeding their recovery.
8. As support for above, he cited the ratio of the cost of renting a U-haul truck from SD to other cities, versus the reverse. Biggest ratio cities:
Portland 2 1/2 to l, Salt L.C., Seattle, Dallas, Denver, all 2 to 1.
9. Another ticking time bomb I had not heard of: some HELOCs have a provision in which if the value of the house falls a certain amount, the loan converts to a fixed 15-year amortization loan AT 18 PERCENT.
All in all, a very analytical, data-driven speech, not the kind of hype-driven presentation most of these events are.
Any other attendees from this forum there? Would like to hear your input'
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