Spring Home Buying Season Underway In San Diego

MAUREEN CAVANAUGH: Coming up as the price of homes go up in San Diego, will more people be willing to sell. That and other questions ahead in the spring real estate preview. Give us a call with your questions at 1-888-895-5727. It's 12:21 and you are listening to KPBS Midday Edition. This is KPBS Midday Edition. I am Maureen Cavanaugh. It's not just wildflowers that start to come out in the spring, it's also the season that homebuyers start entering the real estate market in numbers. Spring 2013 is shaping up in some favorable ways for San Diego buyers and sellers, but there are also some threats looming like the effects of sequestration and a possible government shutdown could have on the real estate market. Joining me with a spring real estate preview are my guests. Dr. Michael Lea is president of the SDSU Corky McMillan school of real estate and Michael, welcome back to the show. MICHAEL LEA: Thank you, Maureen. MAUREEN CAVANAUGH: Gary London is a real estate economist with the London group of Realty advisors and thank you very much. GARY LONDON: Thank you very much. MAUREEN CAVANAUGH: If you have a question about buying or selling property the spring we were trying to arrange a loan modification or refinance give us a call we don't have a lot of time to the questions but if you call us now we may just get your question in. That is 1-888-895-5727. Now, Michael, recently we've seen home prices jump in San Diego the median price of a home in February was 18% higher than last year at this time. You expect home values to continue to increase throughout the spring? MICHAEL LEA: In the short run, yes a big reason is we don't really have much inventory and there is a second demand in part because of the low interest rate so I would expect that to continue to see upward pressure on prices. MAUREEN CAVANAUGH: Would you call this a sellers market then? MICHAEL LEA: I think it's certainly a buyers market right now, but from the selling standpoint it really depends on the individual situation whether they need to sell, or whether or not they want to wait and see if the market continues to improve. MAUREEN CAVANAUGH: Inventory is still low. Gary, what's going to (inaudible) have more people decide to put their houses on the market? GARY LONDON: We are probably being perceived by most protective sellers people mice might loose on as being in the early stages, to use a baseball analogy, we are probably in the first or second inning of a recovery and I think we are seeing people who have waited a long six years of down cycle start to say the market is in recovery, all the metrics seem to agree that we are in recovery, so we are starting to see some minority portion of them put their homes on the market. But I think as the months and certainly the years go by as the economy gets stronger and stronger we are going to see greater and greater numbers of people able and willing to put their hopes on the market partly because they are waiting for the lesson theoretical values to sort of recovery and put them in a position where they can sell. And you know the other part is that they have waited until they can get higher prices that they could historically. MAUREEN CAVANAUGH: The reason I mentioned sellers market because just anecdotally I've heard from a couple people you know, White House goes on the market and they get a full price offer I mean, like that. And people are sort of for and against each other. Is that, Michael, because there are actually so few houses out there? MICHAEL LEA: Absolutely and we are getting multiple offer kind of situations and if you are putting our house on the market now it is certainly a good sign. MAUREEN CAVANAUGH: Now investors and second home buyers are still making up about a third of the deals in San Diego. Is that traditionally Michael a large number? MICHAEL LEA: Yes it is a large number and I would say is probably also a concentrated part of the market. It's at the lower-priced tiers of the market and not surprisingly that is where a lot of the distressed sales have been occurring. MAUREEN CAVANAUGH: What does that say, Gary about the climate for buyers, that there is so much basically cash out there? GARY LONDON: I think we are probably at the end of that stage in the cycle where investors are out there making up almost a third of the purchase inventory. I think if it's happening now the statistics are bearing that out. In San Diego County it is sort of focused on the middle and lower in the markets right now and I think this is the last of that I think if we have a conversation six months from now you'd see those percentages of investor purchases go way down at this point. MAUREEN CAVANAUGH: What about interest rates Gary, are they starting to move upward? GARY LONDON: No. MAUREEN CAVANAUGH: And Michael? MICHAEL LEA: You see a small increase especially with what's happening in the treasury market but not really. GARY LONDON: The point is you will not see an increase in interest rates for the foreseeable future meaning over the next few years for lots of reasons. So I don't think that if there is sort of a rush to lock in interest rates because it is slow it's going to be low again if we had this conversation in a year from now. MAUREEN CAVANAUGH: What does that mean for the traditional home buyer who does rely on getting a mortgage for, to buy a home. Is this a good time, then for them to buy and do you see that remaining that way into the foreseeable future as you say, Gary? GARY LONDON: It's still a good time. It would've been a better time a year ago before people perceive that we were in full recovery but it is still a good time, and if you look at today from the perspective of tomorrow, the crisis that we are going to face in this county is lack of inventory. Of any kind. With which only can mean that we will see a bit of housing prices barring any kind of economic disaster that would be an outlier that we could not predict. MAUREEN CAVANAUGH: Michael, okay, so we see that interest rates are not basically, the prediction is they will not shoot out anytime soon. How difficult is it to get a home loan right now? MICHAEL LEA: If you've got good credit and you can make a down payment it's a fairly easy process. I think that we are still inching our way back to a more normal mortgage market. Lenders are still very conservative outside of the FHA and that is a constraint on the market. But you are seeing for example more jumbo loans being made. MAUREEN CAVANAUGH: What does that mean? MICHAEL LEA: That's over the law limits for Freddie Mac and Fannie Mae, that's done purely in the private market and that market is now starting to come back which is a favorable sign. MAUREEN CAVANAUGH: So for conventional loan you still need 20% down for most homeowners? MICHAEL LEA: 20% down or if you can't get mortgage insurance, but again, they underwrite it very tight in order to get you to qualify for that. MAUREEN CAVANAUGH: And Gary, does that still keep a lot of the people out of the market? GARY LONDON: I think the process of getting a loan right now is still problematic for many people. I think the lenders are the last to get a clue that we are in recovery and are still not we are certainly not at the aggressive levels that they were reaching into the peak of 2006 and hopefully they will never get that aggressive again because people got loads that shouldn't have gotten loans, but the pendulum has swung extremely the other way and really has not come back to normalcy it. I think it's difficult for a lot of people particularly in the middle income areas to get loans right now and that's going to drive the housing market for some time as well. MAUREEN CAVANAUGH: we are talking about a spring preview for the real estate market here in San Diego. We are inviting our calls the number is 1-888-895-5727. Michael, let me move to the other end of the spectrum that we've been talking about for so many years now and that is foreclosures. The number of foreclosures is at the lowest rate in six years. What are the reasons for that? MICHAEL LEA: I think that we've got through the patch as Gary pointed out of people who shouldn't have gone Lonesome the first place and those were essentially the first to go. Unemployment is not nearly as significant a problem now we are seeing some reasonably good job numbers and so both of those factors are going to lead to a falling foreclosure rate. Also we are seeing more short sales and people that have the cell, they are underwater, they are not going through a foreclosure route. They're basically making an agreement with the bank to do a short sale and that has really replace some of the foreclosures. MAUREEN CAVANAUGH: so Gary, we've been talking about short sales for years doesn't seem at all banks are more willing to go along with that than they used to be? GARY LONDON: I think that banks have shown, will the atmosphere conditions have certainly changed and banks have been fairly aggressive in sort of getting rid of inventory that they could not otherwise get rid of quicker. I think the other phenomena that is occurring that is that values are going up so it eliminates the need for distress sales across the board. So you will see a lower and lower number of short sales and sort of market-based sales going forward at this point. MAUREEN CAVANAUGH: last year at the end of last year we heard a lot about the homeowners Bill of Rights going into effect in California. Has that had anything to do with limiting the number of foreclosures, Michael, do you think? MICHAEL LEA: I would think it has a significant effect right now and I think that takes time for lenders to adjust. I think the more salient issue there is that it may have an effect on lenders desire to give loans out into the future because the risks associated with doing that became greater under this homeowners Bill of Rights. So if you are a marginal buyer, that may not be good for you going forward. MAUREEN CAVANAUGH: is that an all-around kind of healthy sign for the market though, do you think, Gary? GARY LONDON: Yeah MAUREEN CAVANAUGH: Okay, let me ask you this. What we've been talking about some pretty good signs for the San Diego housing market going into the spring and summer. Gary, what challenges do you still see living. Of course we have this tiny number of homes relatively speaking on the market, the small inventory that we've been talking about. What other challenges are there? GARY LONDON: The inventory of homes on the market can be measured in weeks and that's a challenge because it automatically results in the beta of prices.to me the biggest challenge in the housing market is that we cannot deliver enough units in this economy to meet the demand that we think we are going to have we just sort of the natural progression of economic growth and population growth and housing demand that comes from that. We've only delivered for instance last year a total of 5000 units and most of that inventory was Apartments. Which is a good thing. But we are delivering, we expect to deliver in the future very few for-sale units, b-day condominiums or homes. Partly because we have diminished land availability and that is a big issue in the County and partly because it's more developed difficult to develop lean passed over in the urban areas and there's a lot of resistance to developing particularly vertical development formally horizontal communities to me that is the biggest crisis, trying to find a place where we cannot housing inventory to meet the demands that we expect to have within the county. MAUREEN CAVANAUGH: You know several years ago when we were first diving into this recession there were a lot of commercial developers that sort of stopped in the crisis, the middle of building because they ran out of money, couldn't secure loan money that they needed. How is it up and if the developer comes along and and presents a development to the bank are they going to be able to get funds to do that pretty relatively relatively? GARY LONDON: Michael held a conference a couple weeks ago of lenders and I happen to moderate it and the lender told us the window is open we would be delighted to lend money but I think the nuances, they are still at the stage where they are mostly willing to did lend money to developers they already have relationships with. So the younger newer new form the companies that are out there that want to develop they are going to have a more difficult time and that is going to last a year or two, so I still see sort of a gradual evolution of new money coming to the real estate sector. MAUREEN CAVANAUGH: What other challenges might there be and I heard when sequestration went into effect that that might slow down people being able to get government-backed loans. If there is a government shutdown, which is sort of looking at the end of this month that that might have a bad impact on the real estate market. GARY LONDON: The government agencies that fund most of our mortgage market, Fannie Mae and Freddie Mac as well as the FHA, only FHA is a government agency. So yes I can see some impact of sequestration or shut down on FHA. It shouldn't really affect Fannie Mae or Freddie Mac. I think that moving forward over a couple your time. You're going to see gradual reductions in the federal share of the mortgage market which is going to result in higher interest rates for borrowers. But that is still a couple of years down the road I think. MAUREEN CAVANAUGH: any other big challenges you see looming? GARY LONDON: If they ever get their act together with regard to serious deficit reduction I think something on the mortgage interest deduction would likely be on the table. I don't think it would be a complete elimination of that, but certainly lowering the Eliminating it for second homes both of which which would have some impact on the real estate market here. MAUREEN CAVANAUGH: and just a conversation about doing that might spur some short-term activity, isn't that right, Gary? GARY LONDON: Yeah I think this is the outlier I was talking but if there's a movement, home interest rate deduction front might have a major impact depending on how fast and who it impacts. On the value of housing. In the marketplace. I think a lot of our value is, what we perceive as value in the housing market recited what we perceive is what we can pay. The more we are willing to pay is more because we can deducted, so that is a big national issue. MAUREEN CAVANAUGH: I'm going to ask you both to sort of do some prediction. How do you think that this spring real estate market in San Diego is going to proceed and how do you think it's going to compare with previous years, let me go to you first, Michael. MICHAEL LEA: I think you are just going to see the continuation of you know, a lot of demand without very much inventory, prices going up and a general situation where you get multiple offers. And so I think that you should not read too much into that in terms of being a bubble or anything like that because we are still way below what we had been MAUREEN CAVANAUGH: About 30% still down? MICHAEL LEA: Yeah and we are still in the abnormal period where we don't have the inventory coming onto the market. MAUREEN CAVANAUGH: And Gary? GARY LONDON: The only thing I would argue there is for the the. Is that normal Michael, I think we are in a permanent. A shortage of supply. And that's what has changed. During the last six years more demand, more supply than demand, now it is slipped and we are in a period of more demand than supply. Which inevitably results in a recent price raise as we saw this last time in 1996 coming out of the four-year recession and it was a gradual increase in price and a gradual increase in sort of the dynamics of the buying and selling cycle. This time it probably starts out slower and lasts longer. Because there are still people that are still suspect about whether the market is really that strong MAUREEN CAVANAUGH: I've been speaking with Michael Lea with the SDSU Corky McMillan school of real estate and Gary London the Realty group core advisers thank you both very much. BOTH: Thank you