From the heart of the bubble.......or at least one of them:
Home-price slump likely to continue
By Roger Showley
UNION-TRIBUNE STAFF WRITER
December 13, 2007
Optimism was largely absent yesterday at the University of San Diego's annual residential real estate conference, as industry leaders and watchers saw continued gloom for the foreseeable future at the national, state and local levels.
Graphic: California real estate outlook for 2008
An MBA student from China, Jin Luo, read the mood as she analyzed San Diego's housing-industry challenges for the audience: “If you survive in 2008, I think you will survive.”
Survival through the next 12 to 24 months figured into almost every speaker's perspective in the half-day session held on the Linda Vista campus.
USD economist Alan Gin said the region is working through an “unprecedented situation,” because it is possible that the housing slump will tip the area into a recession.
Gin said other sectors of the local economy – professional services, government, and health services – are showing continued job growth. Job losses in construction and real estate will total about 7,800 this year, but there was a net increase of about 10,000 jobs from other sectors and, for 2008, 8,000 to 10,000 more are expected.
“So, I think a recession is unlikely,” Gin said.
Over the next year, home prices, which have dropped about 11 percent since their all-time peak median of $517,500 in November 2005, may drop further to approach the 17 percent peak-to-trough decline experienced in the last downturn from 1990 to 1996, Gin said.
That is a relatively small correction considering that prices have jumped more than 250 percent in the past 10 years, he said. In March 1996, when local real estate started to recover from the most recent recession, the overall San Diego median was $166,000, according to DataQuick Information Systems.
Robert Kleinhenz, chief deputy economist for the California Association of Realtors, painted a relatively bleak picture through next year.
The Federal Reserve, Kleinhenz noted, “knows the end is nowhere near” on housing's downturn, and positive mortgage-investor confidence is “a ways from happening.”
Building permits statewide have slid from more than 200,000 in 2003 and 2004 to less than 100,000 through September this year. But, he said, “It could have been worse.”
“We are likely to go through a couple years of bumps and bruises,” Kleinhenz said. “We do have a rough road ahead.”
He projected single-family-home resales statewide at 334,500, down 9 percent from last year and nearly half the peak of 625,000 in 2005. Prices may drop 4 percent to a median $553,000 after reaching a record $576,000 this year.
All this should not be surprising, he said, because the state and nation have been enjoying years of economic growth, and a cyclical downturn is “not uncommon.”
In an answer to a question from the audience of about 300, Kleinhenz agreed that San Diego's housing market was one of the first to recover from the 1990s recession and could be one of the first to recover from the present slump at the end of next year.
“San Diego tends to see its economy grow under just about every circumstance,” he said. “The long-term growth picture for San Diego's economy is quite good.”
He noted that San Diego's prices have not dropped more than other places and that its default and foreclosure rates aren't among the worst.
A study published this week by the Web site of Moody's financial rating agency – economy.com – reported that San Diego would be the first major metropolitan area to emerge from the housing downturn, as early as the fourth quarter of next year. Overall peak-to-trough median housing price losses from the first quarter of 2006 to the fourth quarter of 2008 for San Diego were expected to amount to 14.1 percent.
The panel of industry insiders who wrapped up the forecast session minced no words in urging fellow lenders, agents and developers to formulate new strategies if they want to survive until 2009, the earliest that most said any local upturn might occur.
Joseph Anfuso, a USD alumnus who served as chief financial officer for Shea Homes in San Diego before becoming president of Florsheim Homes in the Central Valley, said that when prospective buyers come window shopping at a development, “treat them like a rich grandfather, as if you're in the will.”
“Focus on your clients – there's a huge refinancing opportunity,” said Steve Atwood of National City Mortgage.
In an answer to a question about the availability of jumbo loans for mortgages exceeding $417,000, Atwood said large money-center banks appear to be the only reliable source. But their capacity to absorb many more such loans into their portfolios “is not going to last much longer.” Previously, such loans were sold off as packaged securities on Wall Street.
Jason Hall, co-owner and president of Re/Max Associates in San Diego, said fewer agents compete for listings but, he cautioned, “Business isn't going to come to you. You have to go get it.”
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