Friday, January 8, 2010

Setting the Stage

Ah, it's good to be back, and thanks to all of you for the encouraging words. Lots to get caught up on, so let's get right to it ...

To set the stage for our 2010 discussions, there are four macro items that I think bear watching, with enough debate about each to fill more than a few pages of the blog.

I welcome your comments, but won't spend too much time on them here, other than to mention that each should have some impact on market activity going forward. Of course, at some level, they are all inter-related.

1) GOVERNMENT SUPPORT (aka "stabilization" or, if you're cynical, "lack of capital market understanding")

I somewhat agree with a prior comment that the "paltry" tax credit on a new home purchase probably isn't making loads of people rush out to buy who otherwise would have waited, but I do think there's some psychology around it, and you know that REAL-tors are pushing it, so I'm assuming that it's influenced at least a decent percentage of any recent purchases.

With the current "incentives" set to expire in the spring, I think we'll see another price reset as any demand fueled by the tax credits, no mater how small, dries up. I also think sellers (encouraged by REAL-tors) are still holding prices higher based on the hope that tax credits will stimulate additional demand.

At the end of the day, unless we are all going to be wearing brown shirts in a couple of years, supply and demand will still dictate market prices.


2) THE ECONOMY, STUPID

This one's easy ... in any real estate market, there are always buyers, sometimes a lot, sometimes few. I have to believe that there are some "normal course" (expanding family, job relocation, trading up, etc) buyers out there who are waiting to see how 2010 plays out - will they still have their job, will they get a new job, a bonus, raise, etc. With the stock market up significantly from last spring's lows, it seems as though some positive vibes have returned (despite still being significantly below the asset values of a couple years ago), so by mid-year, people may start feeling more comfortable.

And yes, I know, just as with any market cycle, there have been smart and/or lucky people who have made a ton of money recently in outperforming asset classes (gold, etc), but in general, I'm thinking about the masses with their retirement funds, etc in a broad stock market proxy.

3) PASSAGE OF TIME IN PRICE COMPARISONS

A straight behavioral psychology exercise here ... remember in 2007 when you couldn't touch a 2BR shack of a SFR for less than $1.5mm? Then prices dipped and six months later, "holy cow, I can now get that place for $1mm". Seemed like a deal, right? Well, if not now, certainly by mid-year, we'll be a couple years removed from peak pricing, and hopefully all the REAL-tors will stop saying things in their listings like "unit across the hall sold for $100k more 6 months ago!!!", and enough time has passed where buyers are focused not on where the price compares to a year or two ago, but "real" stats, like DTI ratios, rent vs. own figures, etc.


4) OPTION-ARM RESETS

In fairness, I haven't looked at this data recently, although if memory serves, a large chunk of Alt-As are up for reset starting in 2010 through 2012. Point #2 above will certainly have some bearing here, but I think we'll continue to see short sales/foreclosures. The question is, will lenders, if they continue taking on inventory, have to start "dumping" due to some of these other factors?


Obviously, there are additional factors (let me know what I'm missing), but with that as a backdrop, property posts to start this weekend ... stay tuned.

4 comments:

Anonymous said...

Bookmarked this. Thanksgiving owing to you for sharing. Undoubtedly value my time.

The Sound Center said...

Option ARM resets escalate to a peak in 20 months, and continue through 2013.

Bubblewatcher said...

In particular, in WeHo, we've got a nasty case of over-development of high-priced condos. This recent post on la.curbed is pretty typical:

http://la.curbed.com/archives/2010/01/slight_shave_for_west_hollywods_1200_sweetzer.php

Anonymous said...

This is a titanic article as they all are. I tease been wondering less this for some time now. Its vast to get this info. You are fair and balanced.