Much to my dismay, nothing remarkable or shocking… Instead the panel provided lucid and realistic analysis.
If you missed it, The Real Deal Distressed Opportunities Forum hosted last week in New York City included:
Joseph J. Sitt, Chief Executive Officer, Thor Equities
Miki Naftali, President and CEO of EI AD Us Holding, Inc.
Nouriel Roubini is the co-founder and chairman of RGE Monitor
Mark Zandi is chief economist and cofounder of Moody’s Economy.com
Brian Sullivan, Anchor, FOX Business Network
Pam Liebman, President & Chief Executive Officer, The Corcoran Group Inc.
Dolly Lenz, Real Estate, Vice Chairman Prudential Douglas Elliman
I paid particular attention to Roubini and Zandi and their perspectives on where we are in the housing and economic cycle. Here are couple of highlights from their comments throughout the panel discussion:Nouriel Roubini:
- We’re reaching the end of the recession right now. Sees a U-shaped recovery with the possibility of a W-shaped recovery. Nothing new here. He’s been espousing this point of view for several months.
- The gap between housing supply & demand is “too large” and he sees aggregate housing prices falling another 7-10% in the next year.
- The current uptick in the housing market has been supported by the first-time home buyer tax credit, but the shadow housing inventory and excess capacity will be the cause of lower price levels.
- The labor market is witnessing falling hours for 3 millions jobs, when added to the 7 million jobs lost, adds up to a much higher unemployment/underemployment figure.
Mark Zandi:
- Agrees that the economy is over and that we are in expansion mode. We’re in recovery mode with business decreasing total costs including labor, which means that no one is hiring yet (evident from unemployment numbers released in recent months).
- Feels that New York City is doing “incredibly well considering it is the epicenter of the financial crisis.”
- With regard to housing, prices are based on inventory. If inventory continues to rise, prices cannot rise in tandem. Once inventory levels fall, prices will stabilize. [Note: we're seeing that in the short run in our data. Overall national housing inventory levels have been falling providing price stabilization so far this year.]
- In the intermediate term, he sees more housing price declines on a national basis and shared an interesting statistic – 4.5 million first mortgage loans or 53 million are either 90 days delinquent or in the foreclosure process.
{ 2 comments }
I’d be willing to bet against the consensus. Is there anyone that thinks prices will be flat or rise next year?
Sure, I’ll bite on that…
I think it is going to be very tough for broad measures of housing strength to decline *significantly* in the teeth of a clear global recovery. It doesn’t have to be a *strong* recovery, mind you (and it won’t be), just a *clear* recovery.
There’s something that all those who are fretting about more inventory “waiting to hit the market” are forgetting: big drops in prices require *desperate* sellers and recalcitrant buyers. And we’ve had them… In 2008 and early 2009. Most of those folks have now been shaken out of the market. Sure, there are lots of people who’d like to sell a property, and many who would have liked to sell one during the crash. But they didn’t. Because they didn’t have to. And when they see prices rising again, that will encourage a whole lot of those folks to put their properties back out there on the market. Which they will do.
Where the bears’ logic fails is the notion that this “waiting inventory” must cause another price crash. The reason it WON’T cause another price crash is that when these same non-desperate sellers see that their properties aren’t moving (if indeed they don’t move), they will simply pull them back off the market (just as they held them off before); and this behavior will moderate or halt the price decline.
I believe this thinking also applies to the banks holding mortgages going into default or already in default. You have to believe that they are going to get *even more desperate* than they were last year, to take those properties and dump them on the market in quantity sufficient to resume the crash trajectory. I don’t buy that.
Furthermore, we should be suspicious of stats that are based on the number of NODs (notice of delinquincy) mailed out. There is anecdotal evidence that lots of lenders are just sending these things out and then not acting on them. Not because they are so kind and caring toward the owners/occupants, but because it actually runs counter to their financial interest to go ahead and foreclose and kick out a struggling homeowner.
They know that they are likely to get back a trashed out home and to be putting it on the market at a dreadful time, taking a bath on the price. Better to just leave the people there and let them at least take care of it for awhile. Perhaps at the end of that “while”, they’ll either be able to resume payments on their mortgage, or the market will not be so bad for a foreclosure sale at that point. In short, beware of logic which requires that bank REO managers are both desperate and stupid (and cruel, to boot).
I think it is more likely that they will try to minimize the number of properties they ACTUALLY foreclose on, selectively put on the market those that they do, and perhaps turn some over to property managers to rent out and bring in a little income while they wait for the market to improve before putting them back on the market. The key to the whole thing is the degree of desperation. I think the bears are overestimating it.
Meanwhile, virtually nothing is being built. That too puts downward pressure on inventory, because property DOES (physically) depreciate over time.
It’s not clear sailing ahead, by any means. But the fundamental driver of the collapse, the push-pull effect of desperate sellers and recalcitrant buyers waiting for further price declines, is *largely* behind us.
In short, I don’t buy the scenario of second-crash-causing quantities of inventory getting dumped on the market as prices stagger back to recovery.
The fundamental dynamic has changed and become one of recovery. The factors that the bears have identified are real enough, and not to be dismissed out-of-hand, but those factors will act to hinder and slow that recovery, rather than cause a second crash. They are now secondary influences, rather than primary (the primary ones being economic recovery and bargain prices).
For my part, I think a 7% – 10% drop from here might actually be healthy, and we shouldn’t worry too much about it. Along that line I would note that, as of the most recent Case-Shiller data (from Oct 27, covering the markets through August), we are *already* up about 5% from the lows in that data, which were in April. So to decline 7% (nationally) from here into 2010, would only take us about 2% lower than the April lows. That’s less than the *month-to-month* declines during much of the crash. Even a 7% – 10% decline from the April lows would be worse, but not terrible. I’m just dubious that will happen while there’s even a tepid recovery going on.
Scott
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