It’s been a busy couple weeks. I’ve had the opportunity to visit with our legislators in both Sacramento and Washington D.C., speak with several economists from local to national levels and be updated by numerous experts and prognosticators including exec’s from Bank of America, Wells Fargo, the FHA and HUD. And I don’t know a heck of a lot more than when I started except for some general impressions and a few pithy quotes that I’ll share with you today.
I’m not all that bright but it seems a lot more people are sharing my view that we simply have too much government involvement in our business for it to function normally. I should clarify that to state ‘a lot more people who aren’t in government share my view’. People in government tend to think their expanded presence is exactly what was needed to rescue us from ourselves, to stabilize the market and to support the recovery. (see FHA’s Dave Stevens Talks. WE created the mess. THEY’ll fix it. Oboy.)
But regardless of whether the government is taking credit for it or the private sector acknowledges the cyclical reality of the market, general consensus is that we are in for a couple more years of pain in the housing market – not severe pain maybe, but pain nonetheless. Under optimum circumstances, notwithstanding another Greece or other distractions, we will not return to a ‘healthy’ job market until 2014.
This will continue to drive the distressed property market as people continue to lose their homes while other make the decision to walk away. Whether through short-sale or foreclosure, this segment of the market will continue pretty much unabated through 2012 at which time it will start to decline slowly and then just dry up. Currently about 50% of the national market is distressed property sales (about 80% locally). That number needs to be down to about 5% before we experience realistic and sustainable price support.
Just over 1/3 of homeowners nationwide are currently upside-down in equity, and 15% are either delinquent or actually in the foreclosure process. That’s a bunch – but the good news is that 85% of loans are still performing and they expect that in another 3-5 years we’ll be back to a ‘normal’ market where only about 1% of loans default every year.
The average time people are remaining in their homes without making payments is currently 18 months under the working theory prevalent among banks that ‘a rolling loan gathers no loss.’ (If they don’t foreclose or short-sale, they don’t have to book the loss). Believe it or not, that has actually stimulated the economy because the money they are saving on house payments is being pumped back into the retail economy as they spend that cash on restaurants, clothes, cars, etc.
You might think that having been bitten once these folks might be twice shy and start saving their money but you’d be wrong. Remember, these are the entitlement folks to whom the government owes a bail-out. As long as the rest of us keep up our end of the bargain they will be OK.
There’s also a growing sentiment that there is no ‘shadow inventory’ hanging over our heads. Through the largely unsuccessful government loan-mod programs (unless you’re talking to the government), and their even less successful attempts to standardize and expedite short-sales, the housing inventory is now being categorized as a ‘pig-in-a-snake’. There’s a big lump moving through but by attrition from a few loan mod’s, a few short sales and even more auction sales, what eventually gets dumped onto the market will be inconsequential compared to what we’ve already experienced. Improving employment figures and continuing low interest rates will forestall many Alt-A loan re-sets and reduce pressure on homeowners going forward. How long we can maintain low interest rates in the face of burgeoning federal debt is anybody’s guess.
A caveat – the California, and especially the Southern California, economy is behaving both better and worse than expected. Our overall economy is performing better than it should be because we have more distressed homeowners living in their homes rent-free longer than the national average and these people are pumping more money into our local economy.
Locally our housing prices appear to have stabilized and some areas, like San Diego, have actually experienced double digit appreciation in the last 12 months.
And while much of the country still labors with 2 years worth of housing inventory (Florida is toast) our local inventory is 2 months or less. If builders don’t start building homes again soon, demand will exceed supply again – potentially in a big way, and we could experience another price spike.
Finally – some quotes. From former FDIC Board Member Nicholas Retsinas: “It was the Fed’s job to take the punch bowl away when people started getting drunk. Instead they just figured out more imaginative ways to spike it up.”
From Al DelliBovi, President of the Home Loan Bank of New York: “If we want the markets to work, we need to let them work – quit propping them up and massaging them. Now is the time for government to wean itself off of housing and for housing to wean itself off of the government.”
From MegaBroker Lennox Scott: “It’s a great time to buy low. Just don’t expect to sell high for awhile – maybe quite awhile.”
Former Governor Pete Wilson: “The willingness of these candidates to run for Governor should disqualify them from running. If elected, their first job should be to demand a recount.”
To read the backstory on many of these items, get up-to-the-minute local housing news & fraud reports and download local & national housing charts – follow Gene at http://gadblog.srcar.org/