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What Will Happen To S.D. Real Estate In 2010?

Audio

Aired 11/20/09

For the first time since mid-2006, San Diego's median home price showed a year-over-year increase in value. The news that local homes are selling for more than a year ago was hailed by some in the industry as an indication that the housing market is turning around. Has the local real estate market already bottomed-out? And, what's expected to happen with the local housing market in the first half of 2010?

GLORIA PENNER (Host): And perhaps the irony of rising hunger in San Diego at a time when the local housing market is showing some signs of recovery, it’s not lost on us. More people are having trouble putting food on the table yet there’s been an increase in both home sales and home prices recently. So, Andrew, first of all, tell us about those increases and then we’ll look at what that all means.

ANDREW DONOHUE (Editor, VoiceofSanDiego.org): Sure. The first time, at least by one measurement, the DataQuick measurement, for the first time since mid-2006, we’ve seen a year-over-year increase in the median home price. So what does that tell us? That sort of is one of the many signs that we’ve been watching for a long time that the free fall in the housing market’s over. Now we’re slowing down and we’re starting to see at least maybe perhaps some level of plateauing. But there’s a fundamental issue in all of this that we need to be aware of as we enter 2010 and that is that the government has played an incredible role in the stability – in the stabilizing of this housing market and there’s a lot of questions on how long that can last. The government, through FAH (sic) loans is backing one-third of all mortgages being made in San Diego right now. That program’s in trouble and they’re going to have to have a lot of changes to it, which may make the availability of those loans incredibly more difficult than it has been in the past. You have the homebuyer tax credit was extended to April; that was set to expire in November, and there’s going to be consequences to that. So the government has played an incredible role in stabilizing this housing market. The key question is, is how long can it last? How long can the government continue to be printing money and be involved in this? And then what are the impacts when and if the government does remove itself?

PENNER: Well, you really got into it. You know, that’s really the crux of it, isn’t it, because there are people who are opposed to government getting into the marketplace under almost all conditions. And the question is whether government has overstepped its bounds and artificially bolstered a market that’s cyclical generally. I’m not going to ask you that question. I’m going to ask that of our listeners. Do you think government has played the right role in trying to stimulate the housing market these days by putting moratoria on foreclosures, by giving a tax credit to first time homeowners in a certain category, and by making more money available through FHA loans. Or do you think that this is not government’s role? Our number is 1-888-895-5727, 895-KPBS. All right, JW, you wanted to say something.

JW AUGUST (Managing Editor, KGTV 10News): Well, I was just going to say these are dire times and you need dire measures and I think most reasonable people might agree that the government had to do something. We just couldn’t sit on our hands and watch everything sink. Whether this is going to have any long term effects on the housing market, I think in a word, no. It’s like Cash for Clunkers except bigger and it’ll play out over a longer period of time. I mean, we – I don’t think the bad times are over frankly. I think we’ve got another wave of foreclosures heading this way. I talked to a professor from State, I can’t remember his name, forgive me, but he was pretty – pretty forceful in what he thought was going to be happening. The banks have a lot of them that they’re not really talking about and it’ll be popping up probably next year.

PENNER: Yeah, that’s called the shadow inventory.

AUGUST: Yeah, that’s it. Right, the shadow inventory.

PENNER: Yeah, the shadow inventory. What about you, Ricky? Is the real estate market a cyclical phenomenon which has its ups and downs and doesn’t need or want government interference?

RICKY YOUNG (Government Editor, San Diego Union-Tribune): I think there’s no question that the government – I don’t know about interference. The government crutch is part of what’s fueling this plateauing that’s going on right now. The question is, are we in for another dip or not? And I do think those foreclosures are going to play a role in that.

PENNER: Why are the banks hanging on to that shadow inventory of homes that have been foreclosed and they’re not releasing them back to the market?

YOUNG: Well, there’s any number of reasons for that but the most obvious seems to be to wait and see if the – if they can get a little more for them.

PENNER: And that’s the reason?

YOUNG: Yeah.

DONOHUE: Yeah.

PENNER: Okay. So if they’re waiting to see if they can get a little more for them, there must be some sense that, yeah, home prices are going to continue to increase. Andrew.

DONOHUE: Well, I think, you know, that is what we’re all sitting here and wondering what’s going to happen. It’s – it has become impossible to diagnose or to forecast this housing market because of the high level of government involvement and because nobody knows what that level of involvement is going to be in six months. I mean, if you really think about it fundamentally, the government is just – the government is literally printing money. It’s printing money so that we can all – so that people can buy these homes. There are consequences to that and one would think that that can’t go on forever.

PENNER: But there is concern that the employment picture might worsen in 2010. And wouldn’t this increase the number of foreclosures?

DONOHUE: Exactly. So that’s the other key issue is that this is not, you know, this is not something that stands alone on its own. It is incredibly impacted by the rest of the economy and by employment and vice versa. You know, our employment here, as we just talked about with hunger, is so much tied to the housing market as well. So, I mean, all these factors are going to be playing together, you know, as we move into 2010.

PENNER: Our number is 1-888-895-5727, 895-KPBS, if you’d like to offer your question or comment concerning San Diego’s housing market and whether you believe that the housing market will continue to improve or whether we’re going to see a very tight 2010. Jose in San Diego is with us now. Jose, you’re on with the editors. Thanks for calling in.

JOSE (Caller, San Diego): Hi. I just had one quick comment. I can’t say I’m fully against the FHA program because I just finished buying my first home like that…

PENNER: Congratulations.

JOSE: …last month—yeah, thanks—last month. But what I didn’t get is that the government should give a clear definition of when they’re going to stop it. They – And with a good length of time beforehand because if they stop it just cold turkey, that will cause a big shock to people. You know what I mean? And if they keep going with this whole printing money or like just giving money to people to buy homes, there’s – like I have a couple of coworkers at work and my sister, and I don’t think they really can – you know what I mean? Just jump into it but they see that everyone’s going for the $8,000 tax credit and you can get it this year and this and that and everybody wants that shit. I’m sorry about that.

DONOHUE: Ohh…

PENNER: Whoa. All right, where’s my delay button? Okay. There is it. Okay. Well, let’s continue with that then. His point is a well-understood one, that we don’t want to be surprised, right, Andrew?

DONOHUE: We do not want to be surprised. The – He brings up a good point. I mean, if you look at – or what – and what he’s talking about sort of highlights the sort of almost addiction that we have now to this government involvement because there was a – everybody thought there was going to be a frenzy and a drop-off in November when the tax credits expired. And what the government want – it didn’t want that to happen again so it just extended it again. And so is it going to extend it again in April because it doesn’t want that drop-off? I mean, these are the problems you have when the government becomes so entrenched in a market that it’s just going to keep going and going and going. I mean, if the – there’s a big question what’s going to happen if the government does stop financing these loans. Are private lenders going to jump back in? Do they feel strong enough about the market? Or is it going to be – are they going to perceive such a risk that interest rates are going to go up? I mean, this is – these are the sort of steps that we’ve decided we’re going to take as a society.

PENNER: Ricky.

YOUNG: The other thing that’s a factor, as the housing market strengthens, the economy improves, you know, you hear people raising the sort of morning after concern of, oh, my God, the national debt is out of control. You know, you have China concerned about its investment in America going belly up because the debt is just unsustainable.

PENNER: It is unsustainable but you would think that the great minds in Washington and at the Federal Reserve would know that. I mean…

DONOHUE: You would’ve thought they would’ve been able to keep us out of this.

PENNER: Right. Let’s take another call from Julian in Pacific Beach. Julian, you’re on with the editors.

JULIAN (Caller, Pacific Beach): Hi. Thanks for taking my call.

PENNER: Sure.

JULIAN: Basically, my comment is this. The tax credits are basically bringing people into the market and creating sales that would take place in 2011 and 2012. When those tax credits – when the tax credit expires, those demanders are not going to be there. Those sales are not going to be there. Couple that drop off in demand with the pushing of the shadow inventory onto the market and you’re going to get caught, a classic double dip in real estate, which is going to bring the rest of the economy down with us.

PENNER: Okay, thank you, Julian. Gentlemen, I’m going to have you comment on what Julian had to say after our break. This is the Editors Roundtable. I’m Gloria Penner.

PENNER: This is the Editors Roundtable. I’m Gloria Penner. At the roundtable today as we’re talking about what’s happening with San Diego’s housing market and the government support that we’ve been getting for that housing market, are JW August from Channel 10 News and also from the VoiceofSanDiego.com (sic) we have Andrew – I’m sorry, dot-org, we have Andrew Donohue. I caught it, Andrew. And Ricky Young from San Diego Union-Tribune. So what we’re going to do now is we’re going to hear more of what the people of San Diego have to say about the housing market because a lot of people have opinions on this and we’d love to hear them. Andy in University City is first. Andy, you’re on with the editors.

ANDY (Caller, University City): Hi there. Just wanted to comment about the – a few of the comments about the role of government in the housing market.

PENNER: Yes.

ANDY: Well, so I think the first most important thing to note is the age of the FHA, which was created in 1934, which I suspect is as old or older than everybody in the room where you are.

PENNER: Absolutely.

ANDY: And, you know, the federal government has been engaged in shaping the American housing market since then. That was the Depression. After the war, the FHA and the VA together backed about one-third of U.S. mortgages which is the figure that you were talking about just for this year. But for that period we’re talking about 10 to 15 years. So, you know, the FHA is not a new thing. It’s not – Also, it’s not government loans, it’s insurance that buyers purchase which ensures that banks can make loans to them. So the FHA secures mortgages, it doesn’t make mortgages.

PENNER: Okay, I got it. And I thank you for the information. We appreciate that. And that was Andy in University City. Let’s hear from Jonathan in La Jolla, and then I want to get comments from our editors. Jonathan.

JONATHAN (Caller, La Jolla): There are many people who are self-employed business people and they cannot pass the Fannie Mae underwriting system to qualify for a loan even though they may have the income. I’m just wondering if there’s any thought or idea about (audio dropout) being able to bring back stated income loans or if they will?

PENNER: The stated income. That’s very interesting. Do you want to explain that briefly, Andrew? The stated income, which was certainly involved when we had the subprime loans.

DONOHUE: Umm-hmm. Yeah, I mean, when we – what we saw during the boom was a real revolution in how loans were actually handed out. You used to step in and you used to, you know, provide all your documents, show everybody exactly what you made, and then based on real cold, hard facts, they determined whether or not you could take on the risk of buying that home and actually paying back the mortgage. We had all sort of different exotic vehicles that came out of the whole boom and one of those was the stated income or at least it gained prevalence during that boom. The stated income loan, which you just basically walked in and you told people how much you made. Now in our caller’s case, there is a real reason for having that. I mean, there are people that are self-employed, people that are independent contractors, that actually need to do loans that way. The problem was, I believe, is that it expanded beyond that and it just became a part of any old loan. I could’ve walked in there and just told people I made, you know, $300,000 and, you know…

PENNER: And you would’ve been underestimating your pay.

DONOHUE: My worth. I would’ve been underestimating my worth…

PENNER: Oh, right, right.

DONOHUE: …but not my actual pay. So – But this is sort of the problem when you have the pendulum swing all the way back. You had the abuse of these loans, now to such a point that people aren’t making them anymore and the people they were designed for and designed for good reasons now can’t even take part in them. And that’s part of the reason you have a lot of people that can probably afford homes and that want to buy homes that are still on the sidelines right now.

PENNER: Okay, final comment. JW.

AUGUST: Well, I think it’s like everything, it’s – goes in cycles and I think it will come back eventually but with more safeguards and oversight. It was a place for a lot of fraud that was going on and causes for a lot of homes to go in foreclosure.

PENNER: Ricky, I’m going to put you on the spot. We always like to, at the end of any housing segment, say, okay, is this the time people should buy or should they wait a little longer?

YOUNG: Let’s see…

DONOHUE: Be careful, that’s a tough one.

YOUNG: Contact your real estate professional.

DONOHUE: There you go.

PENNER: Okay. And Andrew. What about you? Do you…

DONOHUE: Oh, I’m not – I am not touching that one.

PENNER: You know, you never do. All right, well…

AUGUST: Oh, hey, give me a shot at it, Gloria.

PENNER: Oh, okay, you’re my risk taker. Go ahead, JW.

AUGUST: I’m going to get a travel trailer and move to Mt. Laguna.

PENNER: Okay.

DONOHUE: Actually, can I just say one thing that…

PENNER: Sure.

DONOHUE: Buy a house if you want to live in it for a long time and you can afford it. I mean, the major problem of all this was that people were buying homes thinking they were going to be ATM machines…

AUGUST: Right.

DONOHUE: …or cash cows rather than realizing that this is a place you’re just supposed to live in for 30 years.

PENNER: I knew you could give us a balanced conclusion to the segment. Thank you so much. All right, let’s go on.

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