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Insider Q&A hears next home-price peak 5 years off
May 17th, 2008, 12:46 am · 143 Comments · posted by Jeff Collins
Cameron Merage is the founder, president and chief executive officer of Costa Mesa-based First Team Real Estate. The chain grew from one office in Huntington Beach in 1976 to 33 offices and more than 1,800 agents in Orange, Riverside and Los Angeles counties as well as the desert area. First Team executives say the housing slump helped their firm increase its size and market share. We recently asked Merage how he sees the housing market’s future.
Us: How do you see what’s happening in the O.C. housing market and when do you think the market will hit bottom?
Merage: For the first time since the down cycle started, the market is now “in alignment” in terms of prices, with sellers & lenders (loss mitigators) on one hand and home buyers on the other.
This is evidenced by the fact that in the month of April, more home buyers and sellers came together and not only had more transactions and achieved more sales than any of the previous months in 2008, but for the first time since April ’06 pending sales almost matched that of 24 months ago. We are also seeing many investors and speculators bidding on properties obviously hoping to better the market turnaround.
Further, second quarter of 2008 will see the economy infused, not only with income tax refunds, but the drastic measures of the federal economic stimulus package. We are now seeing the first glimmer of consumer confidence: our Realtors are reporting substantial increases in the levels of buyer inquiries and an increase in foot traffic, following months of price declines. A recent survey of institutional investors concluded that 86% believe that the market should reach the bottom of the cycle within the next 12 months, but no one can pinpoint down to a month.
Us: How long until we get back to the latest peak, which was when, 2005 or 2006?
Merage: The last peak of the residential real estate cycle in Orange County was in 2005. However, we are not likely to see such a sharp spike for the next five years largely because lenders are more closely regulated for quality control purposes. If for some reason it does happen, it would likely be after the next five years.
Us: What challenges does the current market pose for First Team and how has it impacted your business?
Merage: The volume of real estate transactions has been reduced by about 50% since the peak of 2005. Therefore, we have had to become more streamlined and efficient, with cost containment efforts and more focused on production and revenue enhancement activities.
We try to get more mileage from our company resources. Also, we are a well-established company of more than 30 years and we are used to cycles. We anticipated and prepared for this cycle three years prior to it happening. We are in a competitive market and adding value to our client base and agent base to address current market problems is our first priority.
Us: What strategies does First Team have to cope with this market?
Merage: First Team has always been a counter cyclical company that flourishes during the down cycles. Markets like this are a great opportunity for companies who are well prepared to leverage their strong resources especially if innovative to position the company to grow by solving new problems and challenges that did not exist before.
We have had many successful and established agents join our ranks. We have also experienced acquisitions or mergers of other smaller companies, who find value in our ability to contribute to their success through our unique resources and market solutions.
First Team has developed, and continues to develop, new programs and innovations designed to meet the needs created by cyclical changes., For example, First Team developed “Market Trends,” a proprietary and unique software that gathers and tabulates statistics from the MLS to illustrate the direction and value of home prices by price range in any given neighborhood or community as much as six months in advance. “Hot Buys” is another proprietary First Team tool which agents use to analyze and pinpoint the best real estate values in the market for homebuyers on a daily basis.
This is evidenced by First Team increasing its market share in Orange County in the last two years by approximately 11% to 12%, both in number of transactions and value of the homes it has sold.
Us: What are the challenges of running an independent, locally based chain like yours vs. being affiliated with one of the big, national chains?
Merage: Because the real estate business is essentially local, our size and location have actually proven to be a tremendous advantage for our firm and our clients. We are a regional company that is large enough to have the resources to be competitive, and small enough to be local market experts, and have personal relationships with our clients.
• See what other insiders have told Insider Q&A in recent weeks …
Pimco’s El-Erian says Fed was ‘too late’; sees further real estate weakness
McCarthy Building’s Tracy MacDonald sees construction’s rebound “likely slow”
Century 21’s James Joseph says north O.C. home prices off up to 40%
Xroads’ Marc Berger sees second wave of real estate woes coming
May 17th, 2008 at 6:28 am
Most likely this guy is talking with bankruptcy attorneys in the back room.
May 17th, 2008 at 7:31 am
“The end is near!”
Happy days are here again…
May 17th, 2008 at 7:43 am
Check the look on his face.
“Hmm, lessee……..shall I pick #1, the market is ‘in alignment,’ or shall I go with ‘after the next 5 years’? Yeah, they look pretty stupid………..I’ll go with all of it.”
“President and CEO”………..of a real estate office. Pretty fancy title for another huckster.
May 17th, 2008 at 7:50 am
High level Realtors know what they are doing. If there ever was a business where the 80/20 rule is applied, it is this one. My guess is most of the bears here were irked by some inexperienced agent who enjoyed the rocket ride of the market of the past several years. It is a good thing that agent licenses are dropping in number. A true professional has a litany of contacts and a professional team behind the scenes which make the process ultra-streamlines and as painless as possible. The next time you are selling or buying: do some research and hire the right agent to assist you with your RE needs. Or you can uese redfin and do alot of it yourself, and save a little cash. If redfin is aiming to be the costco of RE…as we all know, costco is good for some things, and miserable regarding others.
May 17th, 2008 at 7:51 am
Curious Ed…why would he be a “huckster?” Why the utter disdain for Realtors?
May 17th, 2008 at 8:07 am
A Bottom here … A Bottom there.
We’ll see about that!
May 17th, 2008 at 8:24 am
Cam has sold a lot of homes. More than anyone here — by a long shot. He did it by being a tight fisted businessman, and growing when the market was down — just like the all the big, conservative, real estate firms and developers.
So, now, he needs your help to make his investments grow. Go buy a new home. Forget about the huge inflationary forces at play right now with our food and gas.
It may be getting within a stones throw of the bottom, but rocketing up in the next 5 years …
May 17th, 2008 at 8:31 am
Mulliganville,
You are most probably a realtor or have some real estate interest - so your bias is quite evident. Your guess about why people are so bitter about realtors is totally wrong and once again is representative of realtor behavior of denial and pushing clients over the cliff.
I work with at least 3 distinguished realtors. However only one of them has the decency to not keep saying that ” this is the best time to buy”; ” buy now or you will be priced out”; “renting is a financial boo boo”. We all know how false these statements are. The other reason for the disdain for realtors is because they make these statements without any concern whatsoever about where the buyer might be financially 6 months from now - all they ever care about is their commission.
Finally, realtors and agents do not do adequate research in general to make an informed statement of where the market is headed. There is no consideration of fundamental economic factors like affordability, foreclosure rate, credit availablity etc. All they care about is pulling wool over people’s eyes. So many homes are reverting to banks and being considered as a sale - but are these really a sale? If these account for a jump in sale numbers, isn’t this misleading?
So please continue people’s intelligence at the cost of being in denial and inviting further disdain, lack of credibility and dislike of your profession.
Cheers,
PH
May 17th, 2008 at 8:52 am
too many beers, he was reading his line graph upside down…the data is good.
and mulligan, the problem the world of realtors faces is that they can only bring minimal value to the equation…an intelligent person can research on their own and will find everything they need on the websites that are available today.
if you hire a realtor folks, DEMAND that you see where they are going to market your home and make sure they do…make sure they also have open houses often and are at the open house for you.
if a realtor is going to make 3% on the sale…make sure that half of that is spent toward the marketing of your home…LIKE THE OLD DAYS…this way the traditional realtor can actually stay relevant.
May 17th, 2008 at 8:58 am
You should of asked him if he still has a title insurance company paying his rent and other overhead.
May 17th, 2008 at 9:07 am
Dig Doug, realtors should (and all good ones do) provide excellent marketing. But your “rule” leaves a realtor making 1.5% for all his efforts, which by the way, requires him to FRONT THE OTHER 1.5% FOR YOU with absolutely no guarantee of getting it back. Cheap people know the price of everything, and the value of nothing. I hope all bears take your advice, just wish I could be a fly on the wall to see the results.
May 17th, 2008 at 9:21 am
Ask him what happenned to his in-house lender.
May 17th, 2008 at 9:28 am
I like the market trends tool. Just told me inventory in my neighborhood is down 40% from this time last year and days on market are down 50% from six months ago. Deny it all you like, the trends have turned.
May 17th, 2008 at 9:29 am
A good realtor is one that knows how to negotiate and understands the market place. In the last 10 years there was not any negotiating going on and the market place has only done one thing, go up - so my suggestion is you dont use a realtor that started in the business in the last 10 years.
May 17th, 2008 at 9:37 am
One more thing, dont let these “newbie” agents tell you that negotiating is telling clients to bid more than the asking price! LOL
May 17th, 2008 at 9:42 am
Someone should tell Mr. Merage that it’s not kosher to call one of their tools an “Instant Appraisal”. The tool is primitive, to say the least. That besmirches the expertise of professional appraisers and misleads the public.
May 17th, 2008 at 9:44 am
“We are also seeing many investors and speculators bidding on properties obviously hoping to better the market turnaround.”
Everyone but the delusional bears see it. The speculators on this board are entitled to cheap housing in prime locations.
May 17th, 2008 at 9:45 am
“We try to get more mileage from our company resources. Also, we are a well-established company of more than 30 years and we are used to cycles. We anticipated and prepared for this cycle three years prior to it happening. We are in a competitive market and adding value to our client base and agent base to address current market problems is our first priority.”
This guy says he saw the cycle coming? Really? Then he should have told every client he had in the last 3 years that its not a good idea to buy if you are looking for a short term investment gain. Not only did he not tell them that, but he probably told them the opposite.
May 17th, 2008 at 9:58 am
shockg Says:
May 17th, 2008 at 9:44 am
“Everyone but the delusional bears see it. The speculators on this board are entitled to cheap housing in prime locations.”
If the market is yielding cheaper prices in prime locations, why fight it? Here’s your chance to average down if you already own. Who else here wants to buy high?
May 17th, 2008 at 10:02 am
mortgagemaker Says:
May 17th, 2008 at 9:45 am
“This guy says he saw the cycle coming? Really? Then he should have told every client he had in the last 3 years that its not a good idea to buy if you are looking for a short term investment gain. Not only did he not tell them that, but he probably told them the opposite.”
One of their agents was soliciting for buyers and sellers on foot around Garden Grove. She was handing out flyers of “prime location” properties with prices from 2006. Must be that bad.
May 17th, 2008 at 10:12 am
mortgagemaker:
“Then he should have told every client he had in the last 3 years that its not a good idea to buy if you are looking for a short term investment gain. ”
Believe it or not, im sure he sold plenty of homes to non-speculators who werent trying to time the market like you.
May 17th, 2008 at 10:15 am
Price, My point is the prime locations aren’t experiencing steep discounts like Santa Ana is. I want to win the lottery some day but I don’t pin my hopes and dreams on it coming true.
May 17th, 2008 at 10:16 am
I am not a speculator or a buyer - I’m a mortgage lender - I’ve been telling clients and friends to stop buying and sell since 03. all the way to the end of the escrow id tell them they are making a mistake and paying too much.
May 17th, 2008 at 10:19 am
“many investors and speculators bidding on properties”
A sure sign that the bottom has not been reached. Historic bubbles end after historic washouts. We simply haven’t had enough pain yet.
We are 20% down in less than a year, and people think that is going to stop on a dime and go flat or turn around? Not possible.
This ends when the bulls on this board are either 1) gone or 2) talking about how cheap houses are. I almost never see anyone talk about how cheap an individual house is, let alone the market as a whole. That’s because it is not cheap - prices only possibly look good when compared to the peak.
Do not be stupid with your money folks. The incredible deals of six months ago, look like sucker’s bets now. And the deals of today, will look just as bad a year down the line.
May 17th, 2008 at 10:21 am
Housing in Orange County is too expensive and we are not going to slave our mortgage for the next 30 years. No Bailout.
May 17th, 2008 at 10:23 am
shockg Says:
May 17th, 2008 at 10:15 am
“Price, My point is the prime locations aren’t experiencing steep discounts like Santa Ana is. I want to win the lottery some day but I don’t pin my hopes and dreams on it coming true.”
If Irvine isn’t giving deep discounts, then why worry that bears will plant a footprint there?
May 17th, 2008 at 10:27 am
shockg - OC did hit the lottery, but we kept buying more and more tickets after we won - only to lose it all back, and it will be all of it back. No money to put down + no money to lend = prices that need to fall to where people making $80k per year can qualify for a home based on todays guidelines. Thats not much of a loan amount and lenders are getting tighter not looser - June 1 FNMA will be rolling out completly new loan parameters - obviously, its not going to be easier qualifying.
May 17th, 2008 at 10:38 am
The Fannie Mae guidelines will take effect June 1, but have been out for two months. They’ve already been sliced and diced and they are plenty generous:
https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2008/0810.pdf
There are many disgruntled mortgage brokers on these blogs telling lies that could harm families. Nobody should take ANY advice from an anonymous voice on the internet with some silly and delusional handle like “The Mortgage Prince” or “The Lending Expert”. That should be your first clue something is amiss.
May 17th, 2008 at 10:41 am
Thougtful - you are incorrect. They will be implementing an entire new automated approval decison engine on June 1st. Your right, they did make some new corrections on about March 12th - but on June 1 it an entirely new loan.
May 17th, 2008 at 10:43 am
The DU rules will be the same as the manual rules, with the possible exception that DU allows some of the written rules to be waived with compensating factors. Stop the lies.
May 17th, 2008 at 10:47 am
I gave the wrong link. Here are the guidelines:
https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2008/0808.pdf
Most of what people need to know is found on page 16.
May 17th, 2008 at 10:49 am
I have not used the new system, because it is not out yet. I dont know one lender that underwrites FNMA loans manually. I’ll let you know how the new DU is when I get a chance to work with it. If you think that anything got easier with these new guidelines you are seriously mistaken. Bud, I am in this business for the long haul, why would i tell lies?
May 17th, 2008 at 11:01 am
The guidelines I posted are the guideline for DU, except DU can be MORE lenient. Here’s how Fannie Mae sees the two:
“With this Announcement and with Desktop Underwriter (DU®) Version 7.0, we are taking steps to better align our requirements for manual underwriting with DU, implement a comprehensive update to DU’s risk assessment, and put in place new pricing requirements that align with these changes. In some instances, the changes are a contraction of our current policy but in other cases, the changes represent an expansion of our eligibility guidelines.”
“In order to align Fannie Mae’s credit risk appetite for manually underwritten loans with DU Version 7.0, we are implementing several changes to our eligibility requirements, including minimum credit scores and changes to our maximum loan-to-value (LTV), combined loan-to-value (CLTV), and home equity combined loan-to-value ratios (HCLTV) (referred to herein collectively as “LTV ratios” unless otherwise noted) for certain transactions.”
Let us know!
May 17th, 2008 at 11:09 am
All LTV adjustments are already in the guidelines I posted. Let people judge for themselves whether these are harsh or not.
May 17th, 2008 at 11:13 am
Paid real estate shills have been been consistently wrong for three years now. First it was no bubble. Then it was soft landing. Now it’s “the bottom is here.” Their advice is obviously worthless. Subscribe at your own peril.
May 17th, 2008 at 11:19 am
Merage is a complete fool. His irrational exuberance is unfounded. I guess merage is also going to fix the credit markets, too. While he is at it, he should run for president. Merage is an idiot whose livlihood is real estate. I don’t trust him like I don’t trust any other unethical real estate agent.
May 17th, 2008 at 11:19 am
Fannie Mae just dropped another bombshell, they just expanded jumbo conforming rules (as of yesterday).
https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2008/0811.pdf
“In order to quickly introduce jumbo-conforming mortgages to the marketplace, Fannie Mae took a phased approach, starting with limited product eligibility and scope for certain whole loan purchases and MBS deliveries beginning on April 1, 2008. With this Announcement, we are pleased to be able to provide lenders with additional eligibility and product expansion for jumbo-conforming mortgages.”
Expanded Eligibility and Products
Fannie Mae is expanding jumbo-conforming eligibility to include the following transactions and products:
For all Occupancy Types
• Fixed-rate interest-only mortgages with a 10-year interest-only period, 30-year term
• 7/1 and 10/1 fully amortizing ARMs, LIBOR index, 5/2/5 caps, 30-year term
• 7/1 and 10/1 interest-only ARMs with a 10-year interest-only period, LIBOR index, 5/2/5 caps, 30-year term
For Principal Residence Transactions Only
• Cash-out refinances with loan-to-value (LTV), combined LTV (CLTV), and home equity CLTV (HCLTV) ratios up to 75 percent (maximum $100,000 cash-back to the borrower)
• Increased ARM LTV, CLTV, and HCLTV ratios for purchase money transactions up to 90 percent
• Increased LTV ratios for limited cash-out refinances to 90 percent (and reduced CLTV and HCLTV from 95 to 90 percent)
May 17th, 2008 at 11:28 am
Wow. What a bombshell. So what?
May 17th, 2008 at 11:28 am
More on jumbo conforming:
Additional Eligibility Changes and Clarifications
• Jumbo-conforming mortgages are no longer subject to a reduction in the LTV, CLTV, or HCLTV ratios if the property is located within a declining market.
• The requirement that fully amortizing ARMs be qualified at the higher of the note rate or fully indexed rate is being modified. In accordance with the requirements of the Fannie Mae Selling Guide, fully amortizing ARMs can be qualified at the note rate. Interest-only ARM qualifying will not change and will continue to be based on the higher of the note rate or fully indexed rate.
• Fannie Mae is clarifying that CPM™ Expedited Review or the Lender Full Review process is not required for attached units in a PUD project. Lenders must follow the “Eligibility Requirements for PUD Projects” stated in Announcement 07-18, Lender Delegation of Project Review Processes and Related Changes for Condominiums, Cooperatives, and Planned Unit Developments (PUDs). Announcement 08-11 Page 2
Each of the above three changes will align the requirements for jumbo-conforming mortgages with standard conforming mortgages.
May 17th, 2008 at 11:37 am
The fog a mirror approach to real estate lending isn’t coming any time soon back no matter how bad you may want it to. Until it does, its full speed ahead on the decline in home prices. Why you are so excited about loosened standards in light of skyrocketing delinquency rates is a real head scratcher.
May 17th, 2008 at 11:54 am
Fannie Mae, Freddie Mac and FHA will lead other lenders back out of their massive over correction or they will own the market. Same for the mortgage insurers. Mortgage insurers are in the business of insuring mortgages, period. They will not be allowed to cherry pick the finest loans and leave the scraps for others. Get ready for the Federal National Mortgage Insurance Corporation.
May 17th, 2008 at 11:55 am
FNMIC, or Fannie Mic!
May 17th, 2008 at 12:25 pm
So if those who think we have bottomed are correct, is it safe to say we will bottom at early 2004 prices or 2003 at 20% plus off.
I see more and more nicer, bigger homes get priced closer and closer to the smaller let’s say ‘less nice’ properties. This downward pressure on quality and price is helping to create opportunity but without cheap financing prices are still a little too much for most too ‘bear’ so we could just muddle along for awhile.
Things look a lot better than they did of years pass, but I could see another 7% to 10% off before we have a real floor that holds.
May 17th, 2008 at 12:48 pm
Forget about those political gimmicks like Freddie Mac’s new policy.
I still remember how people applauded the raise of conforming loan.
Could anybody tell me any good effect it has?
May 17th, 2008 at 1:20 pm
Did anyone else catch his comment: “We anticipated and prepared for this cycle three years prior to it happening?”
So let me get this straight, we now have a local agent that states they not only predicted the turnaround for this market - but they prepared for it. Hmmmm…. Their agents knew the market would turn years ago, and it sounds like they had a good idea as to the depth of what the turnaround would be. I wonder how many of their buyers were told this and how many were told that it was a great time to buy? Seeing that a very significant percentage is now turned over in their loans, I can see how people have great resentment for the local profession.
I would bet plenty of money that most buyers in the last 3 years, if polled, would have preferred that their agents had told them something along these lines and not just the usual sales pitch.
And again, many of us knew we would be reading and listening to these statements today.
May 17th, 2008 at 2:11 pm
Thoughtless:
Who told you quantity of posts mean quality?
May 17th, 2008 at 3:26 pm
Quite frankly I do not get how so many people sit here in these blogs days a night spending countless hours researching statistics after statistic, guidelines like real-estate is the core achievement of human kind. Just invested the time you spend here to develop a career or hobby, life would be great for you and family and stop sweat this houses bottom, houses up, houses down. It is ONLY a house, not cure for cancer or alternative energy source. People were buying/selling houses for thousands of years. People here got to be so obsessive about this topic that I think they need to be medicated. Enjoy the rest of your life, you all going one way or another to end as ashes in a jar or a wood box cost $20 in home depot using 10sqf land. Cheers I am moving on.
May 17th, 2008 at 4:39 pm
Thoughtful,
By any chance are you the subject of the recent news article about the woman whose rear end became stuck to the toilet seat after sitting for there for months? I don’t see any other possible way for a person to sit there and click the refresh button as often as you do.
May 17th, 2008 at 7:20 pm
You know, here is the CEO of a 33 office, regional company, who just focuses on our area, telling everyone that price appreciation is highly unlikely for at least the next 5 years, yet somehow he has been ridiculed due to the nature of his business. Yes, this man must know nothing about RE in this area. Again, the jealousy at the incomes some of these people pull down it transparent. Sorry bears, but admitting the problem is the first step.
May 17th, 2008 at 8:27 pm
In the immortal words of Jules Winfield, allow me to retort: as the Enron boys proved, even CEOs of multi-national companies can be common crooks. Secondly, until you show me a “real estate professional” who in a down cycle is not calling bottom on [insert date], and, regardless of cycle, has ever said it is NOT a great time to buy, they will continue to be subject to ridicule.
And I could care less what his income is.
May 17th, 2008 at 8:36 pm
Yogi..yogi…yogi: a home is listed for 5% at 1,000,000. Same home is listed for 5% at $750,000. Do you honestly think the agent cares about the difference? An emphatic #@&% no!! The agents just want their clients to list the home for a reasonable selling price. In the boom market, agents did not have to do much…buyers just bid up the prices without much help from the facilitator.
Regarding the market, here is what he had to say: “Merage: The volume of real estate transactions has been reduced by about 50% since the peak of 2005. Therefore, we have had to become more stream