October 7th, 2012 by Jeff Collins
Leslie Appleton-Young, chief economist for the California Association of Realtors, recently issued her 2013 housing market forecast predicting that both home prices and sales will see modest increases next year.
While the overall housing market continues to improve, there are a number of “speed bumps” and “wildcards” that threaten to send the home selling industry back into a tail spin. For one thing, there are too few homes for sale, Appleton-Young said. And lending standards remain tight.
Here are transcripts from her recent news conference unveiling her forecast …
Q: What are some of the wildcards that could alter next year’s housing forecast?
I think the Euro Zone is still a huge wildcard. One of the things that I think became clear to the entire world four or five years ago is that the global financial markets are held together by one thing, and that’s confidence.Leslie: I think the “fiscal cliff” is clearly one that could be devastating for the economy and send us back into a double-dip recession. Certainly, the whole country is hopeful that Congress and whoever is president will be able to figure this out and reach a reasonable agreement on tax cuts, tax increases and so on and so forth. But right now, we’re heading towards it.
It’s possible that they can bring things together and not lose anybody on an austerity program that strengthens their currency union. But if they can’t, that would be really devastating for the entire global financial system.
Certainly anything with respect to national resources like oil prices, anything that sends the economy off-kilter is going to affect costs, it’s going to affect incomes and it’s going to affect the housing market.
And particularly in California, I would have to say the situation with the regional governments, the state government and the municipalities – I think we have at least four fairly high-profile bankruptcies of municipalities going under, and having to restructure their pension agreements with their public-sector employees and so on and so forth.
The eminent domain issue is going on in San Bernardino and other parts of the country. There’s just a lot of concern about how this is going to be restructured. Those are just the major ones that I’m certainly watching.
Q: Would you characterize this market as distorted due to low-interest rates, inventory constraint and the presence of so many cash buyers?
Leslie: The word distorted doesn’t appeal to me. It certainly is a unique market that’s responding to unusual circumstances. If that’s a good way to look at distorted that probably is fine.
Certainly in all the years that I’ve been here, I haven’t seen a market like this. And again, if you look back over what we’ve been through for the last five years, you know, we’ve never seen the drop in prices, we’ve never seen the spike in foreclosures, we still have quite a ways to go in terms of bringing that issue under control.
Another semi-wildcard could be in California, you’ve got 30 percent of the homeowners that are current on their mortgages also are under water on their mortgages. And that’s going to be interesting to see how that plays out. As prices increase and as we’ve had a little bit of an uptick in loan modifications being granted, those people become less uncertain, and they’re going to stay in their homes and they’re working things out.
It’s a fairly large group of people, and nobody knows how many of them are going to end up in the foreclosure pipeline. So yes, it’s a very, very unique set of circumstances in this market.
Q: What does it say when you’re forecast price for 2013 is still 40 percent below the 2007 peak?
Leslie: I think what it says is that we’ve had a huge drop, a huge dislocation of the market, a huge overplay of the market that we’re in the process of working through. …
When you look at the price trend line, you can see as you look at (the prices for) 2003, ’04, ’O5, how far above trend we were, and now we are below trend and working back up to the trend. I think what you say about it is it’s a market that’s correcting.
Q: How long until the market is corrected?
Leslie: I think that depends on how you define corrected. I am looking in terms of having a more normal supply of REO (bank-owned) properties and a significant reduction in the percent of California mortgages that are under water. (That’s) probably three to five years (off).
Q: Is the shift in the market to a greater share of short sales also constricting sales – since they take longer and are more tedious?
Leslie: Well absolutely, although I will say that there is progress being made. And the short sale share has doubled in the over the last, you know, 3 ½ years. The amount of time it takes to close a short sale has gone down.
I think we’re going to be releasing (soon) our lender satisfaction survey where we poll Realtors about their experience going through a short sale with the various lenders in California. It’s still not great, but it’s better. They do take a long time.
The days on the MLS for a short sale last year was 141 days. This year, it was 90 days. So that’s a 51-day reduction. But still, compared to the REO this year, it was only 30 days on the MLS. So short sales take about three times longer than an REO, but it’s down significantly from last year. Improving, but slow.