Why Are Local Home Sales, Prices Declining?

Will San Diego experience a double-dip housing slump in the new year? What impact will the banks' backlog of distressed properties, and the expiration of a federal tax credit have on the market over time? We discuss the latest trends in the local housing market.

Guests

Kent Davy, editor of North County Times

Scott Lewis, chief executive officer of voiceofsandiego.org

Alisa Joyce Barba, independent editor with NPR member stations

Read Transcript

TOM FUDGE: The company that provides data for the Case-Shiller Home Price Index is predicting a double dip housing slump for San Diego. [CHECK AUDIO] and the expiration of a federal tax credit will mean more hard times ahead. Or so they say. Meanwhile home sales are at a dismal level. And on this, we Kent to Kent Davy, Kent, whenever the housing market looks like it's hit bottom, [CHECK AUDIO].

KENT DAVY: Had a conversation with a reporter from our paper who covers this topic of housing, Eric wolf, a very smart guy, and he pointed out that if you look at the kay schiller charts over time, it tracks inflation until you hit some time in the mid90s and all of a sudden it starts exceeding by fairly substantial margins inflation in terms of the increase in housing prices. So if it is the case that housing really ought to be at that baseline of inflation, we got a long ways to go before we drop down to where it might rationally be. And that portends, I think, some hard times yet.

TOM FUDGE: And so this double dip that they're talking about, it's just we haven't corrected the market enough?

KENT DAVY: Well, one thing is you've got an enormous number of foreclosures yet to come on. Bank of America, and other major banks held off on kind of a moratorium [CHECK AUDIO] pause of some of their paperwork errors needing to do affidavits and other kinds of things to make sure their paper trails are clean. So those fore-- it doesn't mean their customers are under water at whatever increasing rate they are, it simply means they haven't put those foreclosures through. Of so you can probably guess that when that gets cleaned up, there's another wave of foreclosures coming. I was looking at core logic, and they indicated that --

TOM FUDGE: I'm sorry, core logic?

KENT DAVY: Core logic is a really estate data analysis firm, and they had some reports out that indicated that nationwide, there is -- if you add up the visible plus the shadow real estate market, that is the housing are all for sale in the MLSs, the shadow is the number of people who are under water who are in foreclosure but those properties aren't available. There's a 26-month supply of housing in this country.

ALISA BARBA: Wow, wow.

TOM FUDGE: Okay. So when we enter the shadow land, that's when we hit the double dip. Scott, what do you want to say?

SCOTT LEWIS: This country is still, and especially in had areas like San Diego where it was so high, the country is still unraveling a massive bubble. It was an artificially inflated market of pray money, in many ways. Of debt that was never imagined to be able to be paid off. Of -- the tulip crisis in Holland, well, [CHECK AUDIO] not just inflation as Kent described but wages, actual wages and you can track the data that housing prices went up and down and above the ratio, the sort of baseline ratio that they had with wages for years and years until this last bubble where they sky rocketed. Ask it still has a long way to go to feel comfortable where that baseline ratio between [CHECK AUDIO]. For the federal government and the state government to borrow for future demand for housing. In other words, with these tax credits and with these other incentives to buy homes, they basically convinced a number of people who may have been on the fence about buying a home to jump on the market. Well, that means that those people are not in the market now. And therefore we're starting to see the correction return to its pace.

TOM FUDGE: Alisa?

ALISA BARBA: I was gonna make a somewhat frivolous comment. You said prices aren't back to where they're comfortable. I was looking at some of the research, and was it -- 2006 was the height of the bubble? Was it 2006? The average home price, I mean I don't know how many people listening or how many people in this room lived here, the average home price in San Diego County was $515,000. Of that is -- do you remember the headlines in the UT at the time and they'd Trumpet those things? That is amazing to think about now, I think 678 I was very comfortable with that, I was gonna say, being Ia hem owner.

TOM FUDGE: Being a homeowner. Yeah. And Kent go ahead.

KENT DAVY: To Scott's point, in North County, housing sales have slowed so much, and I think it's directly, attributable to what you said, that people moved up there buying, got in under the federal tax credits, now the buyers that are out there are sitting there going I don't know. Unemployment -- [CHECK AUDIO] Riverside County, I think it's 14. People are sitting going, this economy doesn't feel right to me yet. I don't know whether I really want to put down a whole lot of money. And people are telling me that maybe prices are gonna keep falling. Maybe I should wait. Of also I said 26 months on that housing, it was 23 months.

TOM FUDGE: [CHECK AUDIO]. Of 4.5 percent.

SCOTT LEWIS: We have such an interesting system 234 this country, where we basically are nationally vested in protecting people's home prices through the mortgage interest rate deduction on taxes to these incentives that came out to the now policy of the government purchased mortgages, and to keep the interest rates as low as possible. On the other hand, local governments and even the federal government are trying to make housing affordable. So they subsidize, you know, the bottom, to make sure they can rise up to that. But the fact is that it's just not enough. You can't -- unless you lower the mortgages that people owe, the actual debt that they owe, you can never protect the -- their ability to stay out of foreclosure. Of and so they haven't been able to avoid the foreclosures, and the foreclosures are basically the correction mechanism to continually to provide more supply which would continue to lower the price, which actually helps housing affordability at the cost of the financial security that many people have invested in their home.

TOM FUDGE: So let's say bank of America and these other lenders decide, okay, we're gonna go ahead with foreclosures, they are, you know, putting -- they're stopping that right now, but let's say they go back to foreclosures of so we have a whole bunch of foreclosures, I suppose, Kent, that's gonna mean that home prices are gonna go down, sales are gonna go up. And I guess my question is, how long is it going to be before we kind of hit a happy medium in the house you go market is stable again?

KENT DAVY: Well, you know, a 23-month's supply is an indication that's two years before that washes out.

SCOTT LEWIS: Yeah.

KENT DAVY: I don't know.

SCOTT LEWIS: Yeah, you have people, they're not just a little bit under water. They're just incredibly under water. They owe so much more on their home than they could ever sell it for that they can't sell it. And the basics aren't interested in or invested in putting those properties on the market either and realizing all those losses, and then watching the housing market plummet further. We're just in a stasis where it's just urn comfortable, but it's gonna have to correct, until, again, wages are comparable to -- or have a more healthy relationship with the home prices.

TOM FUDGE: And you're listening to the Editors Roundtable. I'm Tom Fudge. And my guests are Scott Lewis, chief executive officer of voice of San Diego.org. Alisa Joyce Barba, independent editor with NPR member stations, and Kent Davy, editor of the North County Times. I wanted to mention one thing that I saw in an article. I don't know if this was the North County Times or the UT, but it says that over -- I think over this past year, as of October, only 269 new homes were sold as of October. And so they're just not selling new homes. And I guess that gets me to the question, why are we so concerned about the cost of housing when the housing market goes down and housing prices are suppressed and they're not selling new homes, how does that affect our over all economy? Because some people would say, maybe that's a good thing that prices are going down, it's easier to buy a house.

KENT DAVY: Well, one way to think about that, the total number of sales times the median price is gonna give you an idea of how much economic activity is going on. That pool of dollars starts to shrink, that's a when he will on bunch of people that no longer have work. They don't have carpet lay, they don't have plumbing to install, they don't have sprinkler systems to fix, they don't have furniture to sell. And the thing multiplies out in a vast impact on the society here in San Diego. Particularly here because so much of our economy has been driven by the real estate market.

SCOTT LEWIS: Yeah, our nation has decided that owning a home is of top priority, and that protecting a home's value is of top priority as well. Like I said, the biggest voting black in this country are homeowners of it is not in if the politicians' interest to advocate for home prices to go down. On the other hand, places like the City of San Diego have perpetual crises declared about affordable prices. And this is the other side of the angle. Like you talked about, if corrections are allowed to occur, that is the silver lining to it. There are more people who are allowed to get in on that, and who are able to enjoy a more healthy relationship with their monthly housing payment.

ALISA BARBA: One of the financial reforms being bandied about in Washington right now is eliminating the mortgage tax, that mortgage interest write off on your taxes. One of the newly elected or newly chaired Republicans, I think, has proposed this.

SCOTT LEWIS: Well, are the deficit commission recommended getting rid of the mortgage interest deduction.

ALISA BARBA: Right.

SCOTT LEWIS: As I way to solve the country's long-term structural deficit.

TOM FUDGE: Yeah, and that will happen when pigs fly.

ALISA BARBA: Exactly.

TOM FUDGE: Right? Because we are talking about the political influence of homeowners. You know, you raised a subject, Alisa that we haven't talked about yet. And that is, what can the government do? We know that this tax credit has gone away as of home buying tax credit once away as of June, and so that's resulted in fewer homes being sold. And lower prices. Of is there anything the government can do to try to fix this problem? Or are we just gonna have to wait for that correction that we've been talking about? Scott.

SCOTT LEWIS: Again --

TOM FUDGE: Scott Lewis.

SCOTT LEWIS: It depends on what you think the problem is. If you're trying to stop foreclosures, they should stop all this loan modification garbage because that hasn't done anything. Because it distribute fundamentally change the one thing that matters. . How much you owe on the home. If they really want said to stop foreclosures, they would lower the principal of the debt that you owe, and that would definitely stop the foreclosure. The problem is, there's a major moral hazard with that, that says that if you get in correction, the government's gonna come in and save up from the debt. And the other thing is house you go affordable, maybe you actually encourage foreclosures to go through, because on the one hand, it does seem like a terrible thing to lose your home, but you can probably afford a better place, as long as you have a job, you can probably afford a better place at a more sustainable housing payment, and in a situation that's probably more healthy for you, than to be strapped into a long-term debt that you'll never have a chance to pay off.

ALISA BARBA: You know, one solution would be to make getting credit easier for homeowners so that they can buy new houses or so they can upgrade. Of that's not happening in the current system. It is so hard for even somebody with good credit to get a new loan, to get any money out there, you have to jump through a thousand more 4507s than you ever did in the past. So whatever the government has done in applying new regulations to mortgages, for instance, it has made it much more difficult. So the best efforts to resolve this crisis seem to be stymieing the crisis, making it worse.

TOM FUDGE: And Kent, quick last word?

KENT DAVY: The problem with principal reduction is who's gonna pay for it? Or are you simply gonna inflate the dollars away?

ALISA BARBA: And let banks that are holding many of these loans go under. Then you'd precipitate a banking crisis on top of a housing crisis.

SCOTT LEWIS: I'm not an advocate for reducing the principals. I'd rather they just foreclose and turn over the property.

TOM FUDGE: Well, I think that'll do.

SCOTT LEWIS: Happy Thanksgiving, Tom.

TOM FUDGE: Happy Thanksgiving. Well, that's over. It's clear. Thanks very much to my guests on the Editors Roundtable, Scott Lewis is chief executive officer of voice of San Diego.org. And Scott, thanks very much for coming in.

SCOTT LEWIS: Thank you.

TOM FUDGE: Thanks to Alisa Joyce Barba, independent editor with NPR member stations. Alisa thank you very much.

ALISA BARBA: Thanks, Tom.

TOM FUDGE: And Kent Davy is editor of the North County Times. Thank you Kent.

KENT DAVY: Thanks Tom.

TOM FUDGE: And listeners we weren't able to take your calls during this segment, but we'd like to hear what you have to say on this subject, and you can leave your comments following the show at KPBS.org/Editors Roundtable. This show is produced by Hank Crook, our technical director is Kurt Conan, and your regular host, Gloria Penner, will be back I believe next week, and so thanks very much for joining us at the Editors Roundtable on KPBS.