Wednesday, September 27, 2006

Gary Watts...'in the bag'

It looks like Gary 'in the bag' Watts is at it again with another real estate outlook. It is for 2006/2007, but at this time, there are NO predictions for 2007. Lets get down to business and look at some of the highlights of this latest report...

Here is Gary's predictions for how 2006 will end:

How Will This Year End?

1. As mortgage rates continue to decline, buyers will get off the fence and purchase homes as soon as they believe housing prices have stabilize.

2. Sales of homes should start to rise by the fall, while inventory goes into its seasonal decline.

3. Appreciation should continue to rise in the fall, compared to last year when prices actually dropped.

4. With luck, we may end the year with double digit appreciation in homes with small gains in condos.

Lets take a look at numero uno. Ok, so mortgage rates are declining a BIT, there is no way they will return to the levels of 2003 and 2004. Rates dropping half a point is not enough to force buyers to 'get off the fence' and buy homes that are still overpriced. I am not a highly acclaimed real estate agent, but I believe the stabilization period is many months, if not years away. We have yet to see any REAL sort of correction at this time. BUT, we are seeing huge increases in inventory which is the first step towards lower prices. See this report from the CAR (California Association of Realtors) and see for yourself that the sales pace is off just over 30% from the same time last year, and we all know that inventories are way up as well.

So, with the sales pace slowing drastically, and inventories steadily increasing, how do we get stabilization or even appreciation?

We are almost in October, so fall is just around the corner. I have yet to see anything that leads me to believe that the sale of homes will start rising this fall, or that inventories will decline. There is ONE thing that could make both of those things happen and THAT is a REDUCTION IN PRICES. And I am talking about REAL reductions in prices. Not 10-15k here or there on 500k+ properties.

I am sure there will be a 'median' number somewhere that will show some incremental appreciation in California. But based on the report above, I don't think 1.6% increases are what many people need, or are counting on. Meager appreciation like that doesn't buy new BMW's, Hummers, or kitchen remodels...much less give that 'I'm getting rich' peace of mind that so many people have become accustomed. Not to mention the fact that 'appreciation' has been the major selling point from RE agents, mortgage brokers, and all the real estate seminar guru's out there. I don't know how many times I heard brokers tell people that if they ever get into trouble, they can just problem.

I don't know for sure, but I think the holidays will be a bit different at Fashion Island and South Coast Plaza the next Christmas season or two. There IS a lot of money in Orange County, but there are even more people trying to live like they have more money than they really do. Lately, this money has come from the house of ATM. It will be interesting to see how or even 'if' the slowing appreciation in housing will affect the upcoming shopping season. 1.6% appreciation is the equivalent to having a $40 withdrawal limit at an ATM in Las's better than nothing...but it doesn't help very much.

One other quick thing I would like to point out: unless I missed something, how can somebody address the real estate market without any mention to the exotic loans that are making much of this possible? I guess the financing isn't that important when things only go up...silly me.

I will counter his comments about the media and more in further posts this week.

Stay tuned...



Blogger powayseller said...

Yes, how can someone be credible without addressing the exotic loans? Yet that is precisely what the UCLA Anderson School does in their forecast: real estate prices will not go down; the bubble will pop, but that does NOT mean falling prices - it means FLAT prices for several years until fundamentals catch up; real estate prices can only fall during a recession and we are not in a recession. That was Christopher Thornberg's position in May 2006, at a San Diego conference which I attended. All he had to do was talk to even one reputable realtor, to know that prices started falling in the summer of 05. Now, just a few months later, median prices are down year over year in San Diego, so even his data is proving him wrong.

And yes, Thornberg does not consider exotic loans in his forecast. During the entire 2 hours of his conference, and in the Forecast booklet, there was NOT ONE SINGLE mention of exotic lending, 100% financing, Option ARMs, stated income. He did NOT mention lending at all! That is why is forecast is an utter failure.

9/27/2006 9:04 AM  
Blogger SoCalMtgGuy said...


You CANNOT address the housing market without at least MENTIONING the financing that has been involved.

If incomes had tripled the past 5 years, then so be it. But they haven't. Exotic financing has allowed many people to bite off more than they can chew.



9/27/2006 10:35 AM  
Blogger judicious1 said...

IMO - Watts, Lereah, Appleton-Young, etc. amounts to a lot of spin in an attempt to get the few remaining "greater fools" to buy in. It's their job to put these tainted forecasts out, so I simply ignore it. The downside is just getting started, and it's a long way to the bottom.

9/27/2006 11:05 AM  
Anonymous Anonymous said...

In the news today ...

Late Credit Card Payments Edge Higher

9/27/2006 1:42 PM  
Blogger Out at the peak said...

"With luck, we may end the year with double digit appreciation in homes with small gains in condos."

That's going to be a lot of luck! What if instead we see some single digit depreciation? Guess the luck ran out.

The fence sitters I knew see evidence of a decline and are no longer in any rush to buy. As more evidence appears, I'm sure that more will get a clue. The down cycle will feed itself just like the up cycle.

9/30/2006 4:42 PM  
Anonymous Anonymous said...

This Watts character as well as Lereah and many others are going to have to find another career next year,... probably will have to change their names too. They are far past the point of being able to deny misleading the public for their own financial gain. These guys shouldn't be treated any different then the fraudulent stockbrokers. This is the enron of housing and these people should have to pay!!!!

10/02/2006 6:07 PM  

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