Last week the San Diego Association of Realtors hosted their annual regional real estate summit, where National Association of Realtors economist Lawrence Yun was the keynote speaker. Mr. Yun’s address sent mixed signals. He began by saying on the one hand that he thought that the media has overstated the extent of the positive news about a housing recovery, and that the tightness in the jumbo loan market will continue to weigh heavily on the San Diego luxury homes market. But the remainder of the address was largely optimistic.
Mr, Yun thinks that the California housing market has been surprisingly resilient, and that California will be the first to recover from the housing downturn. Noting the month-to-month price increases throughout 2009, Mr. Yun stated his opinion that housing prices are down to justifiable levels. The California market has reached a “tipping point” where home buyers are now rushing back into the market, afraid of missing the best deals that have been available in many years. The pent-up demand has grown to a point where we may be seeing a continued shortage of housing inventory. Looking forward, Mr. Yun expects a resurgence of new home construction in 2010, and a return to “normal” levels of housing price appreciation, to an estimated 3-5% per year.
As we’ve been saying here on our San Diego real estate blog for months, Mr. Yun confirmed that the wildcards in the housing scenario are bank foreclosures and interest rates. He says that foreclosures will continue to rise over the next 12 months due to a “toxic combination” of unemployment and home owners who are underwater on their property values. But that’s not necessarily a bad thing in San Diego, where foreclosure properties are being snapped up quickly with multiple offers from qualified buyers. Interest rates will likely face upward pressure due to the excessive government stimulus spending and budget deficits, which will weigh down bond prices and push up interest rates. Mr. Yun expects that rates will reach the mid-6% level by this time next year. But he feels that rates in the 6’s are still reasonable by historical standards, so this shouldn’t be too damaging to the housing markets.
After hearing the economist go back on forth on the issues, the local San Diego Realtors were ready for some concrete answers. The big question on everyone’s mind was, if foreclosures are rising, why don’t we have more San Diego foreclosure properties for sale? Mr. Yun confirmed that Fannie Mae, Freddie Mac, and other banks as well, are definitely holding back on releasing foreclosure inventory. “They are making a business decision” says Mr. Yun. But we ask…. What business decision is that?
After several years of dealing with the banks and their San Diego foreclosure properties, it’s easy to get jaded. Transactions with the bank asset managers aren’t exactly smooth as silk. It definitely doesn’t help when the banks insist upon using out-of-town escrow companies to manage their transactions in San Diego. Communication is poor, decision making is slow, cooperation is lacking, and competition is fierce. Buyers are looking for great discounts on San Diego homes and investment properties, but they are usually a bit thrown off by the delays, confusion, and difficulties involved with buying bank foreclosures. And just when we were getting used to the bank foreclosure sale process, the foreclosure properties have all but disappeared from the market. What gives?
Here is the skeptical answer… The banks are holding back on releasing their inventory of foreclosure properties because there is just too much demand. The $8,000 first-time home buyer tax credit has been too successful. There are too many buyers. Prices are rising. The emergency is abating, and will continue to abate if the banks gradually release their inventory of foreclosure properties for sale while interest rates are low. In a few months the first-time home buyer tax credit will expire. Demand may fall without the additional incentive. Interest rates may rise. A sudden release of a massive volume of foreclosure properties will be more difficult for the market to absorb. This could be tough on the banks. They might even need another bailout. A few more hundred billions of dollars in bailout money could be worth a shot. It that a good “business decision?”