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What Will 2011 Hold For Local Housing Market?

Audio

Aired 1/28/11

San Diego was one of four regions to experience home price gains in 2010. We discuss the local real estate outlook for the new year. Could home prices rebound to the peak levels seen in 2006-2007? Or, is our region due for a double-dip in home prices?

San Diego was one of four regions to experience home price gains in 2010. We discuss the local real estate outlook for the new year. Could home prices rebound to the peak levels seen in 2006-2007? Or, is our region due for a double-dip in home prices?

Guests

David King, editor and founder of sandiegonewsroom.com

Scott Lewis, chief executive officer of voiceofsandiego.org

Ricky Young, watchdog editor for the San Diego Union-Tribune

Read Transcript

This is a rush transcript created by a contractor for KPBS to improve accessibility for the deaf and hard-of-hearing. Please refer to the media file as the formal record of this interview. Opinions expressed by guests during interviews reflect the guest’s individual views and do not necessarily represent those of KPBS staff, members or its sponsors.

ST. JOHN: Great. Thank you. Of let's roll onto our next topic of the hour which is real estate. Real estate markets. Another one that's close to many people's hearts. San Diego was the only large city in the county to post gains in home prices between October and November of last year. And it's one of only four cities in the country to see a slight price increase since this time last year. So what does that mean? So David, what do you think is gonna happen to home values in 2011.

KING: I wouldn't expect any great boom to come back through.

ST. JOHN: Too early to celebrate.

KING: Yes, exactly, way too early to celebrate. The federal subsidies for new home buyers have expired, and that helped things stabilize over the last couple of years. But the biggest difference between that the inventory of homes on the market has gone, and that's largely attributable to banks cutting back on foreclosures issue even their own self imposed moratoria, or the different states which have cut off the ability to do foreclosures of they don't want to do these foreclosures wrong, and have judge Judy reverse their foreclosure and be stuck with a house over its title. So that's been the biggest salvo, the difficulty in the kind of the common knowledge that it's difficult to sell houses now, because our homes are expensive around here in San Diego, and people know that there's not many people who can qualify for mortgages right now, that people aren't putting their homes on the market. So it's largely just a simple function of supply and demand, that people are smart enough these not to try and sell their homes, and there are also fewer foreclosure homes out there that are gonna be snatched up at fire sale prices. So it stabilized a bit. And as we talked about before, the population is growing here in San Diego. So there is a steady demand. Or fairly steady demand to the extent that people can qualify for loans of we've got a steady demand or steady population stabilization with the number of people who live here that are military personnel. So I would not expect a giant boom. But we should -- could hope that we're not gonna enter a double dip top of trop with property prices.

ST. JOHN: Okay. So that's the big fear.

KING: Yeah. And nationwide, we might be facing another drop from property prices.

ST. JOHN: Well, talk a bit about that. What might force home prices back down again and cause the double dip that everybody is afraid of?

KING: General economic circumstances that the fact that the unemployment statistics limit people's ability to move, to be able to buy new homes. So if we're not creating new jobs, then people don't have the type of confidence to take on this type of risk and buy a new house. So it's a simple function of supply and demand. And until we see some great improvement in our general economic and primarily employment statistics, you're not gonna have the ways there to support higher property values.

ST. JOHN: Ricky?

YOUNG: Well, I think another thing that might drive a double dip recession is another wave of foreclosures, as you know, Allison, foreclosures were down a little bit in 2010, however, a lot of that attributable to banks holding off on foreclosures during this 2004 over the way they were processing them, maybe without doing the proper paperwork. So that created a sort of false, maybe, reduction in the foreclosures for 2010, so they'll be catching up on those in 2011 plus because of the way the loans are structured, when they come due, people are expecting a big increase of those in 2011, so that could also conceivably precipitate --

ST. JOHN: A dark cloud hanging over us? But on the other hand, defaults the first notices of default are way down even more than foreclosures, and that's really a good sign, right?

KING: It is a good sign. But it doesn't mean that more people are current on their mortgages. I think the statistics are about the same, that people are still behind, they're just the banks are not pushing ahead with the foreclosure process.

ST. JOHN: But isn't the default process sort of slightly on a different --

KING: No, it's not automatic. Of if they're gonna post a notice of default and tape this to somebody's door, that's when they're getting started with the foreclosure process. So people are in default, people are behind on their payments.

ST. JOHN: So you're saying that even though defaults are way down, 36 percent down, apparently, there's enough people in that process already.

KING: The legal process of posting a notice of default is just like foreclosure in that banks ever holding back.

ST. JOHN: I see. Yeah.

KING: And Ricky is correct, as soon as they work out their legal kinks and they get their green light from the red house counsel, that okay, we're back doing foreclosures again, they'll resume, and this'll have a downward pressure.

ST. JOHN: So what -- sorry, what were you gonna say, Scott?

LEWIS: I think we're just seeing the end of what the government can achieve if it tries to change a market. The government gave incentives to new home buyers, it purchases mortgages and forced the interest rates down as far as possible. Obviously that's on top of the other things it does to incentivize home ownership, bike the mortgage interest reconduction on your taxes. The everything that the government could do to try to protect this market from further decline, and I think we're seeing the top of what it can achieve with that, and whether we go back down now or not, whether interest rates rise enough to force a further correction, I think is up in the air, except for the fact that we still haven't closed that gap, the ratio between what people can afford to pay, and what they're -- you know, what homes cost. The gap between what it costs to represent and what it costs to own, it's narrowing, but it's not narrowing enough. And enemy those dynamics change fundamentally, we're gonna be at risk for another further correction. Now, that's not necessarily -- we're assuming that's bad, but there are several people, the City of San Diego has a perpetual crisis declared about affordable housing. Property values are declining, which are which are it's not necessarily bad for those who want to live in affordable housing and purchase a home at some point. So I think we're all waiting to see how this shakes out.

ST. JOHN: So the UT had a pretty interesting article you were mentioning about renting or buying, that the gap is sort of closing for the arguments of doing one or the other. And you had a pretty article in the UT about that, Ricky, what's the conclusion?

YOUNG: Yeah, well, unfortunately it wasn't very conclusive for us, because we were sort of in the middle of the pack for the cities, and it sort of said that renting might be a little bit better or something like that. I think it was actually, renting is a little bit better, but it might be a little bit better to buy.

ST. JOHN: So it's interesting that it's almost advantageous now to rent as to buy, and that never used to be the case in San Diego, did it?

YOUNG: No. It didn't. But things have changed a lot.

LEWIS: Well, that article concluded it's still more advantageous to buy -- or to rent, except there's all these realtors who say, well, you really should consider buying. Of course they always say that, even at the peek of the market, it was a fantastic time to buy. So until it becomes very clear that, you know, with the mortgage interest reduction and with some other factors, it's better economically to buy and until that dynamic fully shifts and it's obviously, we're gonna see the correction continue. Because it just didn't make sense to poor money into something into an asset of declining value.

ST. JOHN: Put a call out to our listeners, anything you're seeing about the market you'd like to contribute to the Editors Roundtable, you can call us at 1-888-895-5727. 1-888-895-5727 KPBS. So now what about short sales? Are more people using short sales instead of foreclosures these days to get out of the problem?

KING: Yes. Banks seem to be facilitating more short sales, and that's just kind of another way of getting around the foreclosures and saying they're cutting back on foreclosures largely due to the legal risks of foreclosures being deemed improper. The loan modification federal program has never really panned out to help homeowners and help them stay in their homes. But more people are setting short sales, the key word that I think Scott said was correction.

ST. JOHN: Okay.

KING: The giant tech bubble in the late 90s, early 2000, I forget exactly how high the NASDAQ got, but dot com stocks were never worth a hundred and $80 million if the company's never gonna make money. A [CHECK AUDIO] is never going to be worth or it's just not worth 500, $600,000 like prices went up. So some prices will recover, but some prices shouldn't recover to the ridiculous, exposure tent prices that they were before.

ST. JOHN: Well, when you say never, it's a matter of time.

LEWIS:

KING: Well, it extends on inflation.

ST. JOHN: Yes.

KING: But it is a true correction in value for particularly condominiums in downtown San Diego. It was just insane.

ST. JOHN: Uh-huh. Scott.

LEWIS: And if you can afford your mortgage, you can wait to the time, maybe 5, 10 years when things finally hit a trajectory northward and things work out. But we were still dealing with the fact that 30 percent of homeowners in San Diego owed more on their homes than their homes were worth. And that's just that -- and so many of them realized that and said, well, here I am pureeing money into something that I'm under water on, why not stop? And then you have all the bankers at the same time saying, you know what? You can't renegotiate this unless you stop paying.

ST. JOHN: Yeah.

LEWIS: So you have just thousands and thousands of people who just stopped paying their mortgage so they could get these modifications or something. And until all that works out, and it's gonna be -- it's just going to be years, especially as the banks withhold that sort of shadow inventory, all those homes that they could put on the market or they could foreclose on, but they're just waiting for that to happen, and I don't think they're in any rush to [CHECK AUDIO] the market, because that just portends further correction, and that doesn't benefit anybody who actually has an interest in the asset price.

ST. JOHN: You're talking about a correction. But is it true to say that someone who is looking for a home to actually live in now is a pretty good time to 53? It's just if you're an investor it may not be.

LEWIS: Well, if you can get into a home, and it's probably a good time if you can pay the mortgage, and if you can pay the mortgage for 10, 15 years because the interest rates are still low. And you could probably get a big valley. You just need to be able to hold onto it for long enough that it works. You can't do what people were doing in 2004, 2005, where they were buying expecting that in two years, the home value would have soared so much that they could either refinance or sell and move into a bigger place of that's just not sustainable. And that's why it's so hard to get a loan compared to the way it was a few years ago.

ST. JOHN: I wanted to get back to a point that you made, David, about perhaps our housing market was protected a bit by the fact that we have so many federal employees in the City of San Diego. More than anywhere else except Washington DC, I understand. The military has a lot to do with that. If the military is such a crucial part of our economy, and the housing market always depends a lot on our economy.

KING: Absolutely, yeah.

ST. JOHN: Could future cuts to the military perhaps not be such a good thing?

KING: Oh, absolutely. Could you imagine if we went through another round of base closures and say they closed Coronado naval station north island, can you imagine the impact on Coronado if that many people who are out, you know, military employees flooded out of a small community like that? It'd be decimated. So yes, if there were a round of military closures, and if we're gonna face military cut backs over the next decade here, this is something that San Diego will be keenly involved in. [CHECK AUDIO] [CHECK AUDIO] [CHECK AUDIO].

ST. JOHN: And I mean, We are and the rest of the kitchen, we are watching those house prices still go down, right? We are still a bit of an exception to the rule. I don't know whether you'd say the military is one of the main reasons why our home price are staying stable.

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