The housing market stabilized in an otherwise disappointing 2010, but only modest gains are expected in 2011, according to members of a residential real estate roundtable hosted by The Daily Transcript.
But simply saying goodbye to 2010 has been a cause of celebration for many in the industry.
“Thank heaven for 2011 is what we’re saying,” said Borre Winckel, chief executive officer and president of the San Diego Building Industry Association (SDBIA).
Rick Hoffman, chief operating officer and president of Coldwell Banker Residential Brokerage in greater San Diego, Temecula Valley and the desert regions, went so far as to declare Nov. 1 his company’s official end to 2010, giving the office a full New Year’s Eve party to mark the preemptive end to yet another disappointing year.
“We bid goodbye to the year that wasn’t,” he said. “We were cautiously optimistic early in the year, then the worm started to turn in April, May and June. It wasn’t catastrophic, but it was close.”
The problems, according to the seven-member panel, are well known to anyone who’s followed the market in the last two years: weak demand from low consumer confidence and staggering unemployment rates; a relentless supply of distressed inventory that puts downward pressure on prices, thereby discouraging trade-up sellers from re-entering the market; strict lending standards that keep strong, would-be borrowers from absorbing that distressed inventory; and a new-home construction industry that can’t get untracked thanks to a permitting process that now accounts for nearly $100,000 of the price of a newly constructed home.
Though the results of last week’s election induced a tinge of cautious optimism, the best anyone at the table could say for 2011 is that it can’t be much worse than 2010 (for which the best anyone could say was that it wasn’t quite as bad as 2009).
“Unfortunately, every time anyone in the administration opens their mouth, they send a shockwave of emotionalism through the market,” said Joe Perez, tax partner at Squar Milner.
Extension of both the Bush tax cuts afforded by the conservative wave of the midterm election should foster a more buyer-friendly market, according to the panel.
“People will be incentivized to sell assets and realize gains, thus keeping cash in the system,” Perez said.
Much of the one-hour roundtable discussion focused on issues panelists have with the local permitting process for new homes.
No one was more outspoken than Winckel, whose organization is tasked with lobbying local governments to make changes to the process.
“We’re telling them, ‘your fees are based on old growth projections. The growth projections changed, so it’s time to adjust the fees,’” he said.
SDBIA diverts much of its attention to affecting changes of the fees associated with permitting, he said, because its requests are so common sense based that they should be “low hanging fruit.”
Fees associated with home-building permits are largely tied to the price of homes.
When the prices of homes swelled during the boom years, local governments raised the costs of fees in kind, pumping money into their operating budgets. But the high costs of the fees haven’t come down, despite the crash in home values.
“Fees used to be 10 to 15 percent of the retail price of a home,” explained Alan Nevin, director of economic research at MarketPointe Realty Advisors. “Prices dropped, but fees didn’t. Now they’re 20 to 25 percent of a new home’s price.”
Nevin also said there’s research that suggests four existing homes are sold for every one new home that’s built.
With two months left in the year, the county is expected to grant roughly 3,000 permits for new homes. Winckel said 15,000 are needed just to keep up with population growth.
That disparity is setting the stage for the next artificial housing boom, said Debbie Riddle, broker and agent for Lee Mather Co. Realtors.
Lou Galuppo, residential real estate director at the Burnham Moores Center for Real Estate at University of San Diego, was even willing to estimate when we’d see the coming boom.
“There’s a huge spike coming, the only question is when,” he said. “I’m willing to say between 2013 and 2015, we’ll see it.”
Patti McKelvey, a Chula Vista-based agent with McMillin Realty, voiced common frustrations with the obstinacy of banks in the distressed market.
“We’re ready to close on a short sale, and we’re caught in the abyss of Bank of America,” she said. “Before we can close, they say the approval ran out, and so they foreclose anyway. That’s the saddest part.”
With between 10 and 15 bids on most foreclosures, banks need to speed up the process of bringing the distressed inventory to market in order to meet demand, Galuppo said.
Riddle, though, pointed out that those numbers are slightly misleading, as many of those bids come from a single pool of investors who bid on multiple properties simultaneously, knowing ahead of time that they won’t win each of them.
“People are playing the game, and it’s inflating the percent of people who want to buy,” she said.