I attended the Santa Clara Association of REALTORS® Summit Meeting 2011 with speakers discussing the Housing Market Outlook. Which really should have been titled, “Summit on Doom and Gloom.” No one in this industry thinks our troubles are over. We all know shadow inventory lurks, we all understand underwriters seem to get tougher and tougher on buyers each day, we understand short sales are far from streamlined. But in my very humble opinion, most of us believe it is better than last year, and better than the year before that. Real estate professionals are amazingly adaptive, and when you think about the number of changes that have occurred in the buying and selling of homes over the last four years, there is a solid argument for the fact that this market may have actually improved our profession.
The summit began with a local panelist discussion on San Jose’s housing plan. Panelist Sam Licardo, San Jose City Councilman and Co-chair of the San Jose General Plan Task Force and Leslye Corsiglia, Director of Housing, City of San Jose started us off with discussion mostly centered around the general plan and housing affordability in San Jose. The plan mainly focuses on the changing demographic which will include more Baby Boomers and younger groups into our fair city. This drives “villages”, mass transit, walk-ability, and high density housing. Mr. Licardo was quick to point out that the intention is not to bull doze neighborhood homes for new development but utilize infill areas for higher density living so “we will be building cities for people and not cars”. Mr. Licardo pointed out that San Jose needed to continue to pull jobs into San Jose to reduce need to commute up the peninsula.
Leslye Corsiglia voiced her concern about the changes in redevelopment funding and how that will affect affordability. In the past, redevelopment funds from the Federal and State government, “brought in $40 million dollars in revenue and assisted with the development of 21,000 units over the years. That money is very important.” Ms. Corsiglia believed development must be all encompassing of wage earners around the San Jose areas as home affordability and rents must be available to blue collar workers as well. Ms. Corsiglia also highlighted the housing group’s foreclosure assistance through the Foreclosure Help of Santa Clara County organization.
Next up, Ray Mathoda, Preident/CEO/Founder of AssetPlan USA and Gary Schlossberg, Senior Economist, Wells Capital Management. Statistics from these two were staggering. From Ms. Mathoda, “2-2.5 years of double dip in housing. Non-distressed home sales are down 83% from 2005. Percent of underwater home owners are 11 million or 23%. 60% of home owners in California are effectively under water. 6.2 million liens are delinquent and 2.1 million have not made a payment for 525 days. 6.2 million Americans are unemployed and 4.2 million home owners are more than 90 days late.” But she ended that stream that with lower home prices and lower interest rates indicate “this is the best time to buy in over 40 years.” Woo hoo!
Ms. Mathoda’s real message came in the handling of delinquencies. The reality rings clear. “If a home owner can not afford their home, there should be methods to help them move on.” She went on to say the loan modification process was a dismal failure and the sooner these defaulting liens were cleared up, the sooner the housing market would recover. Ms. Mathoda explained the need for consistency in short sale approval process and recommended the HAFA program to be that process. She explained how providing incentives through relocation money and removing the threat of deficiency judgement allowed home owners to have a true alternative to foreclosure. “Financial stability should be the goal. Not simply whether or not someone wants to leave their home.”
Mr. Schossberger focused on the general lending environment and how the private industry was not participating. With 9 out of 10 loans being supported by government servicing entities (GSE like Fannie Mae and Freddie Mac) a “normal” market can not really exist. He explained how the ripple effect of housing was a critical barrier to the economic recovery. “Housing is only 5-10% when you look at construction. When you buy a home you also buy big ticket items like appliances. Building materials are driven by remodeling and so on.”
Mr. Schlossberger also pointed out that the speculative purchase of a home as investment has to be balanced with buying a home for shelter. “Housing is split personality, it is a consumable and it is an investment. However it is still the single,largest investment for the average household.” He went on to draw together the need for affordable housing by saying, “Rental market rates are rising and vacancies are down 2%. Uncertainty of housing market is driving rental market and the overhang of supply (through foreclosures) pushes prices down and places more people under market.” His predictions: “Moderate economic growth will also keep job growth slow. Extra liquidity may bring in investors, speculative but underpinning demand in the housing market. 5-10% decline into 2012.” Oh my.
If you are reading between the lines, you will see very bold print “Average American will be renting not owning.” This is not o.k.. I am already seeing average buyers pushing hard to pull together down payments in this “affordable” new market. I am already seeing requirements from underwriter’s with such intense scrutiny it leads to the “signing over of your first born” image. I am already seeing Fear Factor come to real life as magazines like TIME and news channels like CNN tell the American public they should not put so much value on owning a home and choose renting as an option. I say RUN! I say COVER YOUR EARS! Realize the tangible asset called a house is important to your financial future. Realize that shelter for your family should not be at the benefit of your land lord only!
Then, Chief Economist for the National Association of Realtors, Lawrence Yun, Ph.D spoke. “We are back to a normal market. The only thing that can hurt this trend is over correction. There is a pent up demand that will help drive recovery of the housing market.” He explained how the correction had occurred and taken us to pre-boom years of 2002 market prices. He explained that tight lending practices was preventing recovery in housing market. He explained that job creation would be part of the continued slow recovery. He explained that with increasing rents, consumers would see the reason to buy a home.
Although we were all wanting to hear something positive, these summations were not convincing enough. There was no explanation or analysis of how “pent up demand” would balance with “shadow inventory”. There was no explanation on how continued unemployment at 9% over the next 2-5 years would allow for stability in the distressed market. There was no explanation on how inflation and therefore increasing interest rates would prevent pent up demand from going bye bye. But, the National Association of Realtors® also gets my money and therefore I guess they think I want them to show me the bright side. Matter of fact, one of Mr. Yun’s best points was in regards to the average real estate professional’s income. He stated on average the U.S. real estate agent made $35,000 per year. But that would be increasing because more and more individuals were leaving the industry and therefore the average would go up. That was the most positive remark of the meeting. Seriously.
I actually thought about going home and going back to bed. But my short sale transaction was on the rocks and I needed to make about 20 calls in the next two hours to get it to close. The short sale seller had been through two years of failed loan modifications, divorce, back surgery, and now the loss of her home of nearly 15 years. This economy is in no way pretty. The results of greed, crazy decisions made in the name of the American Dream are sad. But I for one am not giving up on the American Dream of continuing to own a home and help others do the same. I sincerely do not want to see the America where only the very wealthy can afford to own a home. No doubt we need to change the way we do things. We can all improve our financial decision making and make smarter decisions. We can all save more. We can all play a role in educating the public on smart ways to buy a home. For me, I definitely did not need to go to a meeting to hear how challenging my future will be for the next 2-5 years. But then again my average salary may go up after all the others at the meeting get depressed and start looking for a new job. I want to believe there is always a bright side somewhere.