Dramatic 2011 Housing Rebound Eyed

December 28th, 2009, 6:00 am
Interview with homebuilder consultant Mark Boud of Real Estate Economics

Eyeball: Did Orange County housing have a bottom in 2009 — full or partial?

Mark: We formed a price floor around June 2009 and have since seen improvements. We actually formed a floor in sales volume back in January 2008, and have since seen improvements. Prices always lag sales volume — both up and down — by as much as 2 years. Some are forecasting a “double dip” or “W” recession where housing prices continue to deteriorate — partly due to a deluge of distressed inventory to be unleashed on the market. I don’t buy it. At current levels of undervaluation, distressed inventory is being absorbed faster than it is being introduced, and this trend will continue in Orange County and throughout California. 2010 won’t feel like a dramatic improvement in either price or sales volume, but small, incremental economic and market improvements will continue through next year, with more dramatic improvements forecast for 2011.

Eyeball: Driving forces in local housing — good or bad — in 2010?

Mark: Unfortunately, the main driving force won’t be job growth until the latter part of 2010. The main driver in housing sales during 2010 will be under valuation. Home prices remain grossly undervalued relative to incomes when the present mortage cost-to-income relationship is compared to long-term trends. Undervaluation will be increasingly realized as we move closer to economic growth. Sidelined buyers will re-enter the market in larger numbers to take advantage of distressed housing, low priced resales, and reduced priced new homes.

Eyeball: Predict 2010 gain in DataQuick’s OC median home-sale price

Mark: We predict a 2.1% positive change in the median price of housing in Orange County during 2010; our forecast for 2011 is +4.0%; and we forecast an +8.0% change by 2014.

Eyeball: A year from now, what surprise might we be talking about?

Mark: The new home market may rebound more dramatically than the overall housing market. For example, new homes being offered on the Irvine Ranch may absorb and appreciate faster than anyone anticipates – partly due to the lack of competitive new home inventory and partly due to a faster-than-anticipated drop in distressed housing inventory. As early as January, there may be a bit of a new home ‘frenzy’ on the Irvine Ranch.

Eyeball: Thinking back over this decade, list “lessons learned” from the roller coaster ride?

Mark: Most of the problems we face now are because we deregulated the mortgage market during this decade. By reducing our mortgage standards, we allowed non-traditional buyers — speculators, investors and unqualified buyers — to enter the market en masse, and encouraged the housing market to transition to an investment market. We’re paying a deep price for such foolishness.

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