By Scot Campbell 4/26/2012 Source: Bloomberg, LATimes, RealtyTrac, DqNews, Realtor MLS
This week may be remembered as the pivotal week in the transition of the national real estate market because this week a “housing bottom was declared” in several prominent news outlets including Bloomberg, the LA Times, and others.
Several economists (but not all) called a bottom to the worst real state collapse since the 1930s. Senior economists Chris Rupkey, Bank of Tokyo-Mitsubishi, Michelle Meyer, Bank of America, Mark Zandi, Moody’s, Mark Fleming, CoreLogic, and Stan Humphries from Zillow, are predicting prices are close to a trough. Here are comments from some of the believers:
Mark Zandi, Chief Economist, Moody’s Analytics – “The crash is over. Home sales – both new and existing – and housing starts are now off the bottom.” (Bloomberg 4/26/2012).
Christopher Thornberg, Principle, Beacon Economics who was one of the early predictors of the present downturn had this to say: “What are important are sales and inventory, and those are pointing in the right direction. I would say that by the end of the year, they should translate into better prices… The recovery is here.” (LA Times 4/26/2012)
Mark Fleming, Chief Economist of CoreLogic – “It’s just a matter of months before we get positive year- over-year numbers in the overall index. Our data lags the reality. The turnaround is happening in the March, April and May time frame.” (Bloomberg 4/26/2012)
Stan Humphries, Chief Economist of Zillow – “I characterize 2012 as a year in which the market is healing and the bottoming process is playing out,” Humphries said in a telephone interview. (Bloomberg 4/26/2012).
The L.A. Times added the following observation, “The Zillow website estimated that home values inLos Angeles hit a bottom in the first quarter (2012) as the median price flattened from February to March… Zillow’s is among several recent predictions that certain markets have put the worst behind them.” (4/26/2012).
Who are the prominent “non-believers” and what are they saying?
For years, the S&P/Case-Shiller index has been the most widely referencedreal estate index and Robert Shiller, a Yale Univeristy economics professor and co-creator of the index, has been one of the most quoted real estate economists during the real estate downturn. Mr. Shiller is not as optimistic as other economists; however, his index averages the last three months. This has a “smoothing” effect on the numbers, will mask a turning point in the market, and could explain why Mr. Shiller is less optimistic than his peers.
Robert Shiller,Yale University Economist/Co-Creater Case-Shiller Index – “I’m more concerned about the downside than most people. “I could see it staying languishing and edging down for years.” (Bloomberg Radio 4/25/2012).
Scott Simon, PIMCO – “Prices still have a way to fall because as many as 6 million homes with delinquent mortgages and in the foreclosure process are likely to come on the market. We think we’d go down another 3 or 4 percent over the next 12 months, probably bottoming sometime next year. One month does not change anything.” (Bloomberg Television “Surveillance Midday” 4/25/2012).
Mr. Simon is the head of mortgage and asset backed debt atNewport Beachbased Pacific Investment Management Company. Clearly, his analysis is highly weighted on foreclosure outcomes for the properties presently going through the foreclosure process rather than the current pace of sales or observations of price movements in the marketplace. Mr. Simon’s firm PIMCO has an army of MBAs researching the overall economy to help them better make investment decisions in the bond market.
It is worth looking at the foreclosure market, since this appears to be the area of disagreement:
Dataquick sells county records data and has been reporting on thereal estatemarket since 1988. ForeclosureRadar and RealtyTrac are among the tools of choice for investors and Realtors who are following homes through the foreclosure process. Their data is very accurate and timely. These three firms issue reports and opinions on the foreclosure market and have interesting insights derived from the raw foreclosure data which they compile monthly:
John Walsh, President, Dataquick – “A few years back, there were some breathtakingly negative forecasts making the rounds regarding the foreclosure problem. It’s not necessarily playing out the way some pundits thought.” (LA Times 4/26/2012)
Sean O’Toole, Chief Executive, ForclosureRadar – “The foreclosure market is turning into a drought, not a wave, and that has resulted in a lack of inventory. If it continues, it will likely mean that we’ve either seen a bottom — or have passed a bottom — in prices because of limited supply and still strong demand.” (LA Times 4/26/2012).
Daren Blomquist, Vice President, RealtyTrac makes a very good point in his April 21, 2012 article entitled It’s Not How Foreclosures Start, It’s How They Finish: “2012 will be a record year for short sales. In January, pre-foreclosure sales (typically short sales) increased 33 percent… and these pre-foreclosure sales actually outnumbered REO sales in 12 states, according to a RealtyTrac report that we issued on April 19 titled A Building Wave of Short Sales in 2012. I view short sales as a much more efficient way for the market to absorb the more than 4 million distressed loans that are either delinquent or have already started the foreclosure process — and it’s usually better for the lender, distressed owner and new buyer. So if the bulk of the foreclosure starts we’ve seen over the past few months end up as short sales rather than REOs, the housing market will be better off.”
When homes are sold as a “short sale” the properties are typically better maintained and most often fetch a higher price than a REO property which languished for many months or years with little or no maintenance. With short sales now outnumbering REO sales, and the trend continuing to increase, fewer and fewer REO properties will be “dumped” onto the market.
So what are we to believe about the future of the market with very prominent real estate economists in disagreement?
There is no debating that the inventory of homes for sale is way down compared to recent years, mortgage rates are rock bottom, and there are motivated buyers in the market place who WANT TO BUY this year.
The look of the market six months or a year from now is highly dependant on what happens with mortgage rates… if they “zoom up” many people who were thinking of either buyer or selling this year will wish that they had bought or sold.
Based on the number of motivated buyers in the market ready, willing, and able to buy, I am confident in saying this is the best selling season in years to sell a home in Coastal Orange County.
For questions about buying and selling real estate in Orange County, contact Scot Campbell. He is the President of The Scot Campbell TEAM at Coldwell Banker-Campbell Realtors in Huntington Beach, CA. He has been a licensed broker for over 21 years and has brokered over 1000 homes and just about every type of transaction imaginable. Read his profile and client reviews at www.ScotCampbell.com He can be reached at 714-960-0700 at the office, 714-336-0394 on his mobile number or via email at Scot.Campbell@ColdwellBanker.com
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