Emily's Notes from Mark Schniepp's Economic Forecast

Below (meaning, two or three blog entries below) you can read the Newspress article dated July 9th, 2010, relating to Mark Schniepp's Economic Outlook that he presented at the Cabrillo Arts Pavilion on July 8th. The Newspress didn't share a great amount of data in their article, but I attended this event and was able to jot down quite a few notes and numbers, so here they are for you. Enjoy!
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Mark started by asking, "Why you should feel better about the economy and housing?" and followed up his question by stating: a) The recession is over, and b) Why aren't you convinced? I can't get a job.

(He says that our response mirrors the broader response.) 

Mark stated that the recession ended in the first part of last year and that "data shows solid recovery but concerns remain."  He always begins on a macro level, speaking to global and national issues, and then dives into data on the State of California and then specifically into Santa Barbara South County. (That's how these notes will be laid out as well.)

Mark stated there are mixed signals for the recovery, including housing. Housing starts are way down.  The country lost 8.3M jobs in the recession.  This is improving, but latest job creation has not yet mopped up the full size of the loss. Interest rates are the lowest ever, since we've been tracking them (beginning in 1971). The credit markets are the only thing limiting housing. Recovery is underway, although it is losing pop as the second half of 2010 arrives. Mark said that in recent news commentary, the weak reports are overstated. The workweek is lengthening in terms of hours across almost all sectors. which is creating stronger stream of income. There is greater confidence in economy. U.S. economic indicators clearly point to growth. We have surging stock profits and higher prices. Credit is moderating... Most lenders are no longer tightening their loan standards.

We are expected to have 3-4.1% GDP growth this year, but the GDP growth isn't high enough to mop up the unemployment rate. The higher unemployment rates will persist for an extended period, and will also prevent the Fed from raising rates soon. This will evolve the recovery into an expansion, and Mark states this is an important factor for a durable recovery.

California State will lag behind U.S. due to the budget. "It's broken!"
Commercial real estate is still weak. Business/Vacation travel is up. Labor markets are beginning to recover. Trade has risen sharply at world ports. We are seeing lots of exports. The Los Angeles film industry is up 25%. For California, housing sales have been strong since lows were hit 18 months ago. Even prices are rising. They are way off the lows, which were so exaggerated downward & influenced by distressed sales. They are 32% off the trough in California.

Notices of Default (or NOD's) are at the lowest level since 2007. We're seeing distress decline. What about the "shadow inventory"? Foreclosures were expected to rise but they're lower. More lenders are accepting short sales, altering principle, conducting loan modifications, and using other new solutions, as well.

Santa Barbara County:

The labor market is weak and the commercial real estate market is weak. The unemployment rate is improving, but there is not much job creation. We are also seeing more tourism but not enough to correct the jobs we have lost. Office vacancy rates are at about 14%, but Mark stated that this is still not bad compared to other areas. Santa Barbara Bank & Trust will probably survive and this saves 1000 jobs locally. Home sales are sharply higher in Santa Barbara South County.

Santa Barbara South Coast Real Estate (Single Family Residences):

With our number of sales, we are seeing a big improvement since last year.

By area:
Carpinteria +30.81%
Montecito +7.7%
Santa Barbara East +50%
Santa Barbara West +10.3%
Hope Ranch +42.9%
Goleta South +18.6%
Goleta North +12.7%

South Coast Overall +21.9%

The percent of sales over $1M is now at 38%, which is a great number. It was up to 60% at the peak of the market. The overall median price for the area increased 4.6% compared to 2009. The percent of sales under $800,000 is at 42%, and it hasn't been there since 2002 or 2003.

The origin of the buyer being from outside south coast hit the highest level since 2005. We are beginning to see investors enter the market again. We are also seeing more 1st time home buyers...the highest number we have seen since 2004 when we began to conduct surveys on where they buyers are coming from.

Condo sales are also up, and the inventory of condos is down, relative to where it was.

Here is our unsold inventory for homes:

$1M + = 16.3 Months
$750- 1M = 7.5 Months
$500-750 K = 4.3 Months

*You can see that the inventory goes way down as the price brackets go down. We have more inventory in the high end, specifically the $4M+ bracket, than we do in the low end of the market. We have 3.8 months of supply for California inventory.

Our median is currently $855k without Montecito and Hope Ranch. It is $911k if you include those two areas.  This is higher than it has been for 12-18 months. Our median price for Montecito is currently $2,994,000, and the median price for condos is $458,000.

We do not have many short sales closing per month in S.B. County. We have roughly 6-8 sales per month. The same is true for REO (or bank-owned) sales. We have about 8-9 per month.
For the month of May, we had 6 foreclosures (1 in Carpinteria, 1 in Goleta, and 4 in Santa Barbara).

Summary

Homes are selling, especially cheap ones.  Selling values have stabilized. Unsold inventory is low. There is virtually no new home building. Imbalances are growing.  Home distress is down and foreclosures are in decline. A healthy market is waiting to emerge. Conventional recovery Q4 2010. Input observed by Q2 2011. It's coming, just slowly. 2010 is the transition year. Bumpy! It's why you feel the way you do. More convincing signs this quarter. Companies will begin hiring again.
Commercial Real Estate lags (as usual). State government will produce a drag. Interest rates are likely to rise from this point on.

Mark Schniepp, P.h.D.

California Economic Forecast
6489 Calle Real, Suite C, Goleta, CA 93117

mark@californiaforecast.com

Dr. Schniepp is currently Director of the California Economic Forecast in Santa Barbara. The Company prepares forecasts and economic commentary on the regional economies of California.

Thanks Mark! The next economic outlook will occur in September, and I will provide more data at that point. Feel free to call me at 805.252.2773 or email me at emily@villagesite.com for discussion.

Price Reduced!

The price of this spacious property has been reduced from $835,000 to $799,000 and is easy to show. Call Emily @ 805.252.2773 for a showing.

Mortgage Update

Mortgage Update Through the First Half of 2010
By Adam Black of Coast Village Lending, a Division of Prospect Mortgage

While we are still as an industry working our way through the challenges of the “Credit Crunch”, so far 2010 has brought many of positives. First, rates have been at historic lows at a point when most industry analysts were expecting them to go higher. As part of the 2008 Stimulus Act, the Fed was buying mortgage backed securities from Fannie Mae and Freddie Mac to the tune of $1.25 trillion.

At the start of 2010 the Fed started to slowdown and ultimately stopped their mortgage backed security purchase program by the end of the 1st Quarter of 2010. Without the Fed buying mortgages from Fannie Mae and Freddie Mac, the unanimous expectation was that their rates at would start to inch up. In fact, the opposite happened and we are now seeing conforming rates at all time lows.

Second, FHA financing continues to provide opportunity for more buyers to get into the market with little money down with loan amounts up to $729,750. Although the upfront mortgage insurance premium (the charge FHA adds to their loans as an insurance against default) increased from 1.75% to 2.25% FHA it is still a great financing option for buyers that otherwise may not have one.

Also, we have seen more use of the FHA 203k renovation loans. These loans allow buyers to finance home improvements into the purchase loan. Now, fixer properties become more of an option to first time buyers as they can use the renovation loan for anything from a new roof to new appliances, kitchen or bath. This loan can also be used by existing homeowners that do not have much equity, but would like get additional funds to improve their home.

Last, Jumbo and Super Jumbo financing is really starting to open up. Over the last few years Jumbo financing has been very difficult to find, and when we did find it, it was very restrictive. In the last six months we have seen the Jumbo loan market start to heat up. There are new products available, more investors offering Jumbo programs and extremely low rates. We now have a broad offering of well priced 5, 7 and 10 year ARM’s as well as competitively priced 30 year fixed loan options.

Written by Adam Black, Senior Loan Officer
Coast Village Lending, a Division of Prospect Mortgage
Adam can be reached at: 805-452-8393

Weekly Snapshot Statistics - Santa Barbara Real Estate Market

For the week of 7/19/10-7/25/10:

73 new listings
64 price changes
34 sales pended (27 under $1M, six $1-2M, one $4-8M) *20% over $1 million
28 closed
31 off market (12 expired, 16 canceled, 3 withdrawn)
9 back on market

Have a great week!

Recent Newspress Article on the Economic Outlook Presented by Mark Schniepp

Santa Barbara News-Press
SOUTH COUNTY REAL ESTATE MARKET ON STRONG REBOUND
STEVE SINOVIC, NEWS-PRESS STAFF WRITER

July 9, 2010 5:44 AM

South Santa Barbara County's residential real estate market has managed to tread the troubled waters of the economic downturn and is now making a double digit rebound.

That was the message delivered Thursday by economist Mark Schniepp, who gave a decidedly more upbeat mid-year economic update to 200 members of the Santa Barbara Association of Realtors at the Cabrillo Arts Center. He said home sales are up 22 percent from the same six-month period (January-June) of a year ago: 428 transactions. The median price, less Hope Ranch and Montecito, was $855,000, up 17 percent from last year's rock-bottom median of $730,000.

Like many other regions in California, "We're doing better than we did last year at this time," said Mr. Schniepp, principal of the California Economic Forecast. "Last year was completely different because many people were concerned about their day-to-day business operations and wondering if they would have a job.

Consumer confidence was very low and people were scared to make large purchases.

According to a survey conducted by Mr. Schniepp's office, about 30 percent of the home and condo sales in the first six months on the South Coast were to investors. "Certainly, some of these are people of means who are coming in to purchase second homes or rentals," observed Mr. Schniepp. "But we've also seen a lot of first-time home buyers taking advantage of lower prices, interest rates and tax credits -- especially for condos in the 400s.

Of the 400-plus transactions, Mr. Schniepp said 38 percent were over $1 million; approximately 42 percent were under $800,000. "We haven't had that many (in this price point territory) since 2002," said Mr. Schniepp.

That's where the market's hot right now.

Statewide, California median home prices are up 32 percent from the trough.

For those who can afford to purchase homes in south Santa Barbara County, Mr. Schniepp calculates about 25 percent of the transactions are cash sales. Those who need to acquire mortgages are finding tighter lending requirements where jobs, good credit scores, down payments and co-signers are part of the equation, even at the lower end.

Mr. Schniepp said potential home buyers now can secure a 4.57 percent interest rate on a 30-year mortgage. "That's a historical low compared to what it was 10 or 20 years ago,” he said.

But all the news he presented wasn't good.

While some may be ready to take the home buying plunge, South Coast residents, including many of the real estate agents present, aren't convinced the recession is entirely over, thanks largely to chronically high unemployment.

"It's not surprising you feel that way, but the recession ended a year ago," declared Mr. Schniepp, who displayed a dozen charts showing growth in key areas of the economy. "Unlike previous recessions, there are just so many fits and starts, especially on the jobs front," said Mr. Schniepp, who said the economy has managed to register three consecutive quarters of growth to its gross domestic product.

"We're seeing consumers spend again, but not in the numbers following earlier downturns. They are just tiptoeing back into stores.”

"The stock market is up 70 percent over the low, but we've seen some weaknesses and corrections lately, thanks in part to the dubious news about the European debt phenomenon that is weighing on (some) investors.

Will that contagion affect us? Mr. Schniepp believes, barring an unforeseen event, that it won't derail the U.S. economic recovery and push us into a double-dip recession.

The dearth of significant job creation is causing all the gloom, especially concerns of how the private sector will absorb 8.3 million Americans who lost their jobs in a brutal two-year period back into the economy. Complicating the recovery are 70 million Gen Yers, the cohort born after 1990, and looking to enter the job market.

"We haven't had this demographic phenomenon" in past downturns, said Mr. Schniepp, adding Santa Barbara labor markets are weak, and he doesn't predict any significant uptick until the end of the year and into 2011.

"The current year is a bumpy one, a transitional one," said Mr. Schniepp, echoing a sentiment from previous presentations. Signs of "a more exuberant expansion" will be felt in 2011 and 2012, when higher employment figures, continuing home sales and increased construction will be significant contributors to economic growth, said Mr. Schniepp.

For more information about Thursday's presentation, contact mark@californiaforecast.com

e-mail: ssinovic@newspress.com

Leo Carrillo Diptych

Leo Carrillo - Diptych
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