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Economist sees rebound for San Diego real estate market

23 August 2009 No Comment

By Helen Kaiao Chang

See original story on SDNN

Tuesday, August 18, 2009

An expert economist sees good things for the San Diego housing market.

Lawrence Yun, chief economist for the National Association of Realtors, said the local market is buoyed by a tight housing inventory and federal tax incentives.

Yun was speaking at a lunch event hosted by the San Diego Association of Realtors on Tuesday. Some 700 people attended the event held at the DoubleTree Hotel in Mission Valley. San Diego Mayor Jerry Sanders, as well as representatives of various politicians in town, also attended the event.

“The worst in housing is probably already past in the San Diego market,” said Yun. “Home values have fallen so much that many of the potential buyers who have been sidelined are understanding this is a great opportunity.”

Erik Weichelt, president of the San Diego Association of Realtors, who opened the event, agreed. “There’s a lot of homes to be sold, but quite frankly, there’s a lot more buyers,” he said.

Yun and other speakers also pointed out challenges the industry faces and the actions members of the National Association of Realtors is taking to overcome these obstacles. “Realtor” is a trademarked term used by members of the group.

Rising San Diego sales

During his presentation, Yun gave a far-ranging analysis of the market, from national to local statistics. His powerpoint slides painted a picture of rising sales in San Diego in the last year.

The number of San Diego home sales were up 11 percent in June this year, over June last year. At the same time, prices were down 13 percent in the same period, reaching a median price of $362,000 in June.

Federal tax incentive

One key reason for the sales demand is the federal tax incentive for first-time homebuyers. The Housing and Economic Recovery Act of 2008 offers an $8,000 tax rebate to first-time homebuyers, many of whom have been waiting for prices to come down to affordable levels.

Many of these first-time buyers could not afford housing prices during the boom years. But with lower prices and tax incentives, they are now biting, Yun said. The pent-up demand is now soaking up inventory.

“The stimulus program is working,” said Yun.

Decline in inventory

Another reason for the boost is a decline in housing inventory, said Yun. With lower prices, many low-end properties are now receiving multiple bids.

But part of the reason is that lenders such as Fannie Mae and Fredddie Mac are holding back inventory, so as to not flood the market, said Yun. This “shadow inventory” could soften the market, but is not showing up on current data. In San Diego, demand still is currently outstripping supply, he said.

Yun noted that foreclosures would continue to rise nationally, as the “toxic combination” of job losses and underwater homeowners continued to grow. But the government’s program of foreclosure moratoriums – forcing lenders to hold off on foreclosure action against homeowners who have missed payments — has stymied the flood.

This has contributed to a shortage of houses on the market, particularly in San Diego, where demand is still high.

“Last year, foreclosures lingered on the market,” he said. “Now, foreclosed properties… have ready buyers.”

Tipping point

Consumers may also be reaching a “tipping point” for purchase, said Yun.

Many potential homebuyers have been afraid to enter the market, wondering when prices would hit bottom. They have also been affected by negative media reports, showing widespread foreclosures.

But after four years of price declines since market highs of 2005, housing prices are now much more affordable. In some places in California, prices are down 20 percent to 40 percent from the previous year.

This has made prices much more affordable for homebuyers who stood on the sidelines during the boom years.

“We are back to justifiable levels,” Yun said.

As more people enter the market, others start to follow. Some California cities are now seeing 50 percent to 100 percent rebounds, he said. This is creating a “tipping point” for more consumers to buy, he said.

Lobbying Washington

Despite this rosy outlook, the real estate industry is pushing aggressively for more. Goals include an extension of the homebuyers’ tax credit program, as well as a change in bank appraisal requirements.

At the event, a lobbyist for NAR encouraged agents to make their voices heard in Washington.

Carol Horn and Ed Lawler, directors of the NAR Broker Involvement Program whose jobs entail lobbying Congress people and Senators, encouraged agents to log on to the NAR Web site to send automated email messages.

San Diego statistics

These messages support proposals that benefit the real estate industry. For one, the group is pushing for the first-time homebuyers’ tax incentive program to be extended beyond the November 30 expiration date. For another, NAR wants to expand the program to cover all homebuyers.

This year so far, about 6.5 percent of its members have participated in this “Call to Action” program. The group hopes to expand this number to 15 percent. “We’re going to have to have strong involvement” to make things happen, said Horn.

Appraisal obstacles

The NAR is also pushing to clear obstacles in the appraisal process.

In an effort to cut down on the practice of appraisers rubber-stamping artificially high prices during the boom years, the federal law now requires banks to use approved appraisers. These supposedly more objective appraisers typically come from outside the area.

This has resulted in longer closing times, higher appraisal costs for would-be homebuyers, and sometimes inaccurate results, due to the appraisers’ lack of knowledge of local markets.

“It was a good-intentioned policy with unintended consequences,” said Yun. “Buyers are coming back, but a hurdle is placed.”

The NAR is also lobbying for changes to these rules.

Market stabilizing

Despite these obstacles, Yun noted that the signs of recovery are strong. With the current uptick, San Diego’s real estate market may be leading a national recovery.

As inventory continues to decline, the real estate market should start to see a more stable, 5 percent annual growth, he said.

Follow Helen on Twitter @HelenChang.

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