Orange County Sweet Digs

October 14, 2008

No housing rebound for five more years?

That’s the opinion of Jon Haveman and Christopher Thornberg, partners in Beacon Economics.  The pair offered their grim prediction at a Bay Area meeting last week, according to the Contra Costa Times.bad economy No housing rebound for five more years?

“The housing market will not resume growing until 2012,” Haveman said in an interview after his presentation. “Then it will just sit there for a few more years. We won’t see any significant appreciation in the housing market in the East Bay and California for five years.”

I agree that this downturn will last around 10 years. During the last one, prices started down in late 1990 and didn’t return to 1990 levels until 2001 or so.  This slump started in 2005, so five years from now sounds about right — although, given the severity of this recession, it could be longer.

However, that doesn’t mean no one will be buying houses for five years.  People are buying houses now. This weekend, I visited several open houses in West L.A. All of the properties had received recent offers, and one had five offers on it.

The agents said that financing problems were causing many properties to fall out of escrow:  Credit is extremely tight, with most lenders requiring 25% down, excellent credit, and six months’ payments in the bank.

Lenders are being cautious because they fear that prices on many properties are still too high.  Does that mean no one should buy a house now?  Not necessarily.  Well-priced, well-located properties are getting plenty of action.  And if you’re sure you won’t need to sell for at least five or six years, you can comfortably afford it (using a fixed-rate loan!), you don’t care if it goes down in value, and you love it, then buying could make sense for you.

Anyone buying now should look at a house as a place to live first and an invesment second.  Actually, that advice should hold true in all market conditions.

The crazy appreciation we saw in the 2000s was an aberration. If you buy a great home and hang on to it for a long time, you’ll build equity and eventually own it free and clear.  With that approach, the ups and downs of the market will be someone else’s concern.

Recent Redfin posts:
NFL Real Estate Rundown
Get Your House Ready to Sell: Tips from Home Stagers
Home Builders Looking to Bail In After the Bailout

Posted by Cindy Allen on October 14, 2008 7:51 AM | del.icio.us | Digg

  • Talyssa
    what about the large numbers of people leaving socal bryant? I know a lot of younger people who have already moved or talk about it (portland is popular). Considering these people I'm talking about are in their 20s or early 30s, usually Dual income no kids (due to their age). These are EXACTLY the people I would expect to start buying up the modest family homes in OC. Except a bunch of these people left.

    Compared to that, what's the demographic of these people who are moving to so cal? Frankly I can't imagine most of them have the means to buy homes. If you move from another state to socal, it usually means you sold your 200k house and would have to pay 700k for something equivalent. I have a friend who did it a few years back and it was really tough. And he and his wife both work and make VERY good salaries.
  • I agree with Dee, financing is the key. Once the secondary loan market comes back, in whatever form it may come back, this will cause banks to loosen their loan guidelines and cause more demand. Until then I can't imagine seeing any significant appreciation.

    Their are many naysayers out there however it will be interesting to see if California's population continues to grow like it has. Housing demand might surprise all of us based on the large number of people coming to SoCal. We can see that there has been some pent up demand for those who have been priced out of the market for the past 3 to 4 years and can now afford a house.
    Give those who have foreclosed or experienced a short sale 2 to 3 years and they could very well be back in the housing market. This does not mean we'll see appreciation any time soon but we may level off sooner than the negatives expect.
  • Dee
    Why are people surprised by this? Are people that stupid?

    The ONLY reason RE went ballastic from 2002-2006 was beacuse of 3% financing and lower 30yr mortgages. Bring that back [FFC] and home prices will rebound to 2006 levels.

    Without easy money RE is flat for the next decade easily. I say longer as boomers trade down to small, energy friendly and close to public transportation housing.
  • SoCalJim
    A "rebound"? Keep dreaming. RE falling like a rock, just like the DOW. Even after it stops falling, it won't go up, much less "rebound" to where it was before. Even CAR finally admits more declines in '09. 6%, try double that since CAR does not want to scare people. Recession is here. No support for RE. I see price declines and houses sitting everywhere. The beach is being hit particularly hard. We were never able to find places for less than 1M, now 800k places are a dime a dozen. For a 1M property that goes down 15%, that is 150k over 30 yrs at 6.5% - do the math. That is more than 1,000,000.00 in savings. Not bad for waiting one or two years. That is a nice piece of retirement. Only people with self interest shovel this kind of propaganda. Truth is, I know more people who have made no money on RE or are now under water b/c of bad advice by reatlors, whose qualifications and academic backgrounds need only be community college, if that... They only know what people tell them since they cannot figure it out for themselves, and are programmed by CAR and NAR to sell, just like used car salesmen. People are now starting to understand this. No credibility.
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