San Diego Real Estate Forecast For 2011

Will local home sales pick up in the new year, or will high unemployment and the expiration of state and federal tax credits keep the sales volume low? We speak to local real estate experts about the latest trends in the San Diego housing market.

Guests

Dr. Michael Lea, director of SDSU's Corky McMillin Center for Real Estate.

Matt Battiata, CEO of the Battiata Real Estate Group.

Read Transcript

MAUREEN CAVANAUGH: I'm Maureen Cavanaugh and listen listen. The way real estate was sold, mortgaged, and used as an investment derivative earlier this decade led to the economic domino collapse that we refer to as the great recession. Now economists tell us that the recession in a strict sense is over, but the problems in the real estate market remain. Many had hopes that this year, with a big tax incentive to encourage buyers and interest rates at record lows, the real estate market would begin to row bound. And while there has been some good news, that turn around is still a hope and not a reality. All this hour, we'll be analyzing where the San Diego real estate market is at the end of 2010, and where it might be headed in 2011. I'd like to introduce my guests, Doctor Michael Lee is director of SDSU's Corky McMillin center for real estate. And Doctor Lee, welcome to These Days.

MICHAEL LEA: Thank you, Maureen. It's a pleasure to be here.

MAUREEN CAVANAUGH: Matt [CHECK AUDIO] good morning. Welcome back.

MATT BATTIATA: Good morning. Thank you.

MAUREEN CAVANAUGH: Now, we invite our listeners to join the conversation. Have you been trying to hold onto your property by getting a loan modification? Could you want do you want to sell? Do you know if next year will be a good time to buy? Give us a call with your questions and comments, 1-888-895-5727 is our number. That's 1-888-895-KPBS. So Michael, let me start with you, traditionally what is the real estate market like this time of year.

MICHAEL LEA: Well, the real estate market generally slows a bit this time of year for the holiday season, people who have had their houses on the market will probably pull them off, people generally aren't looking to buy that much. So this is generally a slower time of year.

MAUREEN CAVANAUGH: And is there anything traditional about this time of year in 2010, Matt?

MATT BATTIATA: This year -- this year, it's just slower. I mean, it's been slower in general since May or June of 2010. But as Michael said, you get a lot of people taking their homes off the market this year. That means [CHECK AUDIO] demand and increases when you have a lower supply. So you know, sometimes you see a little bit of surge of activity around the Christmas holidays.

MAUREEN CAVANAUGH: Let me -- let's take a step back and talk about the big motivator for people this year I think was the tax credit. And first of all, if you would, Michael, tell us what the federal government offered potential buyers?

MICHAEL LEA: Well, they offered a tax credit meaning that you had a reduction of taxes that you owe for the purchase, originally last fallit was only for new construction. And then they expanded it in the spring to all houses. And that really was an incentive, I wouldn't say it was a huge incentive from the standpoint of dollar amount in California and San Diego. I don't recall what the amount of the credit was off the top of my head.

MATT BATTIATA: It was $8,000.

MAUREEN CAVANAUGH: 8000. Yeah.

MICHAEL LEA: I was gonna say. And you think of the average price in San Diego was still in the three hundreds, you know issue that's not a huge amount. What it did do though was, as economists would predict, it brought people into the market that were are planning to be there anyway later in the year or next year. So when it had the effect of doing is moving sales up, and we're seeing the results of that now. Because people that would have been buying in the fallsimilaritied their purchase decision into the spring. So we had a lot of good signs and then it goes away.

MAUREEN CAVANAUGH: Right. I've been reading most people in the real estate industry say that that tax credit was a success, would you agree? Was it a success here in San Diego, Matt?

MATT BATTIATA: It was a success until April when it expired, yeah.

MAUREEN CAVANAUGH: Right.

MATT BATTIATA: Now, I agree with Mike will in that I wouldn't have thought it would have that big of an impact in getting people off the fence. But it did. So the spring was actually relatively beside. And once that tax credit expired, the market really fell off a cliff.

MATT BATTIATA: Mean, it slowed down dramatically. We usually slow down by the beginning of the summer. Because people want to be in by the time school starts. [CHECK AUDIO] the difference was this year, it slowed down in the beginning of May.

MAUREEN CAVANAUGH: So what does that tell you? That the rather meager incentive of $8,000 in this still very highly prized housing market, could have made that much difference? What does that tell you about the housing market?

MATT BATTIATA: I well, I think it tells you -- our biggest issue in San Diego County has always been affordability. And the silver lining if there is one in this whole real estate decline, is that San Diego has gotten relatively speaking very, very affordable. And I don't think it's gonna get more affordable. But compared to other neighborhood said in San Diego County, they are down as much as four percent or more. [CHECK AUDIO] that $300 house in some neighborhoods used to be a 6 or $700,000 house. So when you combine that with interest rates as unbelievably low as they are, we're seeing people gets rates as low as four percent. It makes our market much more affordable. It doesn't mean that we're at the bottom. But it does mean that we're getting close, and for buyers, it makes this market a lot easier to get into.

MAUREEN CAVANAUGH: Even though relatively, we're a lot more affordable than we used to be, we're still I believe the twelfth least affordable market in the entire country. ; is that right Michael.

MICHAEL LEA: Yes, I actually was gonna say it's about the tenth. But it's still higher [CHECK AUDIO].

MAUREEN CAVANAUGH: And 55 percent of people in San Diego can't afford to buy homes. Is that still the case.

MICHAEL LEA: Can. Yes, when it used to be less than 25 percent. So I definitely agree with Matt, between the price declines and the low interest rates, if you can get a loan that we have a much more affordable market now. And that all other things being equal should stimulate more buying.

MAUREEN CAVANAUGH: We're gonna be talking about if you can get a loan, I am speaking with Matt Battiata, CEO of the Battiata real estate group, and doctor Michael LEA. He's director of SDSU's Corky McMillin real estate Center. Our number is 1-888-895-5727. So let me start in on that, Louise is calling from azalea park. Good morning, Louise, and welcome to These Days.

NEW SPEAKER: [CHECK AUDIO] temporarily hold of three months. I just wrote my 5th check, it's being held in a trust account. I'm concerned about -- I've been in touch with them, they say it's coming, and nothing's happening of but I'm hearing stories of people getting foreclosed on in my situation. And I want to know if there's somebody else I can call or something else I can do.

MAUREEN CAVANAUGH: Who would like to take that?

MATT BATTIATA: You know, your best bet is to keep in regular contact with your lender, like it sounds you are doing. The foreclosure process in California is once you're 90 days behind, they file a notice of default, it's a minimum of 90 days, and then typically another 90 days, they'll file a notice of trustee sale, which is the foreclosure sale date. You will get those in the mail, and those come from the county recorder's office, by the way, they're not coming directly from your lender. So you want to keep on track of that, and if you get a notice of default, if you get a notice of trustee sale, you should really be on top of it and get the sale date postponed which you can do by calling your lender. Many times the lender is only the servicer of the loan, they're not the actual trustee. So sometimes they may tell you, oh, no, you're fine, and yet you're getting these notices in the mail. So if that does happen, you want to make absolutely sure that you get that sale date postponed, because unfortunately that does happen to people in the middle of loan mods.

MAUREEN CAVANAUGH: And we're taking your calls at 1-888-895-5727. And Dave's on the line from Pacific beach. Good morning, Dave. Welcome to These Days.

NEW SPEAKER: Hey, good morning. So we tried to refinance some time ago, and we were told no because our loan to value ratio beyond the scope was not where it should be. Even though we both have excellent credit. Like, both our credit scores are over 800. I'm anticipating the aim answer when I go back for a stockholder ask the doing this. Any ideas where I can go from there when they say no, the value is still not good.

MICHAEL LEA: I'm not really sure there is. Of the lending guidelines remain tight. There's been some loosening on both the conforming and nonconforming side, but it's very marginal, it's in effect, and they're still fighting last year's battle in my opinion, by restricting credit that would be helpful in getting the market going again.

MAUREEN CAVANAUGH: And I have just an etc. Dotally -- anecdotally I have spoken with some people who have tried to do loan modifications or refinances, and they've needed to have another appraisal taken sometimes only a year or two later, and the housing value keeps going down. Is that an accurate perception Matt?

MATT BATTIATA: Yeah, absolutely. And for Dave, the caller, you know, he's a candidate for a loan modification. Ful when you don't have equity in your home or enough equity, you try, you know, you do a loan mod, which is basically just a refinance on property you don't have equity in. You know, the thing is is that the lenders still pretty much across the board have very little interest in modifying people's loons. So for Dave and also for the previous caller, I think the most important thing you can do if you're considering a getting a loan modification is have realistic expectations. In other words, if you do qualify, and your chances are pretty slim, about five percent of the people that apply for loan mods are actually getting them. But more personal, before you spend the six months to Ia year that it takes to get a moon mod, and a lot of the lenders will tell you, as long as you're current, we can't do a loan mod. So people stop making their payments, and now they're in foreclosure am before go through that, find out what you would get in a loan remodification. [CHECK AUDIO] find out if that's even a possibility, because in most cases, all the banks will do is slightly reduce a borrower a payment, and typically, it's simply deferred interest. So if they lower your payment from 300 down to, say, 2500, that $500 you're not paying simply gets tacked on to the back end of your loan. So it's turning your loan interest a neg end loan. Of so before you go through all the heart attack and taking the risk in making a loan mod, make sure you have realestic expectations of make sure the $2,500 a month pans out for you.

MAUREEN CAVANAUGH: And is anybody doing loan modifications that actually reflect the value of the house now?

MATT BATTIATA: Principle reductions?

MAUREEN CAVANAUGH: Yes. (REPEAT LAST PHRASE).

MICHAEL LEA: Very little. Some banks for loons they hold in portfolio are doing there. But Fannie Mae and Freddy mack, were loans that were securized, there's been no movement, which is the reason why loan modification programs evaporate been successful. Because for the most part they're not addressing the real problem, which is the negative equity problem.

MATT BATTIATA: And Maureen issue that's really the next -- that's really the next big shoe to drop in San Diego and across the country. You know, you hear this term shadow inventory, shard of shadow inventory are homes the banks have foreclosed on, but haven't yet put on the market. But a bigger, the mainly shadow inventory or people who are in default, they can't afford their homes, and they're in this limbo of trying to do these loan modifications that for the most part are never gonna happen. So those people end up being a short sale, best case scenario, or worst case scenario, foreclosure. Of [CHECK AUDIO].

MAUREEN CAVANAUGH: We're taking your calls at 1-888-895-5727. We're talking this hour about San Diego real estate. And John is on the line from El Cajon. Good morning, John, and welcome to These Days.

NEW SPEAKER: Good morning, thanks for taking my call. I've been in the loan modification process for over a year now. I started with bank of America, we got an acorn loan which helped us get into the house. We're currently paying almost six percent interest, which was a good deal at the time, and we are upside down. It seems like basic of America just keeps pushing us off. We are making current payments. We have perfect credit, and you know, we hear that, yes, we want to help you, we want to, work with you. Of if we were able to get our loan down even to the current interest rates which would be excellent, then we would be, you know, like, financially secure. I guess right now we're just barely -- you know, we're break even. We're paying our bills, the house payment is every month on time. [CHECK AUDIO]. But it seems like they're dragging and dragsing. [CHECK AUDIO] our income to equity ratio and things like that, and they said well, you should probably just walk away and get an apartment.

MAUREEN CAVANAUGH: Well, there you go.

NEW SPEAKER: And this has been going on for a year and a half, we have made every single payment and we're not going further in debt. We just break even.

MAUREEN CAVANAUGH: It sounds as if you want to, John, you want to hold onto this home.

NEW SPEAKER: Oh, absolutely. Absolutely, absolutely.

MAUREEN CAVANAUGH: Uh-huh.

NEW SPEAKER: It's just that if we had a modification then we would be able to start putting money into savings.

MAUREEN CAVANAUGH: Sure.

NEW SPEAKER: And actually living securely.

MAUREEN CAVANAUGH: John, let me get reaction to your story. Michael, what kind of chances does Jan have to actually -- he's been working on this refinancing now for a year and a half, a loan modification, he wants to bring his interest rate down. If he gets it down to where it is, like four percent and change these days, he'll be able to, you know, keep the house and put away something for savings, even though he's still upside down on the house. So what kind of chances does he have?

MICHAEL LEA: We have to look at the other side of that equation. There is an investor in that loan, they are earning the six percent return. And that's what they expect uponed to get when the contract was signed. So they're looking at a borrower who is current, making their payments, and say, well, are as long as they continue making the payments, I get my six percent interest. That's what I'm most interested in. So they are very reluctant to go in and refinance, and particularly, any kind of principle reduction because it comes out of their pocket. So it's a trade off, and it's also a slippery slope, because the view I think, amongst a lot of investors is if they start getting a little more lenient on things like principle reduction, the question is, does that then engender a large are amount of, you know, new defaults or requests for refinancing, which has negative impact on their returns.

MAUREEN CAVANAUGH: We have to take a break, but Matt, I just want to ask you really quickly before we take that break, are there any incentives for lenders to make these modifications?

MATT BATTIATA: The only incentive is for -- is to avoid foreclosure. So if the lender things that you're gonna default on your loan, and they're gonna have to foreclose, then they're modified to modify your loan or to do a short sale. That's why most basics if you're current on your payments as the caller is, say, well, you say you can't afford it, but you're still making your payments. [CHECK AUDIO] they're not telling him, usually they tell people, until you're behind on your payments we're in the gonna do anything to modify your loan. The thing is, with most of the nation's lenders, they really in general will not do anything meaningful to modify people's loons, period. And so that's why I say have realistic expectations of what the bank might do for you before you put yourself in default and miss months and months of payments.

MAUREEN CAVANAUGH: Because then you're opening the door. Now you're looking at a foreclosure. Exactly.

MAUREEN CAVANAUGH: Right. We do have to take a break. [CHECK AUDIO] and to take your calls. 1-888-895-5727. You're listening to These Days on KPBS.

MATT BATTIATA: Most of the those homes are going to end up either coming on the market either as a short sale or as a bank owned property foreclosure. Soap those are distress sale, and especially when they're foreclosures, they put a lot of downward pressure on prices.

MAUREEN CAVANAUGH: That's what I was gonna ask. What is the impact of this kind of inventory hanging around out there actually do to the current real estate market?

MATT BATTIATA: Well, it's a big impact. The biggest one is like I say, people that are in this what I call loan modification limbo where like they have been trying to do a loan mod for over a year. A lot of those people do stop making their payment either because they can't afford them or because the bank tells them to stop making their payment. And now they get to the point where they've -- they're -- it's the 11th hour, they're either gonna do a short sale, hopefully, or worst case, they're gonna get foreclosed on, either way, like I say, it puts a lot of downward pressure on prices. So until we get all of those homes through the system where people who cannot afford these homes either get their loons meaningfully modified so they can save them, they do a short sale, or they do a forecloser. Until we get all those through the system, the market can't recover. And that's why I believe 2011 is gonna be I repeat of 2010. I really do.

MAUREEN CAVANAUGH: Talking about getting those homes through the system, earlier this fall, Michael, we heard about a halt in foreclosures. There was something wrong with robo signers, they weren't doing the paperwork correctly in many states around the country. How did that affect us here in San Diego and in California.

MICHAEL LEA: It had less an effect here because we're not a judicial state. So the states that you have to go to the Courts and the Court is ordering the final resolution of the process, I think there was, like, 17 or 18 states really were the major areas there where the Courts said you don't have the proper documentation to show that you own the loan, that you have the loan on that property, and that, I think, reneglected a bigger problem which was that the volume of the default and foreclosure process is such that the servicers, the banks and lenders who service these loans are still kind of behind with regard to proper staffing, both in terms of quantity of people and the types of people that are involved there, so they turn to third party entities like these professional, you know, almost like notaries that are going around and doing this. My sense is that that if anything exacerbated the over all negative situation in the market because if really keeps that part of the shadow inventory Matt was talking about large. And you know, you've got two type was inventory, you have the visible inventory. We know the banks have a certain set of properties, they're releasing those on a measured basis so they don't have a big hit on property markets. But the invisible part is you've got all these delinquent loans that are out there at some point in time, a very high percentage of them are gone go. Of the houses will be hold, but it creates a lot of uncertainty as to when that's gonna hit the market. And as a consequence, if you're a buyer, do I buy now if I think that you're gonna have another significant price decline as these get resolved? And it just makes the market more unconcern and weaker.

MAUREEN CAVANAUGH: We are taking your calls at 1-888-895-5727. Joe is calling us from Coronado. Good morning, Joe, welcome to These Days.

NEW SPEAKER: Hi, thanks for taking my call. I had a question for the experts I understand that presently approximately 25 percent of homeowners are under water. Of that's the possibility that the housing market could drop another ten percent? If that was to happen, it's forecast that an additional 30 percent of borrowers will be under water which would bring 55 percent of borrowers under water. And what implications would that have on San Diego housing market prices over the next several years?

MAUREEN CAVANAUGH: Thank you, Joe, thanks for the call. Anyone want to take that.

MICHAEL LEA: I think it's definitely going to have a negative influence on prices. When we'll see double digit declines, I think that's probably not gonna happen because this -- as this inventory becomes visible and gets into the market, it's not gonna be all at once. And so I think the bigger effect is you're gonna see a weak market with declining house prices probably in the single digits as Matt said, probably through next year. We're not gonna really start to see a recovery until 2012, assuming this you can get the shadow inventory through the system. The longer we delay, the further we push the recovery out.

MAUREEN CAVANAUGH: I want to start talking a little bit about lenders. Because as we've been hearing not only about loan modifications but just getting a loan to buy a piece of property is a very difficult process now. Matt, tell us about that. And why does that persist?

MATT BATTIATA: Well, there's -- it's not that it's that difficult. You simply have to qualify now based on your income. Soap there's no more stated income loans. So now you have to qualify based on your last two years of tax returns and on your income. And you have to document it. And the banks are very circumspect about giving loans. Part of that is the banks, you know, wanting to not lose money in foreclosures. Part of it is the FDIC telling them they've got too many real estate loans on their books already. But you know, the only thing keeping our market going in San Diego County is FHA loans. Fannie Mae and Freddy MacAre still insuring the majority of loans. Of the [CHECK AUDIO] FHA is up to 700000 in San Diego County now. So it is doable to get a loan, and because rates are so low, and because values have dropped so much, I tell you what, are the majority of the buyers we see out there are doing FHA loans.

MICHAEL LEA: I can expand about that a little bit. I think you're gonna probably see FHA tightening up itself. There's a lot of people in Washington and experts around the country that think that it's not, you know, financially sound for an insurance company to be providing that high of a loan devalue ratio loan, and at some point in time, we're gonna have a potential bail out of FHA because the insurance premiums are not enough to cover the experted losses there. We'll see what happens on that.

MAUREEN CAVANAUGH: So when you say tightening up, do you mean it would bring down the amount of the loan or the amount that you have to put down or both.

MICHAEL LEA: Well, probably both. Probably, I was thinking more right now in terms of the maximum and the value ratio, maybe dropping to 95 percent, and insurance premiums rising making the cost of that a little bit more significant. So I think you're gonna see some tightening of FHA. I think the policy question here is Fannie and Freddy which are 80 percent own and a hundred percent effectively owned by the government, still act as though they're private investors, and refuse to refinance and do a lot of loan modifications principle write downs. And it's because they're in this weird position called conservatorship. Somehow we're conserving capital and conserving assets so they can [CHECK AUDIO] you look at the losses there, and you realize that these are government agencies and entities. If we could get more credit flowing through the market now, we would, you know, I think help improve the housing situation and get us out of the situation we're in. But that's not happening.

MAUREEN CAVANAUGH: Okay. Let me see if I be what you've said then, because if you could get more credit into the market and more of these properties that are sort of hanging in the air, possibly in default, trying to get their loans modified, if they got their loans modified and those people were settled in their homes and there wasn't this shadow inventory, then housing prices might stabilize and begin to go up? Is that kind of it?

MATT BATTIATA: Absolutely.

MICHAEL LEA: Yeah.

MAUREEN CAVANAUGH: All right. I just wanted to make sure I was understanding it. We're taking your calls the at 1-888-895-5727. Raul is calling from San Diego, good morning, Raul, welcome to These Days.

NEW SPEAKER: Thy, thanks for taking my calls. I just wanted to get your views on keeping in mind that the reason for the loan mod low interest rate, and keeping in mind inflation concerns, and long-term inflation concerns, what do you predict that would go to?

MAUREEN CAVANAUGH: Okay. So your question is about how interest rates might change in the future, and whether they're gonna stay where they are or perhaps go up. What do you think, Matt?

NEW SPEAKER: Right. Ful.

MATT BATTIATA: I think in the near term you're gonna see interest rates staying low, then as the economy starts to recover, and the market starts to recover, you're gonna see interest rates going up. That's what we saw in the 90s, really. Interest ratings going up as the market recovered. But there's a lot of issues going out out there on the national level. But I think that the good news for the immediate future, six months to a year I think you're still gonna see historically low interest rates.

MAUREEN CAVANAUGH: And would you agree, Michael?

MICHAEL LEA: I would definitely agree with that. I think the weakness in the economy plus the FED's aggressive buying of long-term Treasury bonds is an attempt to keep those [CHECK AUDIO] quantitative easing. But I think they're gonna remain roughly in this range for probably the next year and then you're definitely gonna see higher rates in the four.

MAUREEN CAVANAUGH: Okay. We're taking your calls. 1-888-895-5727. Eric is calling from San Diego. Good morning, Eric, welcome to These Days.

NEW SPEAKER: Hello, how's it going? I had two questions, one is from the standpoint of a buyer. I was curious, would banks basically, private banks not interested in taking any types of loans on their own books, why would I be interested in a buyer if the private banks aren't even interested themselves in investing in this market? Obviously that shows they don't support the market and they don't believe there's a value there to support those levels because they're not willing to make certain investments. So that was my question from that standpoint. Then I had a second question, I know a lot of these investment poles that purchase these loans from the banks they ended up having repurchase agreements in a lot of these contracts. A lot of these investment pools looking into that as an alternative to actually foreclosing and going through the process of foreclosure or short sale with the sellers of these homes instead of, you know, looking at that as an alternative to go against the banks instead of going against the home owner.

MAUREEN CAVANAUGH: Two great questions. Thank you very much, Eric, let's start with the first one. Why would anyone want to buy in this market if the -- as Eric points out, maybe banks don't even have much of an impetus to support the market.

MICHAEL LEA: Well, I go back to Fannie Mae and Freddie Mac Right now, because they're providing about 90 percent of FHA financing. And a lot of it has to do with the type of mortgage we use right now. Of the preferred mortgage is a long-term 30 to 50-year are fixed year mortgage. We found out in the 1980s that that's not an asset that is I think banks can safely invest in. There's just too much interest risk there. So it's not necessarily that the bank won't make and hold those loans. They will make loans that don't fit Fannie and Freddy's categories, but they're almost all adjustable loans. You might get so called 51 or 71 arms, and those are available and actually have gotten a little bit easier to get recently. But with the preference of people to have the long-term fixed rate mortgage, gets back to who invests in those mortgages. Primary leer it's Fannie Mae and Freddie Mac, and they're still keeping the situation tight.

MAUREEN CAVANAUGH: And Matt?

MATT BATTIATA: Well, I think for the caller, he would want to buy if he wants to own his own home and wants a roof over his head. Of the banks are circumspect about lending because they're worried about people defaulting on their loans. If you buy a home that you can afford and -- I mean I think that the silver lining in this, in what we're going through is that the market is gonna get down to a point, and we're not that far from it, that will represent the buying opportunity of a lifetime in San Diego real estate. In our lifetimes in San Diego real estate. The markets always over react. So this market is gonna over react to the point where it's extremely affordable, it's gonna get extremely inexpensive, and then it's gonna go up again. [CHECK AUDIO] that's the answer to his question. If he wants to buy something to flip it, I think he's gotta know extremely careful. But if he wants to buy a home and live in it for the long-term, you know, rents are going up. It beats renting.

MAUREEN CAVANAUGH: Right. We have to take a short break, when we return, I'll ask the second question about those investment returns purchase programs that sounds very interesting. And also continue to take your calls about San Diego real estate. The number is 1-888-895-5727. You're listening to These Days on KPBS.

We continue it talk about the San Diego real estate market. I'm Maureen Cavanaugh, You're listening to These Days on KPBS. My guests are Matt Battiata, he's CEO of the Battiata real estate group. And Dr. Michael LEA is director of SDSU's Corky McMillin center for real estate. We're taking your calls at 1-888-895-5727. A lot of people want to join the conversation. I'm gonna go right to the phones, but first, the second part of Eric's question. And that was about investment pools, and do they have -- they might have this repurchase arrangement. They bought some real estate based securities, and they might be able to go back to banks and ask them to repurchase those securities. ; is that right?

MICHAEL LEA: Either the loans that are part of the pools that under lie the securities or in some cases the repurchase of the whole security. That has to do with whether the lenders that created those loans followed their guidelines that existed at the time. And I think where the caller was going with that is to say, well, does that mean it's gonna become easier for people to negotiate with the lender because now you've got a different owner of the loan. And the answer is mixed, that you will have more of a direct relationship now between the bank that's servicing it and now owns it. And there's some evidence to suggest that banks are more likely to, you know, kind of modify loans that they own rather than the loans that they service for others. But a lot of these loans that are being repurchased aren't necessarily in default. They just were not under written correctly.

MAUREEN CAVANAUGH: Right, right go ahead. I'm sorry.

MATT BATTIATA: Well, I was just gonna say in general, and I'm saying this as someone who's been to Capitol Hill in Washington DC three times in the last two years, and most recently this fall, the government has made modifying loans voluntary on the part of lenders. And so in general, banks including -- and then Fannie and Freddie, the GNCs are basically unwilling to modify people's loans in any meaningful way. So the good news is that they have come to the conclusion based on their experience over the last 4 or 5 years that short sales are a much better option than foreclosures, and so the short sales are getting easier and more doable, and now with the tax laws that have been passed both at the state level and at the federal level, you know, that's a good option for people. And I hate to be pessimistic, but until something dramatically changes, which is gonna be the government forcing people to modify people's loans, loan modification in many cases is really not a viable option.

MAUREEN CAVANAUGH: We're taking your calls at 1-888-895-5727. Christi's on the line from San Diego. Good morning, Christi, welcome to These Days.

NEW SPEAKER: Good morning thanks for taking my call.

MAUREEN CAVANAUGH: You're welcome.

NEW SPEAKER: I have a request about refinancing. I tried to refinance my home, and have a little bit of equity in the home, and when we went through the refinancing process, we put down some money to freeze the interest rate, for us to hold the interest rate, are and then they sent an appraiser down from Orange County to do the appraisal. And this appraiser, obviously not completely familiar with San Diego market, and also used a district property in the evaluation of the home price of the value of the home. And because of the -- the valuation that they made, or rephi cannot go through because it wasn't enough to meet their threshold. So my question is, really, is there anything that can be done about that when the appraiser doesn't do the appraisal properly, and [CHECK AUDIO]. And they pretty much ignored me.

MAUREEN CAVANAUGH: Well, let's find out. Christi, thank you for the call. Can she get a second opinion?

MATT BATTIATA: She can try, and her best bet is to try with a different lender. Unfortunately, they don't -- even though it sounds like this appraiser is from out of the area and not familiar with her neighborhood, but there's a common misconception that people think, well, yeah, there was a foreclosure down the street. But that was a foreclosure, and that shouldn't be counted. Unfortunately appraisers count short sales, foreclosures and regular sales all pretty much the same. They don't give consideration for, well, that house was a foreclosure, and the whole house had been destroyed, and that's why is sold so cheap. Of her [CHECK AUDIO] before she pays for another appraisal, she can call an agent who knows her area. And you can have an agent pull comps for you in a half mile radius around your home and tell you, this is where realistically your value's gonna come to of of that's her best bet as opposed to spending 500 bucks on another appraisal.

MAUREEN CAVANAUGH: Now, the fees that she paid for that refi, are they gone?

MATT BATTIATA: Well, the only thing I'm sure she paid for was an appraisal.

MAUREEN CAVANAUGH: Was the appraisal. All righty. Of and that's gone. Sergio's calling from Camp Pendleton. Good morning, Sergio, welcome to These Days.

NEW SPEAKER: Good morning, thanks for taking my call. We bought a house back in 2003, I'm in the military, and I'm stationed in it Camp Pendleton. And we wanted to be close to Camp Pendleton, we got a house in Murrieta. Paid about $303,000 for it. The house is currently worth about 210. I got a great loan at the time. It was a 4.9, so we're still comfortable with the payments. The problem is, you know, the payment that we're making right now, you know, we wanted to extend our house a little bit. But I guess a couple of questions. Am I throwing good money after bad, and number two, is it worth putting money into this home or trying to short sale and getting a better home which is what we Really want?

MAUREEN CAVANAUGH: Okay, well, Sergio, thank you for the call. So I guess it all depends on a person's personal feeling, whether or not they want to stay in the or not.

MICHAEL LEA: I think that's the bottom line there is if you are comfortable with this house and you like the location and you don't anticipate selling in the next couple of years, then, you know, I think you're still -- sounds like you're in good shape. You know, the second option, do I do a short sale and then buy a bigger home, you know, is complicated by the fact that the short sale does have a negative impact on your credit record, and it's gonna make it more difficult for you to get a loan. So it doesn't sound like that's a viable strategy.

MAUREEN CAVANAUGH: I know you do a lot of short sales. But there really is that impact. Somebody can't do a short sale and walk away from a property. [CHECK AUDIO].

MATT BATTIATA: No, it's a -- we see people being able to buy within a year of cooing a short sale, of their doing a more conventional loan. But yeah, that's part it on of it. Of and it's a tough question for him, when somebody's upside down, like he is, $100,000, they lose motivation to stay in that property. And if he likes his home, and he can afford the payments and he wants to be there long-term, then like you said, it's up to personal preference. Unfortunately a lot of people to decide, listen, this is just a bad investment I made, and I need to get out of it. And you see all of those, which is called a strategic default, a strategic short sale. And those are getting to be very common.

MAUREEN CAVANAUGH: We're taking your calls, 1-888-895-5727. And also, if yes, I do like to comment, you can go on liven at KPBS.org/Thesedays. Mike's calling from imperial valley. Good morning, Mike, welcome to These Days.

NEW SPEAKER: Good morning, how are you doing?

MAUREEN CAVANAUGH: Iate.

NEW SPEAKER: I'm a first time home buyer, I'm looking to buy for the first time, and I know I missed out on that credit for the $8,000 this year. I was wondering what incentives are out there for us to buy, the first time home buyers?

MAUREEN CAVANAUGH: Anything coming down the pipe that we see.

MICHAEL LEA: I don't see, given our budget situation, either on the state or federal level any kind of additional credits or incentive the. I think the only thing out there is the, if HA program which does, as Matt said earlier, allow you to get in with a fairly small down payment.

MATT BATTIATA: Yeah, I mean, I think the incentive is that you got unbelievably low rates and very low home prices, you know, relative to where they were a few years ago.

MAUREEN CAVANAUGH: Right. One of our callers wants to know how linked is the current home, real estate market and unemployment? I mean, is that a sort of a cause and effect thing? People don't have jobs and they can't qualify for loans and what kind of impact does it have?

MICHAEL LEA: Well, it has a couple of different impacts. Obviously, if you are either un. Willed or less than [CHECK AUDIO] which a lot of people are, your buying power and also your staying power in the house is severely eroded, but I think it also plays into the over all weakness in the market because if you are uncertain about your future. Ofment prospects, even if you're fully employed now, this is not the time to go out and buy a house. So it keeps some potential demand on the side lines.

MATT BATTIATA: Yeah.

MAUREEN CAVANAUGH: Now, we're getting up on time, so I really do want to give you both a chance to talk about your predictions for next year. And Matt, you've given us a taste of what your predictions are for 2011. But this is the first time in the two years that we've been talking, I think, that I've heard you say that you really doing that we are very close to the bottom of this market.

MATT BATTIATA: I think we are -- I think we are -- it's all relative. I think we're a year to two years from the bottom am -- from a turn around.

MAUREEN CAVANAUGH: From a turn around.

MATT BATTIATA: Yeah, and I think the reason for that is if you look back 50 years in San Diego real estate, it's a roller coaster. Peeks and valleys. We had a peek in -- more recently a peek in 1980, bottom in 84, peek in 1990, bottom in 96, peek in 04, 05. I think we're a year or two away from the bottom. And the good news is, yeah, once we hit bottom, it'll be very similar to if you were being in 1996. Except it's gonna be even lower. So it is a huge buying opportunity once we get to the bottom and we're almost there. But we have all these people if you go back to that last peek, we have all these people who either bought at the last peek, say 2004, 2005, and put very little down, because the banks encouraged you to do that. Or if they bought in 2000 and 2001 and refied and pulled out their equity at the peek. So we have a huge number of people who owe at those people values. And so we have to get all the way down to the bottom, which we're almost down to, and then all the way back up to these peek levels. Upon for any of those people if they have to sell their home for any reason, because they can't afford it or they lose their job or they get a job transfer or they get a divorce. All of those reasons, until we get back up to these extremely high peek levels are upside down. [CHECK AUDIO].

MAUREEN CAVANAUGH: And there are some really estate experts who said -- who have told us here on this program, they don't think we're ever gonna get up to these peek levels again.

MATT BATTIATA: Well, forever's a long time.

MAUREEN CAVANAUGH: Fair enough. Michael, what are your predictions for the real estate market here.

MICHAEL LEA: Well, we were talking about we had to find something to disagree about, but I don't think this is it. I think the market is gonna continue to be weak, and it reflects all the factors we've been talking about before. And when this turns around, it really fends on two factors, one is let's get this economy going again. We have to get both positive job creation as well as people beginning to feel more comfortable with their economic situation. And secondly, we have to work our way through this backlog of under water properties and defaulted loans, and the sooner we can do that, are the sooner the turn around is gonna take place. Unfortunately because bureaucratic ineptitude and kind of political pressures to slow the process down, that extends the weak period out. So certainly through next year, 2012 it really depends on those two other factors.

MAUREEN CAVANAUGH: So if someone came to you and said, you know, I love these interest rates, I'm really in the market. I think I might qualify. I really want to buy something in 2011. Would you tell them to wait until the end of the year or try it out in the Spring time?

MICHAEL LEA: No, I'd say if you're interested in buying now, you shouldn't make that decision based on what's gonna happen in the first year or two that you own the house. And this is not flippers. This is people who want to buy the house because they want to live in the house. This is a very good time to buy. And I don't think they should try to time the market.

MAUREEN CAVANAUGH: And just briefly, Matt, what kind of inventory are we looking at in are we gonna see more houses on the market?

MATT BATTIATA: No, I think, yeah, you're gonna see an increase in inventory in 2011 you're gonna see a lot of people who realized their loans didn't work out. [CHECK AUDIO] you're gonna see the banks stepping up foreclosures, so you're gonna see more REOs coming on the market. It's just a miscellaneous -- it has to happen. We have to get this inventory through the market. But you know, I don't know that it's necessarily the case that we're not gonna get up to these -- to our peek levels at the next peek. I mean, I think our next people is gonna be 2000 ', 2019. And it is possible, I think you're gone see prices go up 40 or 50 percent at least in San Diego in that time.

MICHAEL LEA: [CHECK AUDIO] and there's not restrictions on future buildings, so ultimately, the pressure is for an increase.

MAUREEN CAVANAUGH: Ending on a good note. That's really, very very good, I want to thank doctor Michael LEA, thanks so much. And Matt Battiata, thanks again.

MATT BATTIATA: Thank you.

MAUREEN CAVANAUGH: And if you'd like to comment, go on-line, KPBS.org/These Days. You've been listening to These Days on KPBS.