San Diego Real Estate Market On The Rebound?
Friday, April 9, 2010
Local housing prices have increased in value over the last few months. While local prices haven't returned to the peak prices we saw in 2006, values are definitely increasing. Can we expect the upswing in housing prices to continue?
GLORIA PENNER (Host): San Diego’s housing prices are on the rise. One report says this January’s prices were about 6% higher than last January. And the University of Southern California Report indicates the county’s apartment rents and vacancy rates will outperform the rest of Southern California. So, Tom, this all sounds like good news. What’s your interpretation?
TOM YORK (Contributing Editor, San Diego Business Journal): Well, I’ve been thinking about this for the last 24 hours or so…
YORK: …and I think that, you know, when you have a mixed business use, because actually home sales – the actual number of home sales dropped while the median price rose for February. It rose 14% over the last year. A mixture for it is probably better than what we were getting a year or two years ago which was that housing prices were plummeting, sales were plummeting, and the whole area of residential housing looked like a black hole. But now that’s stabilized and we seem to be, you know, we’ve reached bottom, we’re coming back, and that, you know, things are looking better, a lot better. As far as the study goes about rents, I think everybody wants to move to San Diego and enjoy, you know, apartments close to the coast and the…
PENNER: And the high cost of living.
YORK: …and the high cost of living.
PENNER: Yeah. Kent, what do you think accounts for this optimistic outlook considering that unemployment is still very high.
KENT DAVY (Editor, North County Times): Well, I think part of it is the bottom end of the housing market here is pretty hot. There is a lot been – and has been for several months, a lot of activity in it. There’s the – we still hear lots of stories about people coming in to do investment property, buying houses presumably to rehab and flip at some point in time. So I think that’s part of it. But also there is, at least up in North County, first kind of green shoots of new housing around. I’ve seen several places where there are new developments, very small, with, say, 10 or 20 houses starting construction. First time I’ve seen that in several years. So I think that’s also part of it.
PENNER: All right, let me ask our listeners about this. Are you seeing signs that the housing market is turning around? Are you feeling a little more confident about being able to sell your house, if you are a seller, at a reasonable price? Or if you’re a buyer, are you starting to think wait a minute, I better get in right now because this market is going hotter and I need to pay as little as I can. So let us know, 1-888-895-5727, 895-KPBS. Scott, with home prices on the increase, what do you think this means for home owners who currently owe more on their homes than the houses are worth?
SCOTT LEWIS (CEO, voiceofsandiego.org): Well, that’s an interesting question.
LEWIS: You know, our reporter, Kelly Bennett, has culled a lot of data from this particular sector. She’s found that about 30% of people in San Diego who own a home owe more on their home…
PENNER: It’s called underwater, is that…
LEWIS: Yeah, owe more on…
DAVY: Upside down.
PENNER: Or upside down. What’s the difference between underwater and upside down?
LEWIS: Nothing. Nothing, yeah.
PENNER: Oh, okay.
LEWIS: So they owe more than they could actually sell the house for and what she also found was that about 20% of the homes that were listed for sale last year were short sales. In other words, the bank had allowed these people to sell for what they thought they could actually sell for and get out of their loan even though they were underwater. And – But only 9% of the total sales were actually short sales themselves. So there’s a ton of short sales on the market but they’re so hard to get through that they’re just being – that now people are actually advertising when they’re not short sales.
PENNER: So let’s see if I understand this. So let’s say that I owe $200,000…
PENNER: …on my home, okay, and I’m able to sell it for $150,000.
PENNER: The bank has to allow that and say, Gloria, I forgive you the other $50,000?
LEWIS: No, no, they certainly don’t have to in any situation. Now what’s happening is what’s very interesting right now. They can allow you to do that and sell it, that’s a short sale. But the Obama administration and now state officials are also considering incentivising that process where they not only would let that happen without taxing you because that would be considered an income, if you think about it. If somebody’s going to let you off the hook for $50,000 of your loan, that is an income and the state used to tax them and now the state’s considering getting rid of that, the federal government’s considering getting rid of that…
PENNER: In fact, I heard a news report…
DAVY: That’s right.
PENNER: …this morning.
YORK: Right, it passed…
DAVY: Okay, yeah.
PENNER: Were you going to tell us what it said?
PENNER: Go ahead, Kent.
DAVY: Yeah, that the state legislature had passed legislation to…
PENNER: And the governor said…
PENNER: …unless there’s something else in that bill that I don’t like, I’m going to sign it.
DAVY: Okay, and the federal law already…
DAVY: …exempts it.
LEWIS: Right. So…
LEWIS: …so then we – oh, but there’s another thing happening now the Obama administration is also urging banks and perhaps incentivising them to let you just clearly renegotiate your loan. So you could say, you know, I owe a hundred – or, $200,000 on it. I only have $150,000 I think I can sell this for, that they’re trying to actually get the banks to lower that. That’s the first time they’ve actually attacked the basic problem with the housing market. They’ve tried in the past to try to modify your payments so you could keep paying but now they’re going to actually deal with the real problem, which was that they owed more than they could sell it for.
PENNER: So in other words, the banks would basically say, all right, as far as our books are concerned, you don’t owe $200,000 on this anymore, you only owe $150,000.
LEWIS: Right, right, and it is one of the few investments that you can make in this country and fall flat on and yet still have the government come in and save you.
PENNER: I’m going to hold your comment, Tom, until we hear from Will in San Diego. Will, you’re on with the editors. Welcome.
WILL (Caller, San Diego): Hello. How are you?
PENNER: Good. Go ahead, please.
WILL: Well, I happen to be both buying and selling right now and I can tell you a little bit about my own experience in how the real estate market is working.
WILL: As a buyer, what we’re doing right now—I have a newborn son and we’re moving out of a condo into a bigger home—and…
WILL: Thank you. But we’re, you know, in a hurry to move before he learns to crawl and walk. And, anyway, he’s – In finding homes, when you’re in a timeframe, the market is moving quickly in that price range as the gentleman mentioned earlier. But most of the inventory that we’re running across is tied up in foreclosure or short sale so what I would call a clean property, something you can buy in, you know, relatively short escrow time, you know, like 30 to 60 days, there isn’t a lot out there on the market.
PENNER: That’s interesting. That’s very interesting. Tom, had you heard that?
YORK: I have heard that, yes. The banks are holding onto properties that they’ve either foreclosed on or they’re very slow to cut these short sale deals because I think the banks are trying to figure out whether or not a better deal might come along or more money may be offered. And so that’s slowing the whole process down of getting this recovery underway as I think the banks are kind of an impediment.
DAVY: I think I read earlier today that Bank of America’s estimating that something like a 600% increase in the number of foreclosures it will do in the next year.
PENNER: Oh, that’s big.
DAVY: Yes, a huge – a huge wave…
PENNER: That is a huge number.
PENNER: All right, well, how wise would it be – I’ll go back to you, Tom, on this, to stay in your home in a market that’s improving? Waiting for the home value to go up so that you wouldn’t – so you wouldn’t stay upside down if you’re upside down now.
YORK: Well, the key here is that, you know, your home – what is your home? Is it an investment? Or is it a place for shelter? And so if you’re there and you’re being provided shelter, I think you stay in the home. I wouldn’t look at it as an investment. I think it might take, you know, 10, 20, 30 years to come out of that. It just depends on your personal situation. I think a lot of people—and that’s what we’re facing now—a lot of people have to sell because they lost jobs, they can’t afford the mortgage payments, they have to move, they have to take jobs elsewhere. So that’s complicating the picture.
LEWIS: The key is can you make your payment now and can you make it when your loan adjusts or goes through in four or five years? If you can hold onto your home, your asset, for the next 10, 15, 20 years, you’re going to be fine. It’ll come out.
LEWIS: But the problem is if things adjust in that time, if you’re not secure in your employment or whatever and you can’t, then it – you look at it and you’re underwater. That’s what everybody faced, and that’s why they walked away.
PENNER: We’re going to come right back to this subject. We have a lot of people who want to talk with us and we have so many issues to talk about, including the fact that mortgage rates are going up, which can change the picture significantly. This is the Editors Roundtable. I’m Gloria Penner.
PENNER: This is the Editors Roundtable. I’m Gloria Penner. I’m at the roundtable today with Tom York from the San Diego Business Journal and Scott Lewis from voiceofsandiego.org, Kent Davy from the North County Times. We’re talking about the housing market. There is some action here. We hear that the median price of a home in San Diego has gone up, not a great deal but it’s gone up, and that rentals are on the rise. And now this week the news is that mortgage rates nationally are now up from 5% to 5.3%. So, Tom, first of all, I’ll ask you this. Will this price some would-be homebuyers out of the market? I understand that for every 1% that the mortgage rate goes up, the amount that you can spend on a house drops significantly.
YORK: Well, I think at some point it would have an impact, that fewer people would be able to qualify for mortgages but, you know, I think as we discussed is that there’s a lot of all-cash buyers out there chasing the lower end of the market and so it’s hard to tell exactly how many people who would qualify for a mortgage would be knocked out, you know, knock them out of a deal at this point. Houses are – housing prices are still pretty low.
PENNER: All right, let’s hear from Russell in Coronado now. Russell, you’re on with the editors.
RUSSELL (Caller, Coronado): Good morning.
PENNER: Good morning.
RUSSELL: Yes, I – The investors are skewing the market on the low end. They’re like sharks in the water here in San Diego. If you go to the auctions down at the courthouse, there’s dozens of them down there and they represent corporations and syndicates made up of investor money and they are buying up anything they can get ahold of. And the banks are giving them preference because – partly because the banks want to build up their cash reserves. But I was talking with a mortgage broker who works mainly in North County and Temecula and he said the banks are also – or the, I’m sorry, the realtors that are selling the foreclosed property are also doing open houses for investors before the properties are even getting on the mark – into the MLS. And oftentimes if they even get to the MLS, they already have an all-cash offer on them.
PENNER: MLS, Multiple Listing Service, right?
RUSSELL: Correct. Correct.
PENNER: Okay. So what you’re saying is that, I guess, what Tom was saying, that you come in with cash, you are a very desirable commodity.
RUSSELL: Right, and the banks are giving them preference over people who are trying to buy a home and it…
PENNER: Is that legal?
RUSSELL: There’s no laws – there’s no rule against it.
PENNER: Kent said it’s legal so I guess…
DAVY: Yes, it is legal.
PENNER: Okay, well, thank you very much. It’s kind of dismaying, isn’t it? I mean, you get, you know, just somebody’s out there looking for a house and he’s got competition from syndicates.
YORK: But if you look at it another way, Gloria, they provided a bottom to the market. They brought the market to a halt – the downward slide of the market to a halt and now they’re pushing it back up again. I think that’s good for everyone.
LEWIS: Well, it’s good for people that own the assets.
YORK: Well, a lot of homeowners are upside down and eventually their prices will come back.
DAVY: Depends on whether you want to buy a house or you want to sell a house, whether it’s good or not.
PENNER: Okay, let’s turn to Alex in Carmel Valley and Carmel Mountain now. Hi, Alex, you’re on with the editors.
ALEX (Caller, Carmel Mountain): Hi. My problem with this whole story for the past 45 minutes is the taxpayers. All your three stories has to do with the taxpayers’ money who are liable for all this spending, be it the pension program, be it the, you know, San Diego convention or the tax – or the for – the property tax forgiveness.
LEWIS: Yeah, the…
ALEX: You know, what should someone who’s, you know, worked all his life, you know, paid his taxes on time, didn’t bought that brand new BMW every year, has to do? I mean, you see your neighbor’s been spending money like crazy, his house gets foreclosed, oh, he still gets to keep the BMW because he bought it on second mortgage but, you know what, I’m the guy who has to pay pretty much over the long term pay for his share of the taxes.
ALEX: That’s not fair.
PENNER: Alex, you are right on with your point, and Scott wants to address it. Thank you so much for calling in.
LEWIS: Yeah, the common thread through all these stories is debt, is the belief that you can borrow from the future to support something beautiful now, whether it’s to incentivise people to buy homes or whether it’s to buy a convention center or whether it’s to pay for people that you – now work for you and then somehow in the future understand how you’re going to come up with the money as is happening all across the country. Basically the entire housing market is being fueled right now by the federal government’s decision that it would buy from fu – borrow from future demand of people who are considering buying a home and try to get them to do it now so that we could keep this thing from hitting bottom. And the question is, okay, what is going to happen in five years, what is going to happen in ten years when the pension’s due, when the bonds are due for the convention center, when the federal government’s debt gets to the point where it has to jack up interest rates. It’s a very interesting thread that he identified.
PENNER: Well, yes, and Alex is clearly concerned, Kent. Is there anything that we can say to him either to, well, validate what he said, which is what Scott was doing, or make him feel a little better?
DAVY: Well, with regard to the not taxing debt forgiveness on a home, it doesn’t – on a home sale, a short sale, that doesn’t strike me as a particularly onerous burden on taxpayers because after all it’s not money that anybody’s going to realize.
LEWIS: No, and that’s not…
DAVY: It’s just a paper transaction.
LEWIS: I don’t think that’s what he’s focusing on. The federal government, though, has incentivized first time buyers with just literal…
LEWIS: There’s – the federal government is now the largest purchaser of loans so it’s not even a market function right now. It’s literally the government’s decision to keep interest rates the way they are. And then there’s countless other programs going on right now to get people to buy homes, literally bribe them to purchase homes.
DAVY: True, and you’ve got Fannie Mae and Freddie Mac…
DAVY: …sitting on huge amounts of toxic assets now.
PENNER: Okay, Tom, you get the last comment on this subject.
YORK: Well, I was going to say to the caller, I understand that there’s a moral issue here that we haven’t talked about. But I would say to him that he missed the ride up but because he avoided some of the excesses, he also missed the ride down. So I think he probably is in pretty good shape compared to many people who did borrow on the future.
PENNER: Okay, thank you very much, all of you.