MAUREEN CAVANAUGH (Host): I'm Maureen Cavanaugh, and you're listening to These Days on KPBS. The New Year is here and with it comes new optimism about an economic recovery. We all know it has to happen sometime, and most of us are hoping this is the year. In San Diego, a lot of economic recovery we're hoping for comes in the form of real estate. Homeowners have seen the value of their properties shrink the last two years and homebuyers have seen mortgage money dry up. What are the realistic expectations for the San Diego real estate market in 2010 and how do we start preparing for them? I’d like to welcome my guest, Mark Goldman, mortgage broker for Cobalt Financial Corporation. Mark also teaches real estate here at San Diego State University. Mark, welcome back to the program.
MARK GOLDMAN (Mortgage Broker, Cobalt Financial Group): It’s nice to see you again.
CAVANAUGH: And we’d like to invite our audience to join the conversation. Are you thinking about selling or buying property this year? Do you see signs around your neighborhood that the real estate market may be picking up? Give us a call with your questions and comments. The number is 1-888-895-5727, that’s 1-888-895-KPBS. Well, you know, people seem to be grasping at straws sometimes these days when they’re looking for good news about the economy and that comes to the real estate economy here in San Diego, too. Home prices are not dropping like they used to and, in fact, there have been small gains since last spring. Mark, what do you think are the causes of these gains?
GOLDMAN: Well, happily, the desire to own a home is still very strong so there are people who are able to purchase a home, are willing to come in. Affordability is quite high which means that the cost – home prices have gone down. Another thing that’s stimulating the market is interest rates have been very, very low. So people can afford more home for the same purchase price and the monthly payment on that home is very close, in many cases, to what it would cost to rent.
CAVANAUGH: So, in other words, the situation is just – at this point is not all darkness at all.
GOLDMAN: No, there’s a lot of people who’ve been able to come in and buy a home and find that the cost to own is very similar to their rent. We’ve got a move-up buyer now that we’re working with and my wife’s my loan processor. She was looking at the appraisal and these people are buying a phenomenal estate at what we consider to be a very reasonable price. The same property might’ve cost almost double if they were trying to purchase it two, three years ago.
CAVANAUGH: Now, how much has the government helped?
GOLDMAN: We’re from the government; we’re here to help you. On working out problems, I would say they’ve been amazingly ineffective, maybe even hurt people. On the people who are buying, they’ve been pretty helpful. I would attribute two the great stimuli for the market activity we’ve seen lately to the homebuyer tax credit and also to the federal reserves commitment to purchase mortgage back securities, which has kept interest rates quite low.
CAVANAUGH: Remind us about this homebuyers tax credit. What does it offer people?
GOLDMAN: Well, it offers people up to $6,500 if they qualify as a first time homebuyer or for homebuyers who have owned their home more than five years. Now this was a program that was going to sunset last year…
CAVANAUGH: Right.
GOLDMAN: …last November, and congress insisted they would not extend it and instead of not extending it, they not only did extend it but they expanded it to include people who have owned their homes at least five years. And I think that’s a very important strategy to keep in mind. One of the concerns I have about 2010 is that the Federal Reserve’s commitment to purchase mortgage back securities was supposed to sunset December 31st of 2009. They extended their commitment to 2010, the end of March, without increasing the dollar amount. And they have insisted that they’re not going to continue doing this. Now what makes that important to homebuyers is that mortgage rates are held quite low. The Federal Reserve has purchased the mortgage back securities for just a little over half of all the loan production, residential loan production in the United States last year. If that support goes away, I wonder who will replace those mortgage investors and, more importantly to homebuyers, at what interest rate.
CAVANAUGH: I’m speaking with Mark Goldman. He’s a mortgage broker with Cobalt Financial Corporation. Mark also teaches real estate here at San Diego State University. We’re talking about prospects for the San Diego real estate market this year, 2010, and we’re asking for your calls if you’ve got a question or comment. The number’s 1-888-895-5727. You know, Mark, there are some fundamental problems that got us into the housing mess to begin with and as we look forward to maybe, you know, rallying and moving past this and seeing housing prices go up and more people get into the housing market, have those fundamental problems been addressed…
GOLDMAN: No.
CAVANAUGH: …in any way?
GOLDMAN: No. In a simple word, no. And this is a rallying cry that I’ve had since Henry Paulson first asked for the $700 billions in TARP bailout money. And my opinion is that the main problem is how to restore confidence in financial markets to attract investors. More importantly to the home market, how to attract investors who will buy mortgages at an interest rate that’s competitive and will help serve our market. I look at the housing market movement – I tell my students, there are two types of people in the world, those who divide everything into two categories, and everybody else. And along those lines, the two categories that I look at when I’m watching the housing market are what I might call natural determinants of supply and demand and then artificial determinants of supply and demand. We’ve seen the government’s – through the Federal Reserve, support interest rates – low interest rates through the Federal Reserve’s mortgage purchasing program. And we’ve seen the homebuyer tax credits as stimuli. But in terms of employment, household income, we haven’t seen any ordinary improvements in the market. Where’d all the money go? And, more importantly, why isn’t it coming back into the mortgage market? We’re starting to become concerned about commercial mortgage backed securities. The capital markets drive the real estate industry. If you want to see the real estate industry light on fire, as we did in 2004, 2005, 2006, just pour money on it. Make free money available or stupid money available and you’ll see prices skyrocket. If you want to put the brakes on, start making it a little more difficult. If you want to stop a market in its tracks, as we have seen happen, turn the money off. And so right now the money’s off. And the – most of the money that’s coming into the market is from the Federal Reserve so that’s an artificial stimulus. But in terms of changing policy, changing regulation, changing how the investors who invest hundreds of billions of dollars into mortgages are attracted to do so, I haven’t seen any meaningful change in that.
CAVANAUGH: I want to – There are a number of people who want to get involved in this conversation but let me ask you, Mark, we had a story from the Associated Press yesterday, I believe it was, about the stimulus package not making much of a dent in the unemployment rate here in San Diego. And I’m wondering, how much do unemployment rates play in buying and selling real estate in San Diego?
GOLDMAN: Well, certainly today to get a mortgage, you absolutely have to have a job. Everything today is full documentation. Everything today is how much money have you made in the past two years. So to get – to purchase a home for the first time, certainly the more people who are working and earning an income, there would be more people who are qualified to purchase a home. The other side of the coin is that as people are out of work or underemployed, maybe they still have a job but a cutback in their wages or their hours, it makes it more difficult for them to maintain the house that they might have and that puts downward pressure on pricing because if it creates a foreclosure, that’s going to hurt certainly that family but also their neighbors because the value of the houses in that neighborhood are going to go down.
CAVANAUGH: I’m speaking with Mark Goldman and we’re taking your calls about prospects for the San Diego real estate market in 2010. We’re taking your calls at 1-888-895-5727. And Ryan is calling us from downtown San Diego. Good morning, Ryan. Welcome to These Days.
RYAN (Caller, San Diego): Hi. Thank you. I appreciate what you say and I agree with you in all of your points but I just wanted to add the observation I’ve had. My wife and I are looking to buy a home right now. And, you know, we look in areas that are most pleasurable, obviously, or where we’d – are desirable, where we’d like to live. But what I’m seeing is just an amazing surplus of properties. Obviously, downtown, I think we could put every homeless person in this county in a bay view apartment downtown because there are that many out there for sale. But also, up in the north county area there’s just an incredible amount of cookie cutter homes that spread, you know, six miles inland where I grew up here and went to graduate high school in the early nineties, where that was all just, you know, empty dirt fields. And it just seems like these homes are still so exorbitantly priced for I don’t really know how many people work and commute in downtown. I know this city doesn’t have a huge amount of, you know, financial jobs or huge industry or an entertainment industry like Los Angeles, and I’m just wondering, did it get too built out? I mean, so many developers from, you know, the Rancho Santa Fe area made so much money just putting up home after home after home and now here we are and we have so many homes on the market that people, I think, have a false sense of how much those homes are worth. And I was wondering what your opinion was about that and in downtown, how there’s just so many places for sale.
CAVANAUGH: Thank you, Ryan. Thank you for that.
GOLDMAN: Well, it – that’s a very, very good question. And the simple answer is I would not agree that the homes were overbuilt. Back in the heyday of the housing market, the total available land in San Diego for building new homes was only about a one-year supply. So San Diego County, it’s not quite built out but we’re near the end of it and there are a lot of people who do want to live here. The question is affordability. And we’re seeing right now in a lot of segments in San Diego, I wouldn’t call it a shortage but the number of homes on the market for sale is very, very low right now. We measure the inventory of housing by the total number of houses that are available for sale divided by the number of transactions that close in a month, and we’re under three months of supply right now, which is very, very low. So for people in affordable housing price points – let me just arbitrarily pick a number of $350,000 purchase price or less, it’s hard to find a house in that price point.
CAVANAUGH: Does it mean that just because a property may be empty, it isn’t necessarily for sale?
GOLDMAN: Well, that brings up the issue of the shadow inventory.
CAVANAUGH: Tell us about that.
GOLDMAN: Well, we’re – There’s a big concern. There’s almost 20,000 homes that are in the foreclose pipeline at this time in San Diego County. And there’s a lot of debate going on right now about what if all of these homes were to suddenly hit the market and there would be a deluge of supply of houses, which could have a downward affect on pricing. And yet a lot of the practitioners are wondering, well, where is this bank inventory. I have former students, for example, that work at bank assent management companies and who are working with real estate companies that sell real estate owned and they’ve been waiting for a year for this deluge of bank-owned properties to hit the market. So there are a lot of properties out there that banks are owning. There’s a lot of theories about when and how banks will choose to release these properties onto the market. There seems to be some sort of control – there was a moratorium, as they usually do during the holidays, to postpone foreclosures. You know, no bank wants to be on the front page with somebody with their Christmas tree in the front yard, you know. But there’s also additional action to reduce the number of people who lose their homes to foreclosure. In the last month or so, we have all been reading articles about how banks are being encouraged to make meaningful loan modifications or allow sellers to complete short sales or do a deed in lieu, which takes properties out of the foreclosed property list. But nonetheless, these houses are out there and there are a lot of owners who, unfortunately, are going to be confronted with the decision of how to unload their house. They’re in trouble. A very meaningful statistic that came out yesterday is that the number of mortgages that have become delinquent, month over month, for the month of December has actually increased. So even though the banks are trying to moderate the number of properties they’re taking back through foreclosure, the stress is still apparent.
CAVANAUGH: Let’s take another call. Alberta is calling from Rancho Bernardo. Good morning, Alberta. Welcome to These Days.
ALBERTA (Caller, Rancho Bernardo): Thank you. Good morning.
CAVANAUGH: Yes, how can we help you?
ALBERTA: Well, I have two rather different questions. The first is what I was just hearing the gentlemen say was – I understood about the $6,500 rebate for first home – first time homebuyers but I didn’t know there was some sort of a rebate of some kind for persons who owned their home for more than five years. What is that all about? Or did I misunderstand what you said?
GOLDMAN: No, the – This is Mark Goldman. The invest – the tax credit for purchasing a home has been expanded to homeowners who have lived in their home more than five years. So if you are contemplating a move after owning a home for five years, you may qualify for a $6500 tax credit.
ALBERTA: I understand. If you’re thinking of turning – changing residences.
CAVANAUGH: Right, exactly, and…
ALBERTA: A sale and a buy, all right.
CAVANAUGH: Did you have a second question?
ALBERTA: Yes, I do. I don’t quite understand this inventory demand scenario. I had a real estate broker not long ago tell me that houses were not just selling for the asking price, that people were bidding higher for them and they were getting multiple bids on homes. And even persons who offered more than the asking price sometimes didn’t get it because someone else bid them higher. This sounds like a market that doesn’t have very many homes for sale.
CAVANAUGH: Right.
ALBERTA: And how can that be when so many people are foreclosing and doing short sales and that type of thing?
CAVANAUGH: Thank you, Alberta. Yeah, that doesn’t make sense to a lot of people.
GOLDMAN: Yeah, it’s simply – I guess the simple answer might be is there are as many buyers as there are properties that are available for sale. And when we talk about the inventory, it’s like walking into a store and, you know, are the shelves stocked with lots and lots of items for sale or not? And you had mentioned in your introduction, Maureen, you know, signs of the economy and I tell my students the signs are everywhere. And it’s quite literal in the real estate business. When you drive around through a neighborhood and you see for sale signs on every fourth house, there’s an oversupply of houses available for sale and prices are probably going to be soft. And, indeed, a year or so ago, if you were driving around neighborhoods looking to possibly purchase or invest in a house, you would see many, many for sale signs. Today, if you’re previewing property, you don’t see as many for sale signs. By the way, other signs, you know, lease signs or move in special indicates a weak market. So we’re worried because there are a lot of – Bank owned properties are what we call must-sell inventory. A bank is not in the business of holding houses available for sale. Once a bank takes a property back, they have to sell it. So at issue is how many houses are they taking in and how are they releasing the houses that they own for sale? And there’s a great concern of this shadow inventory, we call it, where we know that the banks have a lot of property now. We know that there are more people going into default so there’s going to be even more bank-owned properties. And many of us in the business are wondering, well, where are these houses?
CAVANAUGH: Right, right.
GOLDMAN: When will they be released for sale?
CAVANAUGH: When someone – If someone is planning or hoping to purchase a property here in San Diego during this next year, how should they start getting themselves ready? For instance, you mentioned something about the lenders, is getting a mortgage any easier than it was last year? Or is it still – is the money still quite tight?
GOLDMAN: It is more difficult and I suspect it will become even more difficult. I think – But what I tell my mortgage colleagues, it’s going to get worse before it gets better. But the money’s out there and you can do it. So somebody who is preparing to buy a home this year should speak with a professional mortgage person and expect lots of documentation. Expect to provide letters of explanation and careful evaluation of your credit and proof of your money, proof of your income, proof of everything, and be prepared that the property buy will be scrutinized very carefully by the lender. And that, you know, as a mortgage guy, that’s always my first step is to recommend people do it. But with regard to, you know, strategizing, should I buy this year or not? I think we’re kind of at the end of a rollercoaster ride. You know, when you go on a rollercoaster, you go up that steep incline and then you do that serious drop and the next few drops are pretty serious and as you come close to the end of the rollercoaster ride, there’s still a little bit of up and down but it’s nothing in comparison to the beginning. And I think we’re nearing the end of the rollercoaster ride, meaning values, I think, are going to fluctuate somewhat. As I mentioned earlier, I’m concerned about the artificial stimuli that the government’s creating versus real demand and stability that natural demand factors in the economy would create. But my recommendation these days for people is go long term, don’t expect values to change a great deal. Be very careful about your cash flow obligations when you’re buying a property. One of the questions I ask my clients is, if you were to get a better job out of our community and you had to rent your house, what would the rent be compared to your mortgage cost? And would you be able to carry it?
CAVANAUGH: Right, right. How about people who are thinking of selling their homes now? Now, I know – In speaking with real estate experts for these many months, one of the reasons that prices are still low and distressed is because the only people who are selling are the people who actually have to.
GOLDMAN: Yeah.
CAVANAUGH: And everybody else is hanging onto their property. Do you see that continuing this year?
GOLDMAN: I see that as an important concern in the market. And so, yes, I do. And I’d like to rephrase your question just a little bit…
CAVANAUGH: Sure.
GOLDMAN: …because another question I get frequently is should I be looking for a foreclosure? You know, are short sales a good deal? And I would like to put that in the fabric of all the houses that are available out there because the word foreclosure or distress sale or short sale does not necessarily mean that property is a good deal. For example, a foreclosure, a buyer may find that house in very poor condition or perhaps if an investor picked it up at the foreclosure auction it’ll have just a minimum amount of clean up to make it marketable. And if that buyer was to look at a home for sale by the owner next door who’s selling a, let’s call it a normal sale, they might find a home that’s been maintained a lot better and is in much better condition to start with. So I always tell everybody about when they’re searching for a home, you know, it depends. Look at the house that you’re interested in and make a careful evaluation among the competing homes available at that price point in that neighborhood. And foreclosure does not necessarily make it a good deal. In fact, it might make it a bad deal.
CAVANAUGH: Well, when we meet and talk about this next January, do you think we’ll look back, Mark, and say this has been, you know, this was not so bad, 2010 in the real estate market.
GOLDMAN: I – I’m expecting 2010 to be kind of more of the same. I don’t think – We’re getting used to the new reality of the way the mortgage market is working, which can change drastically at the end of March when the Federal Reserve’s commitment expires. We’re getting used to working in a market with wage levels where they are, and 10% unemployment, and I don’t see any of that stuff changing significantly so I’m looking to 2010 to be kind of more of the same. But the benefit is, I think Americans get sick and tired of being sick and tired.
CAVANAUGH: Umm-hmm.
GOLDMAN: And so, you know, we’ll just come to grips with our new reality. The market has changed. We’ll come to understand it a little better and we’ll operate in that – in those parameters.
CAVANAUGH: Thank you very much. Let’s hope you’re right.
GOLDMAN: It’s been my pleasure.
CAVANAUGH: I’ve been speaking with Mark Goldman, mortgage broker for Cobalt Financial Corporation. And you’ve been listening to These Days on KPBS. We couldn’t get everybody who wanted to join the conversation on the line, so you can always post your comments at KPBS.org/TheseDays. And stay with us. We’re talking about the federal case of Proposition 8 when we continue here on KPBS.
