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Sal Aranda: Housing market offers rare openings, challenges

Posted: July 7, 2011 1:55 a.m.
Updated: July 7, 2011 1:55 a.m.

The capacity crowd of real estate professionals, business leaders and elected officials who attended a recent housing forecast were eager for positive news, which an economist was happy to provide, along with, of course, doses of reality.

Leslie Appleton-Young, vice president and chief economist of the California Association of Realtors, said today’s affordable housing prices offer a “once-in-a-lifetime opportunity,” an opening that “the smart money is chasing.” Yet, the challenge is that 25 percent of mortgages in California are underwater, with distressed properties likely to be a feature for the next three to five years.

Appleton-Young was the keynote speaker at a recent breakfast meeting organized by the Southland Regional Association of Realtors’ Santa Clarita Valley Division and attended by more than 300 professionals.

“We don’t know what’s not in the pipeline. … That’s why it’s difficult to say what the market will look like over the next 10 or 20 years,” she said. “There’s nothing in a mortgage that says if the value of a property goes down, I don’t need to pay.”

And, she noted, neither government leaders nor lenders are coming forward with effective programs intended to help underwater owners.

So far this year, home sales are running about 2 percent behind, compared with the first five months of 2010.

“That’s pretty good considering tax credits, which expired, were really juicing sales last years,” she said, adding “Recovery is uneven, at best.”

There are plenty of positive signals in the market, she said, yet the challenge for Realtors, who are “working twice as hard for half the money,” is to pinpoint the data down to individual neighborhoods, streets and properties.

“The more you can localize data, really get much more granular,” she suggested, “the better the information will be.”
Appleton-Young said the positive economic signals include:

n Job creation: “Job creation is happening, it’s just that we’re digging our way out of a pretty significant hole,” with 2 million jobs added after losing 8.4 million jobs during the downturn. Plus, with local, state and federal-government cutbacks likely, the ranks of the unemployed may swell.

n Strong stock-market recovery: “One huge bright spot is the stock market; it’s having an amazing year. … Labor is the biggest cost for most companies, which have gotten leaner and leaner, producing more with fewer workers.”

n Real-estate net-worth stabilizing — During the 1990s, the San Fernando and Santa Clarita valleys, along with the Southland in general, took huge hits from the Northridge earthquake and loss of the aerospace industry. Yet, it took three years for prices to plunge.

“This time, in two years, prices dropped 58.8 percent. We’ve never seen that before.”

n Rising rents and more qualified renters: Uncertainty in the housing market and people losing their homes have added pressure and opportunities in rental properties, which is likely to continue even as housing recaptures its luster.

n Strong demand for distressed properties: Fortune magazine recently said: “The most attractive asset class is housing,” which sums up today’s unique opportunities.

n International demand is strong: India, Brazil and China have vast middle classes (India’s middle class is larger than the entire population of the U.S.) that are growing by leaps and bounds. They’re demanding products and have the ability to pay, and their moving the price of building materials up very sharply. Investors worldwide recognize that current opportunities and affordability in U.S. real estate won’t be around this time next year.

n Smart money chasing real estate: Interest rates, which Appleton-Young said have nowhere to go but up, are favorable, yet loans remain difficult to secure, making all-cash purchases more desirable.

“We’ll see record-high all-cash purchases,” she said. “If you can get it together, it’s worth it, because the lending environment is so challenging.”

That environment could well get even tougher, especially with the conforming loan limit expected to drop come September, making jumbo loans more expensive.

The future of Fannie Mae, Freddie Mac, and FHA loans, long the backbone of affordable loans, are in question, too, as is the mortgage interest deduction, which some forces want to end as part of tax and budget reform.

“This market is not going to change anytime soon,” Appleton-Young said. “We’re in a bit of a rough patch. … But don’t get me wrong. The worst is over.”

Sal Aranda is President of the Santa Clarita Valley Division of the Southland Regional Association of Realtors. David Walker, of Walker Associates, co-authors articles for SRAR. The column represents SRAR’s views and not necessarily those of The Signal. The column contains general information about the real estate market and is not intended to replace advice from your Realtor or other realty related professionals.


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