Housing slump into '08 likely, study finds

Subprimes, affordability cited for industry's woes
By Emmet Pierce
UNION-TRIBUNE STAFF WRITER

June 12, 2007

The implosion of the subprime mortgage market is likely to prolong the national housing slump, Harvard University researchers said yesterday in their annual report on the state of the nation's housing.

“At a minimum it will slow any recovery,” said Nicolas P. Retsinas, director of Harvard's Joint Center for Housing Studies, which issued the report. “Add to that the overbuilding and the inventory correction and you can see why it appears, particularly for the new-home market, that this slump will last well into 2008.”

Housing-industry analysts say the riskiest subprime adjustable-rate loans were made in 2005 and 2006. As they reset at higher interest rates through 2008, they are likely to fuel the current surge in foreclosures.

As lenders move to tighten loose credit standards and prevent defaults, it will become harder and harder for subprime borrowers to refinance into more affordable loans, Retsinas said.

“One of the aftermaths of the subprime implosion was a tightening of credit,” he said.

Retsinas said problems in the housing industry go beyond lending and foreclosures. Even as prices ease somewhat, affordability remains an issue in many areas, including San Diego.

As home prices doubled in San Diego County between 2000 and 2005, they far outpaced middle-wage incomes. With job expansion here concentrated in the low-paying service sector, the Harvard report foresaw no quick improvement in the region's low housing affordability.

When housing is prohibitively expensive, the economy suffers, Retsinas said.

“The danger is . . . you're going to lose skilled workers who will move to a part of the country where they can get a job and afford a place to live.”

University of San Diego economist Alan Gin said he expected home prices to “ease downward some, possibly into 2008.” However, Gin agreed that local wages have not kept pace with home prices. Despite the slowing pace of home sales, housing costs have dropped only about 5 percent from the peak of the housing boom in fall 2005.

According to Harvard's “The State of the Nation's Housing 2007” report, everyone who attempted to profit during the nation's housing boom – buyers, sellers, builders and investors – played a role in the market's decline.

“ . . . This housing downturn has been driven largely by the market's own excesses,” the report said.

Troubles from risky subprime loans are evident in U.S. markets where home prices soared during the first half of the decade. A record 525 San Diego County dwellings were reclaimed by lenders or sold at auction in April, exceeding a previous record of 433 properties in March, according to DataQuick Information Systems. Even so, foreclosures make up a small fraction of the local real estate market.

Doug Duncan, chief economist for the Mortgage Bankers Association, yesterday said subprime loans had done far more good than harm to the economy. Such loans have opened the door to homeownership to millions of Americans in pricey markets like San Diego County, Duncan said.

Of all outstanding U.S. home loans, about 14 percent are subprime, he said. Of those, about 19 percent are delinquent or in the process of being foreclosed on. Duncan expects less than one-third of those will actually be lost to foreclosure.

Among causes of the nation's housing slump, subprime lending “was a contributing factor, but it was not the driving issue,” Duncan said.

Consumer advocates and credit counselors hold that many borrowers don't understand the risks associated with subprime loans. Designed for people with low credit scores, they are more profitable for lenders and mortgage brokers than prime loans.

Subprime loans allow borrowers to qualify for credit on low, introductory “teaser” interest rates that adjust upward after several years. They carry higher fees because of the greater risk of default.

When teaser rates end in expensive markets like the San Diego region, monthly mortgage payments can increase by hundreds of dollars, said Paul Leonard, director of the California office of the Center for Responsible Lending.

To avoid defaults, consumers should be educated about the importance of shopping around for the best mortgages, said Melinda Opperman, vice president for community outreach for Springboard, a nonprofit consumer credit management organization.

“I do feel that the worst is yet to come,” as more subprime loans move into default, Opperman said.

Some analysts blame Wall Street for the subprime crisis. Because of rising defaults, investors have lost their appetite for securities backed by subprime mortgages, said economist Edward Leamer, director of the UCLA Anderson Forecast. That means the subprime market “isn't going to come back anytime soon,” Leamer said.

Don't give up on housing market

Tuesday, May 1, 2007
Last modified Sunday, April 29, 2007 3:19 PM PDT

By: North County Times opinion staff

Our view: North County real estate strong and stabilizing

For the past several years, at dinner tables, water coolers, sidelines and cyberspace, North County's most popular conversation topic has been the real estate market. When the market was hot, there was a collective hyperventilation that blew up the housing bubble. When it started deflating, people despaired. As we look at the market today, things aren't as good as they once were, but they're not half bad.

Foreclosures

Perhaps no word unnerves middle-class Americans more than "foreclosure." And, indeed, the loss of a home is a financial and personal tragedy for the owner.

We've heard much in recent months about the record number of foreclosures in the county. But those numbers must be put in perspective. Earlier this month we reported that foreclosure filings on properties in San Diego County had climbed by 49 percent from February to March to 2,551. That figure represents one in every 408 households.

Scary as they seem at first glance, those numbers don't look so bad upon closer inspection. Of those 2,551 foreclosure filings, 1,998 were in default and 415 had been notified that their property would be sold for repayment. That leaves only 138 properties that were actually foreclosed on that month -- or a little less than 0.025 percent of San Diego County's 600,000 single-family homes, condos and duplexes.

Subprime loans

Some analysts have also speculated that the collapse of the subprime home lending market threatens the overall health of the real estate market. While there are many people nationwide who are suffering now for taking out those loans, the subprime market itself has contracted dramatically -- and that's a good thing.

Homeowners began turning to riskier subprime loans in earnest in 2005. Nearly three-quarters of all home loans made in the county that year were adjustable rate mortgages, which are often associated with the subprime lending market.

By December of that year, however, the Federal Reserve Board and other financial gatekeepers were warning lenders about questionable lending practices. At about the same time, news reports began to surface about skyrocketing mortgage defaults.

Since that 2005 watershed, at least 25 subprime lenders have gone belly up, put out a for sale sign or posted significant losses. That may shrink the pool of potential buyers in the short term, but it seems to be a much-needed correction that will lead to long-term stability.

Housing prices

Of course, for most homeowners, the only figure that counts is the resale price of their home. In North County, at least, there's good news here as well.

At $640,000, the median price of a single-family home in North County is up 2.4 percent from March 2006. That's only $10K off the all-time high set in June 2006.

Coastal communities are doing particularly well. Two standouts are Carlsbad, with year over year median price increases of 13 percent, and Encinitas, with increases of 34 percent in the same period. And high-end home prices, usually a benchmark of market health, are climbing in places like Rancho Santa Fe, where the median price for a home rose 12.5 percent.

So the housing market seems to be doing better. Interest rates remain low. As a result, at-risk homeowners won't have to worry as much when their adjustable mortgages go up. The fact that their houses are likely increasing in value will probably allow them to refinance their original loans, giving them a little breathing room. Despite the tightening of credit caused by the subprime collapse, housing prices in North County are holding up. That suggests that demand here remains relatively strong.

No one has a crystal ball, but the signs are auspicious. North County's housing market may not be as strong as it was, but it appears to be on the rebound.

In shadow of Petco Park, sales pitches for condos

By Alex Roth
and Michael Stetz
UNION-TRIBUNE STAFF WRITERS

It was opening day at Petco Park yesterday, which meant an adrenaline rush for the Padres, a this-is-our-year moment for the fans – and another marketing opportunity for anxious developers.

The signs were everywhere on the outskirts of the East Village ballpark.

“New condos for sale” announced a large banner hanging on Park Terrace, a brand-new high-rise hovering beyond the center-field fence.

At 7th Avenue and K Street, an advertisement for The Legend – a still-under-construction residential tower – gushed about “condo living at the ballpark.”

A block over, at 7th and J, was a poster for a planned 36-story luxury high-rise called Condominium Tower. The ad offered the chance to buy into a building “overlooking Padres Petco Park.”

It's no secret that the real estate market is flat in San Diego – especially in the downtown area, in part because so many buildings went up in such a hurry.

This is especially true in the East Village, where no fewer than a dozen commercial and residential projects are under construction within two blocks of the Padres' home field.

With all this competition, every developer near Petco Park is trying to separate itself from the crowd. The Legend, a 23-story tower where 60 of the 178 units remain unsold, is touting its seventh-floor lounge that overlooks the baseball field. The lounge will be open to residents and their guests.

The Icon, a 24-story building that sits on 10th Avenue across from the ballpark complex, brags of its rooftop “stadium,” where up to 60 residents and their guests can drink beverages and watch the game. A sales manager for the building – where condos range from $299,000 to $1 million – says about 20 percent of the 316 residential units haven't been sold yet.

The downtown developers need every edge they can get. San Diego real estate consultant Gary London cites “a blanket slowdown” in the downtown market – “probably the only over-built market in the entire San Diego region.”

“There's too much inventory under construction,” London said.

People who've already bought units tend to focus on the long term, hoping their condos will eventually become as iconic as the apartments and lofts surrounding Chicago's historic Wrigley Field.

Sal Rivera, a television journalist, and his wife, Rose, recently bought a condo with a balcony overlooking Petco's center field. “If we were going to turn around and sell tomorrow, then we'd be in trouble,” Rivera said. “But otherwise, we're fine.”

Many developers are hoping the 2007 baseball season will reintroduce the public to the East Village, where the spate of construction projects has reconfigured the skyline and altered the neighborhood in the six months since the Padres last played at home.

“When the season gets going, people get reconnected with downtown,” said Derek Danziger, spokesman for the Centre City Development Corporation.

Doug Wilson, developer of The Mark, a 244-unit residential building two blocks north of Petco, acknowledged that half of the units had yet to be sold, even though the building is scheduled to open early next month.

But he said he wouldn't panic, even if it takes another two years to sell the remaining condos.

“Long term, people will still move to California, to the coast, to downtown San Diego,” Wilson said. “Hey, this is not Armageddon. It's a needed correction.”

Rivera, the TV journalist, admits it was the view of Petco that sold him on his condo. He planned to watch last night's home opener from his balcony, even though he and his wife haven't officially moved in yet.

As a kid, he dreamed of playing professional baseball.

“He can't be on the field,” his wife said, “but now he has the best view.”

Hard luck for housing

Countywide price median at its lowest point since July 2004
By Roger Showley
UNION-TRIBUNE STAFF WRITER

February 15, 2007

San Diego County housing prices slid a bit further last month, returning to mid-2004 levels, as buyers pressed for more concessions from builders and discounts from sellers.

The overall median price stood at $472,000, down 5.6 percent from a year ago and $23,000, or 4.6 percent, less than in December, DataQuick Information Systems reported yesterday. The last time the median was that low was in July 2004, when it was $470,000. The market reached its all-time peak of $517,500 in November 2005.

Single-family resale homes, the biggest part of the market, shed $20,000 from the January 2006 level of $560,000, but the latest median of $540,000 was unchanged from December.

Similarly, the resale condominium median was unchanged at $380,000 from December to January. It was 3.6 percent below the year-ago level of $394,000.

It was in the new-housing sector that the biggest price fluctuations occurred. The median for newly built houses, condos and condo conversions was $395,000, down 8.8 percent from the $433,000 median one year ago and a dip of 14 percent from the December median of $460,000.

Tim Sullivan, a San Diego-based real estate analyst, said what's at work in the new-housing category is a buildup of completed, unsold inventory – finished homes sitting empty in subdivisions and condo projects.

“Inventory (of unsold homes) is the bugaboo everyone is focused on,” Sullivan said.

Sharon Hanley, who publishes a weekly bulletin on local new-home sales, reported that the inventory of unsold homes stood at 5,095 at the end of January – a 36-week supply – with 871 detached and 4,224 attached homes available. At the same time five years ago, the inventory was 2,378 homes.

To reduce the backlog last year, many builders began offering incentives, such as upgrades, discounts and special financing.

Tom Archbold, vice president for sales and marketing at San Diego-based Hallmark Communities, said the company's just-opened, 22-unit Vineyard project in San Marcos offers $30,000 in incentives on single-family homes built on small lots. Prices range from $459,000 to $554,000. Three of the first seven homes released were sold over the weekend.

Archbold said the incentives, usually taken in the form of interest-rate buy-downs, may not last much longer.

“It's not going to get any better than this,” he said.

Hallmark President Mike Hall said last year's sluggish new-home market prompted him to delay his next project, Dixie Village in Oceanside, by several months. Grading is now scheduled to start in April, with sales beginning in June.

“There was a lot of inventory on the market, and that caused prices to soften,” Hall said. “We have enough lots to build on right now, so we're holding them back.”

Tony Pauker, who heads Olson Co.'s San Diego division, said his sales staff detects a slight change in mood among visitors to the company's projects.

“Traffic isn't up terribly in terms of gross traffic, but of those, the true buyers are actively looking in the market,” Pauker said.

To adjust to the slower pace of sales, Olson plans no new openings this year, Pauker said.

DataQuick reported that San Diego's home sales in January totaled 2,772, 4.3 percent below year-ago levels.

The January sales pace marked the 31st straight month of year-over-year declines, but it was the smallest drop since August 2005 and sharply contrasted with the 18.1 percent year-over-year decline registered in December.

The figures were derived from a revised methodology adopted by DataQuick that includes about 10 percent more transactions than previously considered. The way regional median prices are calculated also was altered slightly.

On a month-over-month basis, January had 27.5 percent fewer sales than December, but it was the smallest January pullback from December sales levels in five years. January almost always sees fewer sales than December because so many builders and consumers want to close escrow for tax reasons before the end of the year.

By other measurements, the housing market is not necessarily recovering rapidly from the 2006 downturn. The number of active listings this week on the Sandicor multiple listing service stood at about 16,700, higher than 16,300 last month and 14,200 a year ago, but lower than the cycle's peak of nearly 23,000 in August. The average time it took to sell a resale house last month was 81 days, compared with 69 days a year ago.

Even if slower than a year ago, San Diego's sales pace was much healthier than in other Southern California counties, DataQuick reported. There were 18,128 sales in Southern California last month, down 17.2 percent from January 2006. Riverside County was off 34.2 percent, followed by San Bernardino County, down 28.5 percent, and Orange County, down 16.3 percent. Los Angeles was off 6.9 percent.

As for the resale market, David Cabot, president of the San Diego Association of Realtors and a top executive with Prudential California Realty, said agents in his company and around the county were more optimistic about the coming year.

“I believe the bottom has been hit and should level out and should be going up a little bit,” Cabot said. “I don't know if that is accurate; we'll have to wait until June to see.”

It wasn't just real estate agents who were seeing an end to the downturn. Federal Reserve Chairman Ben Bernanke spoke before Congress yesterday about the “drag from housing” diminishing, while his predecessor, Alan Greenspan, told a Canadian audience that the “worst is behind us.”

Housing's Soft Landing Won't Be

By RICH TOSCANO
Thursday, May 11, 2006

It's time to wrap up the series on real estate market misconceptions with a two-parter on the granddaddy of them all: the frequent claim that the San Diego housing market, its multi-year moonshot now drawing to a close, is straight on course for a soft landing.

"Soft landing." The phrase is routinely invoked by just about every housing pundit in Southern California. But what does it mean?

Some analysts have used the term to describe a few years of stagnant -- but not falling -- home prices. Their more optimistic brethren have forecast an environment in which prices rise only at the rate of inflation, or, more optimistic still, at a "modest rate" of 5 percent annually.

Variations on the theme notwithstanding, the forecasters have one thing in common: They all assume that a soft landing is the most likely outcome for the San Diego housing market.

Predicting the future is, as I've discussed before, a dangerous business. Exogenous factors are certain to have an influence that simply cannot be predicted, making it a bad idea to insist that one outcome or another will necessarily come to pass.

But if one can't predict anything with outright certainty, one can evaluate degrees of likelihood. And the facts in this case indicate that a soft landing is very far from the sure thing that it's often promised to be.

The soft-landing thesis is primarily based on two historical realities. One is that home prices have rarely declined outright. When homes have gotten too expensive in the past, price appreciation has usually just flattened out for a while until incomes could catch up and even things out.

The second historical fact is that those few instances where prices actually did drop have taken place when large numbers of people were forced to sell their homes due to recession-induced loss of income. Given San Diego's low rate of unemployment, housing commentators cite this precedent as proof that home prices will remain firm.

The analysis offered by soft-landing proponents seems reasonable on the surface, but in truth it fails to take something two crucial factors into account. The first, to be discussed in part two of this article, is the almost inevitable upturn in forced selling that is waiting in the wings. But the second, more important factor, is the enormous extent to which the current home-price runup has dwarfed the prior booms to which it is being likened, rendering such comparisons fairly useless.

For an idea of just how big a housing boom we've been through, have a look at the graph comparing home price growth during the 10 years leading up to the housing market peak in 1990 versus the 10 years leading up to 2005. In the first decade -- a period during which San Diego experienced a housing bubble that eventually led to home price declines -- prices rose by 85 percent.

For all of that late-1980s bubble's notoriety, however, the decade leading up to 2005 saw prices rise at two-and-a-half times the clip, increasing by 239 percent.

What's more impressive is that inflation was higher during the 1980s than during the 1990s, meaning that the difference in "real" home prices is even more extreme than the above graph indicates. This graph shows the growth in the ratio of home prices to median incomes during both periods. The home-price-to-income ratio increased by 10 percent in the decade leading up to 1990, versus an incredible 119 percent in the ten years leading up to 2005.

This graph shows that we are now at a point where homes are substantially more expensive than they have ever been in the past 30 years. Measured by the ratio of home prices to median incomes, homes are 73 percent more expensive than their three-decade average and 55 percent more expensive than at any prior bubble peak.

Even by housing bulls' beloved comparison of monthly payments instead of overall prices -- a tactic that, among other flaws, requires one to depend on endlessly low interest rates in order for prices to stay aloft -- people are paying significantly more each month than they have since the bad old days of high-teen mortgage rates in the early 1980s.

The current expense of local housing, and the enormity of the bull market leading up to it, defies comparison to past situations. It simply does not make sense to assume that the aftermath of this history-making price explosion will be anything like that of those prior, comparatively pint-sized housing booms.

Next week we will look at just how long it would take for home prices to normalize under the various soft landing scenarios offered up above -- along with some of the challenges that will face the market during that time.

Million-dollar homes are all the rage in California

Over 33,000 homes in state sold above $1 million in '04
Wednesday, February 02, 2005

Inman News

More million-dollar homes were sold in California last year than in the two previous years combined, according to DataQuick Information Systems, a real estate information service.

A total of 33,107 homes in California sold for $1 million or more last year. That was up 73.5 percent from 19,080 in 2003. The total in 2002 was 13,871.

Last year's surge was strongest during the second quarter when year-over-year sales were up 109.3 percent. During the year's final quarter, sales were up 61 percent, the company reported.

"A million dollars just isn't what it used to be when it comes to California real estate. Because of appreciation across the board, more homes are in the million-dollar category than was the case earlier. We don't expect home prices to go up as much this year as in 2004, so we anticipate that sales counts will level off," said Marshall Prentice, DataQuick president.

Million-dollar sales accounted for 5 percent of all California home purchases in 2004. In 2003 it was 3 percent, and in 2002 it was 2.3 percent.

Statewide, there were 221 sales for more than $5 million last year, 237 sales were in the $4-$5 million range, 690 in the $3 million range, 2,894 sales in the $2 million range, and the rest between $1 million and $2 million.

DataQuick, a subsidiary of Vancouver-based MacDonald Dettwiler and Associates, monitors real estate activity nationwide and provides information to consumers, educational institutions, public agencies, lending institutions, title companies and industry analysts.

The DataQuick numbers include home sales where it could be determined from public records that there was a buyer, a seller, that money changed hands, and that there was a legal transfer of property ownership. Not included were property swaps, sales of multiple lots, teardowns, and large farm or ranch properties. Home sales to companies were included, as were sales to trusts.

The most expensive confirmed purchase was a 10,900 square-foot five-bedroom, four-bathroom San Francisco house which went for $22.5 million in December. The largest was an eight-bedroom, 10-bathroom 35,735 square-foot house on 2.3 acres in Beverly Hills that sold for $13 million in October.

Ross in Marin County and Rancho Santa Fe in San Diego County were communities where virtually all home sales were in the million-dollar category, the company reported.

Newly-built homes accounted for 5,210 of last year's sales, up 141.8 percent from 2,155 for 2003. San Diego, Orange and Los Angeles counties were the most active markets for newly-built homes, DataQuick also reported.

There were 1,677 condo sales in the million-dollar category, up 90.8 percent from 879 a year ago. Most were sold in West Los Angeles, San Diego and San Francisco.

The median-sized million-dollar home was 2,644 square feet, with four bedrooms and three bathrooms. The median price per square-foot for all million-dollar homes was $489, up 5.4 percent from $464 a year ago, DataQuick reported.

Around 15 percent of the buyers paid cash, up from 12 percent in 2003. Of those who financed their purchase, the median down payment was 25 percent of the purchase price. Lending institutions most willing to provide mortgage financing were Washington Mutual, Countrywide Home Loans and Wells Fargo.