Saturday, April 25, 2009

No recovery seen for housing until late 2010

Posted on the OC Register:

Nobody has a bigger stack of housing data than the First American real estate information empire from Santa Ana. We figured we’d ask Sam Khater, an economist at First American’s CoreLogic unit, what’s up …

Us: What’s your sense of the health of our local housing markets?

Sam: The biggest factor is home-price depreciation. And until home prices begin to stabilize, the overall market will not stabilize. The great thing about home prices is that it conveys a lot of information about the health of the market. Tells us about the demand-supply dynamics. Until you see depreciation recede, the market will not recover. Given the fact that home prices exhibit memory and momentum, it will take time.

Us: How do we compare to the national market?

Sam: We group together the “sand states” — California, Nevada, Arizona and Florida — that are roughly in the same category with steep price depreciation. They all have a severe oversupply of housing. And, for parts of California and Florida — financing is restricted. There is no jumbo mortgage market.

California’s been in this downturn the longest; it’s been intense; but that’s one positive. Given the very low mortgage rates, affordability is much higher. Granted there’s affordability, but is the homebuyer really going to buy when you see rapid depreciation? And will lenders be reluctant to lend? Unfortunately, affordability is only a part of this. The housing downturn’s gone on in California for some time. The overall economic downturn’s been happening for just a year and a half, and that’s got a way to go.

The rest of the country is experiencing price declines. And they’re slowly catching up to the sand states. Like Rhode Island, that’s knocking on the door in terms of home-price depreciation.

Us: Will it take California-sized price losses to restart the national housing market? We seem to be enjoying a sales bump recently …

Sam: No, The bubble wasn’t as bad elsewhere as California. What you’re seeing in California is an uptick in distressed sales. All things being equal, the distressed sales will eventually wear off and sales will slow again.

I view the housing boom starting in 1997 when sales a prices began to move above historical trends. We have to remember what a normal year us. We’re not that far below, in terms of sales. You’ve got to view some of these housing numbers through a long-term series.

Us: What about all those homes with negative equity with borrowers owing more than their home’s worth? How to fix that?

Sam: We estimated at year’s end there were 8.3 million borrowers upside down. If you assume that the government gave them a modification — just for conversation’s sake, $100,000 per loan — that’s $830 billion. When we talk a lot about trillions, that’s not that much money. That’d solve the negative equity problem in the short run. But that’s like a Band-Aid on the Titanic; longer-run structural issues need lots of work, too.

Even if you solve negative equity, prices are falling so fast that a lot of people would be upside down again in six months. And if you’re upside down, you are vulnerable. And the biggest risk right now is job loss.

Us: Any glimmer of hope in the numbers?

Sam: Oversupply is declining — unsold inventory and months of supply. Supply is still high, it’s just starting to come down. You want supply and demand in equilibrium and demand will not increase any time soon.

Us: Bottom this year?

Sam: I think, absolutely, there first chance for any kind of housing recovery is late 2010. We’ll see some bumps from the stimulus and the economy will look somewhat better than it really is .But we won’t see any housing bottom — and I’m talking prices — until late 2010. To me, the price is the most important thing.

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