The speakers at the Forecast were:
Karen Bailey Shiffman, Santa Barbara Bank & Trust
Randy Glick, Prudential
Robert Kleinhenz, Deputy Chief Economist of C.A.R.
Karen Bailey discussed the department she is involved with at SBBT, which handles foreclosures and short sales. She stated that there were 355 foreclosures on the Santa Barbara South Coast in 2009, which represents 25% of the foreclosures for Santa Barbara County. Most of the foreclosures are occurring in the North County of Santa Barbara. From 2008 to 2009, short sales had increased by 167% for homes and 140% for condos. Short sales and foreclosures accounted for 13% of our market in 2008, 22% in 2009, and are expected to be about 15% of our sales in 2010.
Randy Glick stated on behalf of Realtors, "It's nice to be needed." I believe he made this statement because it takes quite a bit of expertise and understanding to make sense of what is happening in this market, and it is taking much more work and knowledge to get homes sold in these times. If you are speaking about a $500,000 condo verses a $4 million estate, you are dealing with completely different stories on the market. Randy also said that "clients need true professionals," and I do agree with him. He discussed real estate malpractice and agents being afraid to tell their clients the truth, which damages them in the end and is not a good business practice.
From Randy's numbers for Santa Barbara South County, we saw an 18% median price drop for single family homes in 2008, and another 18% median price drop in 2009. That's about a 35% drop in the last two years, although this isn't true for all homes. These numbers "look bleaker than they should," as Randy put it, and he says, "We are not so bad!" Inventory has dropped every year since 2006. From 2008 to 2009, we saw a 2% drop in our inventory. We are not doubling and tripling our inventory, which is a great sign. Our low for last year was December when we had 428 homes for sale, and the high was in July when we had 639 homes for sale. That really is not a lot to choose from! Randy also stated that he feels we are back to 2003 numbers. (For more on the predictions for 2010, please refer to the commentary and statements in the short summary I wrote below dated February 25, 2010.)
From Robert Kleinhenz, he first took a look at the overall economy. In 2009, referring to our GDP, he said we saw "the largest annual drop since 1938 of -3.4%." He discussed how we had very few social safety net programs back then, such as unemployment benefits. On the $787 billion stimulus package, he said that "less than one-third has been spent," and he went on to show us those dollars still left to enter the economy. (Out of $288 billion for tax benefits, $92.8 billion has been spent. Out of $275 billion for contracts, grants, and loans, $73.2 billion has been spent, and out of $244 billion for entitlements, $102.8 billion has been spent.)
The California unemployment rate is above 12%, at its highest since 1940, and our number is higher than the rest of the U.S. As of December 2009, the Capacity Utilization Rate (this tells you how much capacity of the economy is being used) of our economy is at 72%, and 83-85% is considered full capacity, so we have a lot of room for growth. He stated that "with this much slack in the economy, the threat of inflation is low" and that he believes it will be "two to three years before we need to worry about [inflation]." Robert also said that "Bernake thinks we're still fragile and he thinks it's too soon to raise rates." Mr. Kleinhenz believes we may see a 0.5% increase this year in interest rates, but that March 31st is a "wild card" with the Federal Reserve Bank being scheduled to end it buying of Freddie Mac and Fannie Mae securities. He said that "Freddie Mac and Fannie Mae have capital limits, and in 2009, they didn't come close to their limits, so they have the capacity to make these loans."
Robert also said that the "consumer sector is still making a transition" and that this sector has less access to credit, but he believes the "worst is behind us, as far as the economy is concerned" and that we will see mixed signals for the next 6-12 months and a below par GDP for 2010.
When he spoke about the housing market for California, he said that we have been above the mid-500,000 levels in terms of the number of sales since mid-2008 and that these were the average levels before the real estate boom. California returned one year ahead of the nation for the number of sales, and a large number of these sales were distressed properties. The California median price went down 59% from its peak of $594,530 in May of 2007 to $245,170 in February of 2009. February of 2009 has been named as the bottom of the California market, and now the median price has pushed up 17% since the bottom. The U.S. median price is up 6% and California has outpaced the nation.
He said "It's a relief to have a trough to refer to now," and that this is true for most regions of California & that most regions hit their trough in the first half of 2009. Inventories have dropped dramatically, and inventory was low this past year, but prices were still falling. Robert said this is due to the shadow market. A number of properties were purchased on the sidelines and on the courthouse steps. He stated that California has about four months of inventory across the board, and "inventory under six months typically correlates to price gains." He believes the "idea of a double dip is a possibility but remote due to this concept." He also believes we will see more sales in the first half of this year than the second half, due to government help. For the California market over $1 million, California had 26.9 months of inventory last year, and this year it is down to 14.8 months, so even the higher end price brackets are seeing an improvement in the market.
When Robert discussed real estate finance, he shared that "Notices of Default maxed out in the first quarter of 2009 and have dropped each quarter since then." He also shared that trustee deeds have leveled out and lenders are working things out. Cancellations are rising with foreclosures, and this is a good sign. Bank owned sales have slowed down. One interesting thing he shared was that 84.6% of all sub-prime loans had already reset by the end of 2009, and 46.9% of all Alt-A loans had reset by that same time. 7.4% of the Alt-A loans will reset in the next 12-23 months, and another 40.4% in the couple years after that. We expect to see 2.4% of sub-prime loans reset in the next 1-2 years, and another 5% left to shake out beyond the next 24 months. This means we have seen most of the bad loans already shake out, and he said this is "becoming a smaller and smaller part of the story." Before, we were seeing 6/10 sales that were distressed, and now it's more like 3-4 out of 10 sales.
All in all, Robert Kleinhenz expects to see single digit median price gains for California this year. His advice to buyers was to find the right home at the right price, get the lowest interest rate possible, to be educated, and to use the tax credits. He also mentioned that Santa Barbara now has a 50% rate of affordability for first time home buyers, so now is a good time to make a move.
More information from the Forecast is available at www.car.org and at www.sbaor.com.
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