Finding the Real Estate Turnaround

At last week’s Inman News Real Estate Connect NYC 2009 conference, several key suppliers of real estate market information participated in a panel discussion – “Crunching the Numbers To Find the Turnaround” - moderated by Alison Rogers, Licensed Salesperson and author of Diary of a Real Estate Rookie. The participants discussed:

• Key Real Estate Market Indicators
• Advice for President-Elect Obama
• Inflation
• Projections on the Housing Market Recovery

Here are the notes of the key comments provided by each panelist:

Michael Simonsen, CEO, Altos Research Corporation

• Key Indicators – Focus on non-traditional real estate market statistics beyond price information such as time-on-market, number of current properties with price reduction, and current inventory levels by zip code and price level. By mapping out a number of key determinants, a more comprehensive view of the real estate market’s real-time conditions is available. Everyone knows the price headline – “What else can be used to give buyers and sellers the opportunity to make an intelligent decision?” (Altos Research releases a national housing report each month that is available for free.)
• Advice for President-Elect Obama – Any rescue plans should focus on the acute problems – chronic problems that require longer term and structural changes. Short term programs designed to stave off foreclosure for six months will not solve the systemic economic problems. The path to jobs is economic growth, which means investments in education, and allowing for innovative people to enter the United States and contribute to future economic development.

Jonathan Miller, Co-Founder, Miller Samuel Inc.

• Key Indicators - Look at transaction activity, as the level of sales activity gives you a clue on the direction of the price. About 18 months ago, there was a contraction in the number of transactions. While credit stabilization will be a key indicator, it may take another 18 months for the credit market to stabilize.
• Advice for President-Elect Obama – The last seven years have been a mortgage boom more than a housing boom. The housing sector is what manifested the mortgage boom. The new administration should focus on smart regulation – comprehensive regulatory structure. There has been an increase in regulation every year for the past five to seven years, but they clearly have not been effective. Get agencies in sync to create a stable and safe playing field. Missing piece right now is the trust.
• The Recovery – A more stabilized credit environment is necessary first. Every month that passes in getting things settled, inventory rises and consumer confidence falls. If one assumes improvement in second half of 2009, then the recovery will begin in another year or two with a full recovery in “several years.”

Leslie Appleton-Young, Vice President & Chief Economist, California Association of REALTORS

• Key Indicators: Look at the number of foreclosures in the next 30-, 60- and 90-day periods. Remember that many markets are bipolar - Distressed/REO/foreclosures versus rest of the market. (Here’s a good example from Los Angeles, CA – comparing price trends by price level. Strength at the top of the market and price weakness elsewhere.)
• Inflation - There’s a tremendous amount of liquidity in the market right now and it’s only going to get bigger with the stimulus package. Down the line, we’ll see a return to a very significant level of inflation compared to what we saw. On the upside, high inflation has historical spurred the housing market.
• The Recovery– In terms of transactions, California was at the bottom in 2007, as transactions increased 12% in 2008. While year-on-year prices are down 40%, it’s clear that much of the action is in the distressed part of the market. Markets work, markets clear. With the current economic environment, there’s now more risk in the high end than there was a year ago.

Terry Loebs, Managing Director, MacroMarkets LLC

• Inflation – “The forecast calls for pain” because of the pending stimulus package. While perhaps necessary in the short-run, the plan will come at a cost.
• Advice for President-Elect Obama – Develop better transparency in home pricing because huge inefficiencies exist in pricing market assets.

Pete Goldey, Chief Information Officer, Onboard Informatics

• Key Indicators – Stay local because real estate is local – it is difficult to look nationally to see one indicator, therefore local real estate market data should be a primary source. In California, transactions are largely distressed properties. What happens when those clear? Once distressed properties leave the marketplace, there is a better chance to see what is really going on in the traditional market.
• Advice for President-Elect Obama – Mortgage rescue programs are bad. While it is important for people to stay in their homes, those not requiring assistance will ask – “but what about me?”

Comments

[Pete Goldey:]

Hi Scott,
Thank you for covering this. I really enjoyed sitting on the panel. I did want to clarify a couple of points:

Mortgage rescue programs: are not bad per se, but my advice was to not rely on short term measures without considering their long term effects. Changing the equity landscape between homes in the same community based on whether one owner made a poor borrowing decision would have consequences beyond enabling someone to stay in their home.

Jobs and availability of capital: these are obvious key and critical points to finding any turnaround. When buyers can't borrow or have no income there won't be many sales. Distressed areas - like Detroit - aren't going to turn around due to national rate cuts, etc. This is where local information becomes critical.

Inflation: will actually help the home sale market as costs of other goods, including rentals, rise. At the moment, home prices are universally too high. The more everything else catches up, the less of a discount will be needed to move a home.

Availability of accurate data: seeing the full picture is important. If you are only looking at partial statistics you are likely to miss the trend. At Onboard we provide housing trends, valuations and valuation projections at the property level, distressed property information, and contextual but relevant data such as school performance and employment information to our client - all with national coverage. Whether you work with us, Altos, or another provider, I'd encourage asking lots of questions and understanding the completeness, accuracy and currency of any data set or report you are basing decisions upon.

Jan 13 02:17 PM