Brookfield Homes

While the headlines continue to bash the real estate markets in general and Santa seems to have loaded his sleigh with job losses, credit crunches and liquidity problems, I would like to take a moment to offer each of you a very Merry Christmas, Happy Hanukkah, Grand Winter Solstice and or Happy Holidays.

While Santa is passing out lumps of coal this year, I thought maybe I could generate a smile or two with a little gift from me to you. Please click here and follow the on-screen directions.

Let’s all hope for a return to confidence and prosperity in 2009!

Steve

In looking ahead to 2009, the San Diego Residential Real Estate market appears to me to be ready to shake off the doldrums of 2007 and 2008. While I do not expect to see 20% appreciation again, I am leaning toward a stabilization of the market and a preparation for a “return to normalcy”. What does that mean?

Well, let’s look at some of the factors that impact residential real estate in San Diego and their current trends…

New home inventories are down dramatically. Builders have stopped building spec homes and are re-tooling their product for today’s cost conscious market. We have had over 2 years of continuous declines in new home inventories and we now stand at levels that are off more than 60% since the beginning of 2006.

Resale inventories are down dramatically. Existing home owners are responding to today’s market realities. If a home owner needs to sell, they are pricing to achieve sale in this down market. If a homeowner does not need to sell, they are not putting their home on the market to “test the waters”. The MLS listings for November 2008 were 15,529. There were 20,599 in November of 2007. That’s a 25% decrease.

Total home sales are up significantly. Total home sales in October 2008 were 3,600. That is the highest monthly total since December of 2006!

Sales of foreclosures exceed additional homes being foreclosed on a monthly basis. Foreclosure home sales were estimated to be 1,760 last month, while homes taken back in foreclosure were 1,112. We are selling foreclosed homes faster than we are adding them to the inventory.

Interest rates are at historic lows. Chase announced a 4.75%, 30 fixed rate today for conforming loan purchases. 4.75%! Bank of America is at 5.2% fixed for 30 years with NO points!

White House

A new administration takes over in January, optimism is rising. Change is the word of the day and change is happening. A honeymoon period usually follows a new presidential inauguration and with control of the House and Senate, there is a real chance for the Democrats to push forward economic legislation to reverse the course of this recession.

First quarter of 2007 and 2008 were very strong quarters for new home sales. We also had very weak fourth quarters in each of those years. The first quarter of 2009 is setting up for another strong quarter of new home sales.

Job loses are mounting, but focused on trade and construction jobs. With stimulus packages in the offing, most of which focus on infrastructure and other forms of “construction”, there is a good chance to get America back to work building things. That helps construction numbers and it helps the supporting industries of construction.

Prices are still falling, but at a much lower rate of decrease. The rate of decline in San Diego real estate pricing is slowing. In fact, in new home sales the median pricing has been “going up” the past four months. The overall market median price is flat, but the reality is that resales have finally made the pricing adjustment necessary and the rate of decline fell for resales homes is down to 2.7% month over month. Overall, the median price increased by 1.4% in October for all San Diego home sales, month over month.

Consumer confidence is very low. But, investor confidence in real estate is growing daily. Anecdotal evidence shows many banks are receiving 3 and 4 offers on foreclosed homes over the original asking price. While the consumer is worried about their job and their existing mortgage payment, bottom priced resale homes are getting snapped up and quickly.

What does all this mean? Well, to me it means 2009 will be the “bottom” of the recession for the San Diego real estate market. Prices will stabilize. Absorptions will increase. Confidence will begin to return. Mortgage rates will remain very low. Government incentives will be applied to shore up values. Jobs in construction will return through stimulus packages, which in turn will halt the job loses in other sectors. Inventories will remain low for both new homes and re-sales. Total sales will continue to increase. Foreclosures will decrease. Notices of Default will decrease. Lenders will find a balance for qualifying criteria and loan products will stabilize. Demand will return and supply will be limited. The real estate industry will stabilize and prepare for better days in 2010 and beyond.

I am also an optimist (you have to be in this business) and I believe in Santa Claus. So, what do you believe?

The Employment and Development Department of the State of California recently released their monthly findings on jobs in San Diego and Riverside Counties. http://www.labormarketinfo.edd.ca.gov/?PAGEID=131.

The National Bureau of Economic Research said the U.S. likely entered into recession at the end of last year. http://online.wsj.com/article/SB122815304785769411.html At 12 months, this recession has lasted longer than all but 4 of the previous 13 recognized recessions, going back to 1929. Given the anticipated turn-around happening sometime in late 2009 or early 2010, this recession will be the second longest recession, surpassed only by the “Great Depression” at the beginning of the last century!

Translating the “statistical recession” into real life examples, the jobs report for San Diego and Riverside County looks something like this … During the first 10 months of 2008, San Diego has lost 18,900 jobs and Riverside has lost 28,700 jobs. The unemployment rate in San Diego stands at 6.8% and in Riverside it has reached 9.5%. The biggest net job losses have come from the same two categories in both counties, Construction and Trade, Transportation & Utilities.

Construction job losses have accounted for 15% of the job losses in San Diego and 42% of the job losses in Riverside. Trade, Transportation & Utilities account for 67% of the job losses in San Diego and 44% of the job losses in Riverside. All totaled, Construction and Trade, Transportation & Utility job losses account for 40,000 of the 47,600 jobs lost in both counties.

(Trade, Transportation & Utility jobs are defined as jobs coming from wholesale and retail trade markets, motor vehicle, food, building materials, home furnishing retail stores, warehouses and distribution centers.)

Is it any surprise that the construction market is in a deep recession? Couple these numbers with the job losses in construction during 2007 (over 4,100 jobs in San Diego alone!) and it is not a pretty picture for the guys and gals wearing hard hats.

There is an old saying that goes something like “job losses in construction are a predecessor to a recession, and job gains in construction are a predecessor to recovery.” We need to get America back to work! We need to encourage investment in public infrastructure to promote job creation to end this recession. America, California, San Diego and Riverside Counties have put off infrastructure investment for too long. We have degraded utility systems, roadways and public buildings. Now is the time to invest in our future and to invest in our recovery.

Today, Fed Chairman Bernanke signaled to the markets another round of interest rate cuts were “certainly feasible”. While I appreciate the sentiment of cooperation and the effort to promote growth through rate cuts, I believe we are missing a prime ingredient to get this economy started again … CONFIDENCE!

http://online.wsj.com/article/SB122815304785769411.html?mod=article-outset-box

The lack of consumer confidence, investor confidence, Wall Street confidence, confidence in government action, lender confidence, and borrower confidence has created a CRISIS IN CONFIDENCE! Couple that fear with media hype focused on hyperbole and rhetoric, you are guaranteed a “do nothing economy”. The majority of people will choose to “do nothing” when they are facing fear and uncertainty. And, that is exactly what is happening, nothing.

The Fed has lowered their rates to 1%. What difference is there in a rate of 1% or 0.5% to the average consumer? How about to the average bank? Banks have lost confidence in their ability to conduct business because they have no confidence the borrower will repay their loans. Borrowers have lost confidence in their banks, because the banks won’t loan money. Banks have responded with lending criteria that would likely keep even Bill Gates from getting a loan. Borrowers have responded by “doing nothing.”

Wall Street flaunts the fact they have stopped paying outrageous bonuses to executives. After years of eight and nine-digit bonuses that were larger than the GDP’s of many countries, Wall Street says “no more”. Well, John and Jane Citizen, who used to send their 401k and IRA money to Wall Street, have said, “no more, we have lost our confidence in you”. Investment advisers, guiding billions of dollars from union pension and endowment funds have seen the value of their funds evaporate overnight. Investment advisers have told Wall Street “we have no confidence in you”.

Government has jumped in with “bailouts” and “rescue packages” to stave off fiscal disasters. The results have been minimal, at best. First it was the banks, then the “financial institutions”, now it’s the auto makers. The list of groups with their hands out is growing longer and longer. The public is saying “we’ve lost our confidence in you.” Wall Street is saying to the government “we’ve lost our confidence in you”. Lenders and borrowers are saying “we’ve lost our confidence in you.”

The evidence should be sufficient to convince our government, our banks, and Wall Street, that the issue is one of confidence and not of interest rates, loan qualifications and foregoing a bonus or two. The American people want to wake up and read a confidence boosting headline. American business wants to hear a confidence boosting encouragement from the financial markets. Wall Street wants to see a confidence boosting action by the government. And, all of us want to see and hear confidence building reports from our media.

I admit, I don’t have the silver bullet that will end all this confidence bashing. But, I would like to see more media coverage on confidence building news and less on the gloom and doom. When I read some of the articles in my local and national papers, I see confidence building information. It is buried on page 26, behind the ad for hemorrhoid cream, but it is never shown in the headlines, or discussed on page one of the paper. When I listen to media reports on the radio or television, the situation is similar. The teaser line is gloom and doom, the story is balanced, but the bad news comes first and the “good news” is lost as I change channels or stations looking for something to build my confidence.

Time to stand up America. Time to demand confidence building from our government, Wall Street, financial institutions and most importantly, our media. Otherwise, we are doomed to be lost in this vacuum of confidence and as all good citizens will … we will “do nothing”.

Old House

There are a great number of foreclosed homes available in today’s real estate market. The prices on some of these homes seem to be very low. How do you know when you are getting a good deal on a foreclosure?

New Home

Newly constructed homes are also available. Why should you consider a new home? What benefits are there in buying a new home? Are new homes over priced?

Well, since my background is in new home construction, I imagine you already know my perspective on this dilemma. But, let me offer you my thoughts and open the debate on this question.

The New Home Purchase:

• Everything works! In a new home purchase the Buyer receives a Builder Home Warranty, a Fit and Finish Warranty, protection from structural, leak and defect problems, assistance with subcontractors and manufacturers to repair or replace defective work.
• Everything is new! You get new appliances, new flooring, a new roof, new windows and doors, new counter tops and fixtures.
• Best pricing in years! Yes, builders have lowered prices. We must remain competitive in the market. But, with a new home purchase you can get a deal done quickly. You can pick your move in date. You get help with financing, escrow and incentives. You receive a walk threw to learn about the house and you get contact information for the customer service program.
• Have it your way! With a new home you get to pick the flooring, the elevation and the lot. You can create your dream home. You will get a very energy efficient home. And, YOU WILL BE THE FIRST OWNER!

The Foreclosure Purchase:

• As is, Where is. What you see, and more importantly, what you don’t see, is what you get! There are no warranties. There is no protection offered. And, there is no one to call if a problem arises.
• Everything is used! All your appliances, fixtures, flooring, windows, doors, counter tops and even the roof are used. How were they used? When was the last time they were cleaned? Will the function properly?
• Best pricing in years…! But, you have no idea when the deal may or may not be accepted. You do not know when the deal will close. You do your own financing, manage your own escrows and there are no incentives. You will not get a walk threw to learn about the house and there is no customer service after the sale.
• Have it their way! What will the condition of the home be at closing? Will the home still have a tenant? Do the appliances work? How much time, money and effort will you have to put into the home to make it “live-able”?

Old Appliance

Yes, you can find a foreclosed home that is in good condition. Yes, you can find a foreclosed home for a lower price than a new home. I admit, there may be cases where a foreclosed home sale is a better deal. But, I submit, those instances are not as frequent as the deals that turn out to cost the Buyer a lot more than they expected.

I can give you one very simple and very personal example. I recently bought a home in foreclosure for my daughter to use while she is away at college. The cost to rent in her town exceeded the cost of a monthly mortgage. I didn’t have the option to buy new in this community. So, I did a lot of due diligence and found a place I thought was in good condition. After a “professional home inspection” and several examinations by myself, we bought the 20 year old condo. Not two weeks after closing, we found that the heater for the unit was in desperate need of service and repair. It worked, but it had never been cleaned or serviced. We expected we would need to clean the filters, but we did not expect to spend $700 on duct work and servicing the unit.

Even if you know what you are doing, or if you have been in construction for 30+ years. Some things can evade your inspections and do not become evident until you live in the home for some time.

Compare new homes being offered for sale today to those foreclosures. I believe you will find the value offered in a new home far exceeds the initial cost to purchase.