Here's recent history of the Fed’s policy committee and its Fed Funds rate. Next Fed decision is June 24/25.
Insider Q&A told housing comeback starts in ‘10
May 24th, 2008, 12:01 am · 75 Comments · posted by Jeff Collins
Steve Cameron is president and founder of Foremost Communities Inc., an Irvine-based land development and investment company. A former chief operating officer at homebuilder Fieldstone Communities, Cameron teamed up last summer with Starwood Capital Group Global LLC to buy about $250 million in developable land in Southern California.
The new joint venture, dubbed Forestar Land Partners LLC, plans to resell the land in the next housing boom.Cameron, who lives in Newport Beach, has more than 20 years of experience in Southern California real estate development and financing and has served as past president of the Orange County Chapter of the Building Industry Association. We asked him about the housing market as well as the availability of land bargains in today’s climate:
Us: As someone who’s long been watching the local housing market from the homebuilding side of the equation, how do you see the current O.C. housing market and what are the prospects for a recovery?
Cameron: The current housing market is still weak due to the oversupply of news homes and foreclosed homes coming back into the market, and the lack of confidence among consumers who still don’t think now is a good time to buy a house. Not everyone realizes it, but the number foreclosures may continue to grow as more mortgages are due to reset in 2010 and 2011. Another big factor is how much the economic slowdown affects job growth.
Us: Has the O.C. housing market hit bottom, and if not, when do you think that will happen?Cameron: I don’t think it has and I don’t think it will until housing prices get to point that homes are affordable again. In Southern California we’ve seen home prices more than double in the past several years – the market just couldn’t sustain that kind of appreciation. Homebuilders and homeowners are going to see those values drop even more than they already have until there’s a balance between what homes cost and what buyers are willing to pay. I have confidence that is what has to happen, I’m less confident about when that will happen.
Us: How long until we get back to the peak?
Cameron: I was in the homebuilding industry in the late 1980s during the last real estate cycle. The housing market peaked in 1989, then prices dropped but by 1995 the market had recovered and launched one of the longest real estate booms in history peaking in mid-to-late 2005. So if today is similar to the conditions in 1991 – and they may or may not be – then in a few years it should be more like 1995. I think the market will start to come back in 2010, but it will be a slow climb back to the peak.
Us: You formed Forestar Land last summer with plans to invest more than $250 million in raw land in the next several years. Presumably, now is a great time to find bargains since homebuilders are selling surplus land in a slow market. Are there bargains?
Cameron: What we’re seeing now is opportunities in tertiary markets that will take a long time to recover. In these markets there is very little value in the land itself anymore and sellers are getting only a percentage of the dollar on the improvements they’ve made to the land. We’re not going to spend $100,000 on a finished lot that’s worth less than $80,000. So, right now Forestar Land Partners is waiting for the right opportunity to present itself in a primary or secondary market at a price that we think makes sense.
• See what other insiders have told Insider Q&A in recent weeks …
First Team’s Cameron Merage thinks it’s 5 yeas to next peak
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 24th, 2008 at 2:44 am
OMG, this guy knows what he is doing, and he sounds like me. Ut roh… what if he is, and confirms that the bears are right? I can’t wait to hear the spin.
May 24th, 2008 at 6:31 am
graphrix,
You have proven yourself right for over 2 years and counting.
Hats off to Steve Cameron for giving a straight forward, honest summery of where housing is headed.
Its easy to see that foreclosures are headed to levels not seen before and prices are headed an additional 25% lower.
Mr. Cameron spells it out in simple english;
“We’re not going to spend $100,000 on a finished lot that’s worth less than $80,000. So, right now Forestar Land Partners is waiting”
May 24th, 2008 at 6:50 am
too right
May 24th, 2008 at 8:16 am
What he said is they won’t spend $100k in a “tertiary” market (read: Riverside Coumty). He implied there are no opportunites in a “primary” market (read Orange County). Someone also forgot to tell him that there is widespread agreement that affordability is now in line here. Also, this guy just started a company that DEPENDS ON FURTHER HOUSING MALAISE. Next.
May 24th, 2008 at 8:22 am
Good article, Mr. Cameron seems to understand the forces that are driving the real estate market………..another 2 or 3 years down until the median home prices is 300K in orange county
May 24th, 2008 at 8:30 am
Finally somebody that talks sense without hyping the market. I’m glad he and his company have a quarter of a billion in cash to invest; otherwise the bulls would call him some bitter renter. LOL!
What many fail to mention is that interest rates cannot be cut at the rate and “intensity” as they have been during the past 12 months. Studying various market cycles and looking at many variables one can notice a trend that interest rates don’t truly dictate the market direction, but do change the intensity at which markets perform (appreciate/depreciate). In a sense, interest rates act like an amplifier to the changes in the Real Estate market. In an appreciating market, lowering interest rates would make it appreciate more while increasing interest rates would obviously reduce the rate of RE price appreciation of RE in an up market. On contrary, in a down market, rising interest rates make prices drop faster, while changes in rates to the lower end of the spectrum slow down the depreciation phase.
Why is that important and shouldn’t be left out of any equation/prediction? Because Bernanke cut interest rates during the past year and despite those “efforts” the market still depreciated rather rapidly. (Japan anybody?) Without cutting interest rates at a similar pace than during the previous 12 months; there will no longer be that force against RE depreciation. The lack of “resistance” will cause prices to depreciate at a faster rate from here on forward, especially in upper priced market areas priced from the $750-2.5M. Also keep in mind that the American savings rate is negative. People no longer have savings but many have much debt. The American of today is much more influenced by changes in interest rates than in the past. And unfortunately for the living-beyond-the-means consumer, it cannot get any better from here on forward.
P.S. Forestar Land Partners might as well buy 250Million worth of silver starting now and throughout the summer. That will be much more profitable than the land deals. Or buy now and sell by late December / early January and have $325M+ to play around with
May 24th, 2008 at 8:44 am
CRYSTAL BALLS/ SIGHBURGOO GOO AND THOUGHTFULLESS/MULLI-GILLIGAN
ALL OF UR COMMENTS ARE NULL AND VOID U HAVE CROSSED THE LINES OF NORMALCY
PLEASE RETURN UR KEYBOARD TO BILL GATES AND PUT ON DUNCE CAP IMMEDIATELY
REPORT TO THE WIZARD OF BLOGGING MR LANSNER FOR FURTHER DISCIPLINE
LOLLLLLLLLLLLLLLLLLLLLLLL
P.S.
GREAT COMMENTATOR FINALLY A PERSON THAT DOES SPEAK THE TRUTH!!!!!!!!
May 24th, 2008 at 8:49 am
Thoughtful,
You have quite the imagination.
“Properties in Southern California from San Diego to Bakersfield, from the coast to the Inland Empire, are the primary interests of Forestar Land Partners”
“Forestar Land Partners is waiting for the right opportunity to present itself in a primary or secondary market at a price that we think makes sense”
This is really implying all markets are dead and buyers stand to lose large sums of money if they were to purchase now.
I’m just curious why he didn’t mention anything about lay-offs
May 24th, 2008 at 8:52 am
Here’s what your heroine, Diana Olick is saying now:
“Burns tells me he and his people are calling a bottom this month because the disconnect between demand and supply is no longer getting worse, and will get better from here.”
“I’m not ready to call a bottom, but with prices continuing to fall, and sales picking up in some particularly distressed markets, perhaps the bottom is at least near.’
No one is more respected in the industry that John Burns, and they have called the bottom. They aren’t trying to make money in development like this guy. Oh, who to believe?
May 24th, 2008 at 8:52 am
Jon-
Please interview Mr. Cameron in another 6-9 months so we can track his company’s actions. I want to say that the building investors will be on the leading edge of the market. As such, I think they will be a much better gauge as to when the market has bottomed, unlike the permabull fairies wishing it to get better on this blog.
May 24th, 2008 at 8:55 am
Snippy this morning, Marcia?
May 24th, 2008 at 8:56 am
We don’t need builders to tell us when the bottom comes. We get fresh numbers weekly.
May 24th, 2008 at 8:57 am
Thoughtful-
“…I’m not ready to call a bottom, but with prices continuing to fall, and sales picking up in some particularly distressed markets, perhaps the bottom is at least near.”
“…with prices continuing to fall”? In what business world does that portend a bottom?
I can see if he is saying that the slope of the decrease may be flattening, so yes, there could be a point in the future.
But what I see is the bulls comparing April to March instead of Y-O-Y of April 2008 to April 2007. Of course sales are up from March to April to May. It is the SPRING SELLING SEASON. But sales volume is DOWN over last year.
I just don’t get the math how lower prices AND lower sales volumes make a bottom…
May 24th, 2008 at 9:04 am
Thoughtful-
I probably should’ve used a different word than “fairies”. I come from a time when “fairies” were those with magical powers to accomplish what we mere mortals cannot, like waving a magic wand and making things better.
No other derogatory pun intended.
And yes, I haven’t had my coffee yet this morning.
May 24th, 2008 at 9:06 am
TO MARCIA
HOW DO U TRY TO MAKE SENSE OF ANYTHING THOUGHTFULLESS HAS TO COMMENT ON..
HE BASES HIS WHOLE THESIS ON “PERHAPS THE BOTTOM IS NEAR”
FIRST OF ALL HOW LONG IN TIME IS NEAR?
GIVE ACTUALLY MONTHS AND YEARS AND THAN THESE STATEMENTS MIGHT MEAN SOMETHING BUT ALL THIS IS IS ANOTHER BOGUS STATEMENT THATS WORTHING NOTHING MORE THAN THE PAPER IT PROLLY WAS WRITTEN ON.
THOUGHTFULESS SERIOUSLY DO U BELIEVE WHAT U WRITE…..LOLLL
PLEASE GO SEE THE WIZARD OF BLOGGING
RETURN YOUR KEYBOARD
U HAVE ABUSED YOUR PRIVILGE OF HAVING A MIND……..LOLLLLL
May 24th, 2008 at 9:18 am
“Housing affordability has improved dramatically in the last year”
Thoughtful always complained that national statistics weren’t a good barometer for O.C.
He still has OC‘s house cost to income at 67% which is still off scale on his national charts.
Please go to john Burns (No one is more respected in the industry) Web Site and zoom in on O.C. to find how he graded O.C. property.
Too bad his grading system only goes to an “F”
http://www.realestateconsulting.com/home.aspx
May 24th, 2008 at 9:30 am
His grade of 6.6?
“The Barometer ranges from 0 to 10, and is generally categorized as follows:
Significantly Overpriced in Comparison to History: 7.6 to 10.0
Overpriced in Comparison to History: 5.0 to 7.5
Underpriced in Comparison to History: 0.0 to 4.9″
Looks to me like it is smack in the middle of the middle. His lookback of 26 years for Orange County represents the birth of Orange County itself. Those days are just a memory. As you saw yesterday, we aren’t orange groves anymore.
May 24th, 2008 at 9:35 am
I believe Steve is on target and a prudent business man. I agree the downward trend for the next couple of years. Maybe not as dramatic as over the last couple of years. When realtors stop providing tour bus rides in the area of foreclosed homes. It is like people are taking a disney ride for the day. Will the home market flatten out for a couple of years. Then slowly increase in value. The cost of land will increase as well housing. The cost to prep new land, if there is any, will cost more with rising fuel cost. The same for building material will rise as inflation for labor cost. Don’t forget the tax guy. The population trend to increase will increase demand for homes. If O.C. business can provide good paying jobs for the professionals. That will promote home sales. If California State contiues to spend more than it takes in and continues to pass on the cost by more ever tax increases. As the proposed increase in sales tax. This will drive away people and businesses.
May 24th, 2008 at 9:40 am
So you’re trying to dispute his “F” Rating?
Orange County, CA (F)
Payroll Emp 1-Yr Growth: -21,700 (-1.4%)
Total Emp 1-Yr Growth: -28,500 (-1.8%)
Unemp. Rate: 4.6%
12-Month Total Permits: 6,552 (26.0% of peak)
S. Fam. Det. Resale Median Home Price: $570,000
Housing Costs/Income: 67%
Housing Cycle Barometer: 6.6
It seems clear cut to me.
May 24th, 2008 at 9:45 am
You mean the 95.4% employment rate? Or the fact that so few new homes are in the pipeline? You see it your way, and I’ll see it mine. We just added up to 111,000 buyers into the market based on affordability. It is EVIDENT it is having an effect.
May 24th, 2008 at 9:54 am
Thoughtful say’s
“You see it your way, and I’ll see it mine”
I didn’t grade O.C. your “No one is more respected in the industry” professional did.
I think they call that a classic case of “cherry picking 101”
You’re too easy…………gotta go……..everyone enjoy the holiday weekend
May 24th, 2008 at 9:59 am
This tidbit just hit…
“…According to various sources of data (Credit Suisse and others), another big subprime reset will hit in July 2008. Also according to various sources notice of defaults (NODs) are again on the rise meaning more REOs later in the year. Currently the numbers of NODs are artificially low because the court systems in the hardest hit areas are overwhelmed by the volume of NODs.
Beginning the week of May 15, 2008, inventory of Countrywide’s REO homes began moving up. In the last two weeks, total Countrywide REO inventory has increased 3.8% after declining 21.6% January through May 8, 2008.
Inventory has increased (decreased) by the following amounts in the
hardest hit states (CA has 30% of Countrywide REO inventory):
CA - up 3.2%
FL - up 3.7%
GA - up 17.9%
MI - up 1.5%
AZ- up 6.5%
IL - up 20.9%
TX - down 14.8%
NV - down 5.9%
The monthly data from RealtyTrac also confirms that REOs are climbing. According to RealtyTrac, between March and April, REO inventory was up 6.2%.
The worst hit states representing 80% of total REOs in April ordered top to bottom are:
Total - 54574
CA - 15567 - up 11%
OH - 3767 - up 4.3%
FL - 3734 - up 18%
TX - 3732 - up 4.2%
AZ - 3307 - up 22.4%
MI - 2946 - up 28.2%
GA - 2050 - down 50.4%
NV - 1984 - up 22.9%
CO - 1840 - down 16.0%
IN - 1626 - up 17.3%
IL - 1565 - up 1.5%
VA - 1243 - up 23.0%
Total for 12 States - 43361 or approximately 80% of REO inventory.”
By the way, with the above, CA currently has approximately 30% of REO inventory.
May 24th, 2008 at 10:00 am
I just learned this tidbit via Calculated Risk. It seems that Representative Laura Richardson, not only lost a Sacramento home to foreclosure, but she also defaulted on properties in Long Beach and San Pedro, records show.
And now due to here experiences in the real estate market, she wants to help draft legislation for others in trouble. LoL
Personally myself, I’d like to see her thrown out of congress, and Perp Walked in front of the media. But, I have no confidence that she’ll lose here congressional seat … hell, the numb nuts that vote will probably make her our next senator.
Read all about it here:
http://www.dailybreeze.com/ci_9366061
May 24th, 2008 at 10:04 am
send her to the front lines of Iraq in honor of memorial day weekend
May 24th, 2008 at 10:05 am
we can get rants 10 year old son to train her in hand to hand combat…… that’s the least we can do
May 24th, 2008 at 10:11 am
Mr. Burns’ grades/statistics are for builders, and include just three data points:
Permits
Employment
Affordability
I don’t see anything about inventory or supply and demand. Maybe those 3 items are enough for builders to make decisions on, but they are far from telling the whole story.
May 24th, 2008 at 10:27 am
The whole story is eluding you thoughts..infact, reality is eluding you. Buts lets just use your 111,000 potential new buyers..how many of those already own a home and can’t sell? How many have jobs that are secure enough to want to purchase a home? How many have a large enough DP? How many know enough not to buy when 1)renting is still cheaper 2)house prices are still declining at high rate (~2%/month) 3) know that if they buy they will undoubtably be in that home to many years. Etc. Etc. The fact is, is that you have no basis to say suddenly 111K people are now house hunting. I am one of those 111K people and I am not buying an illegally overpriced home. Still not buying your fear product. OBTW, do you get time-and-a-half for working a holiday weekend?
May 24th, 2008 at 10:29 am
i’m glad to see some of the 111,000………. can now actually afford the market price of their home….. LOL …. to bad they owe a lot more…. LOL
May 24th, 2008 at 10:31 am
“MY fear product”. That’s a good one.
May 24th, 2008 at 10:34 am
Great balanced view of the state of the real estate.
Someone with a good business judgement.
He is comparing conditons now to year 1991 in previous cycle. That means there are few more years to the bottom.
Those flippers who are waiting to get back their investment made at the peak of housing bubble may have to another 8 to 10 years.
May 24th, 2008 at 11:00 am
Eat it in OC-
Thoughtful’s argument means that those 111,000 buyers are alot dumber than you or I. But the stats don’t bear that out, otherwise there would be more sales of non-REO homes (1300+/- for April 2008). It appears there were only 1300 buyers in all of OC for April 2008, but, given that the median fell again by a rather substantive amount, I can’t say those 1300 were dummies, especially if the sellers of those homes were desparate to sell, and the buyers got a discount off the listing price.
I agree that with a -2% discount each month, which represents $10,000 fall each month from the now $500K median, will be enough to keep most buyers on the sidelines for the remainder of this year.
Thoughtless and Mulli are about the 2 remaining dreamers left out there. Good for you for waiting. You should be rewarded with another possible $50K-$100K in another 9 months (10%-20% additional from $500K median).
May 24th, 2008 at 11:05 am
“The world is full of people whose notion of a satisfactory future is, in fact, a return to the idealized past.”
Robertson Davies
May 24th, 2008 at 11:17 am
Ah, there were a lot more CLOSINGS in April than 1,300. As for what OPENED, I hear it’s a lot. I believe the median SFR is actually UP from last month as well. See 4/8 versus 5/6.
May 24th, 2008 at 11:19 am
It feels like a breath of fresh air when someone in the industry actually has the guts to speak the truth about the market.
Many financial experts are loathe to mention the word affordability in their predictions — it’s always about “inventory” and “demand” and “credit crisis”. However, probably the most important issue here is affordability. If we had affordability we woudn’t have a credit crisis.
Most people don’t want to admit there is a bubble.
Kudos to Mr. Cameron. The guy sounds like he actually has a lot of experience. It also looks like he is actually putting his money where his predictions are - meaning he is positioning himself to buy land as it hits bottom in the next several years (but not now). Unlike many other bottom callers who SAY there is a bottom NOW but are probably scared out of their wits to actually buy in this down market right now (for good reason!).
May 24th, 2008 at 11:31 am
Thoughtful Says:
May 24th, 2008 at 8:16 am
“What he said is they won’t spend $100k in a ‘tertiary’ market (read: Riverside Coumty). He implied there are no opportunites in a “primary” market (read Orange County).”
Don’t forget his follow up: “Forestar Land Partners is waiting for the right opportunity to present itself in a primary or secondary market at a price that we think makes sense.”
Maybe he is implying is that the buying opportunity isn’t there in OC yet because the market still has a long ways to fall to “sensible” levels.
But to the point. What makes you believe that the tertiary market does not refer to parts of OC, which this what this interview is about?
“Someone also forgot to tell him that there is widespread agreement that affordability is now in line here.”
Who comprises that “widespread agreement”?
“Also, this guy just started a company that DEPENDS ON FURTHER HOUSING MALAISE. Next.”
And bulls are depending on an immediate housing rebound. The difference is that the RE trend does not favor your view.
May 24th, 2008 at 11:47 am
Prince of bad tidings:
Who comprises that “widespread agreement”?
The answer is realtors, and mortgage brokers.
May 24th, 2008 at 12:07 pm
TO ALL BLOGGERS RESPONDING TO THOUGHTFULLESS
I DONT KNOW IF U ARE ANYBETTER THAN HE/SHE IS TRYING TO CONVEY LOGIC TO THIS PERSON IS LUDICROUS.
THIS PERSON BELONGS IN A INSANE ASYLUM!!!!!!!!
GO OUT ENJOY THE WEEKEND QUIT PLAYING WITH A VERY CHALLENGED PERSON MULLI TRUTHI AND WHATEVER ELSE NAMES THIS PERSON POSTS UNDER
May 24th, 2008 at 1:09 pm
Well I said I’d return to this blog in three months because the negativity was too much to bear on a daily basis. Back then I also said that we bottomed in sales activity, but not prices and was blasted because people just thought Buyers would completely stop buying, wrong! I also said that people always have a reason to move and if Buyers could find a deal 10% below where prices were at and could take advantage of falling interest rates and the higher conforming loan amounts and new FHA, then why wait to get your family into a neighborhood you want to live into? In this market, it’s all about buying the best location you can find at a discount. Well that’s what I’ve seen going on and I hate to gloat but I was right! So here’s what’s the future holds in my opinion, and I’ve only see three of these cycles now….
Currently 17% of residents can afford the median home in O.C., up from 8% at the top of the cycle. When the last bubble burst in 1989, the number was also 17%, and this appreciation cycle from 1997 to 2005 ran 2.5 years past the 1985-1990. In otherwords we’re now at where the last cylce started to correct until the median was affordable to 60% of the residents! We have a long way to correct in the price ranges that are higher than twice the current median; we’re just starting to see that. Yes, as I’ve said before the beach will be affected and Jimmy just couldn’t believe it possible! Well, what you say now?
I just returned from an industry foreclosure conference, how’s three to five years worth of foreclosures sound? Because that’s what’s in the pipeline for Orange County; we lag most of the country in timing and the lower-end of the market has corrected a lot more than the higher end of the market; I think we’ll see the high-end drop 20% from their from their all time highs in the next 12 months, followed by another 10% each of the next two years. We probably have another 15% to go in the lower-end market, because it’s already corrected by almost 25%.
Take a look at the inland market, Corona for an example has corrected by nearly 50% and inventories are dropping and sales are up, thanks to a swift correction. Every market sells relative to another and the O.C. has some way to go, for sure! According to Data Quick, May 19th, we’re now 18.3 percent better off than we we’re during the top of the 1989 cylce when adjusting for inflation; at the same time we’re 33.1% better off than we were at the top of this cycle. Well the last cycle lost much more the 18.3%, so that statement strengthens the fact that their still much more to correct and that this bubble was much larger than the last.
Long-term first time Buyers and move-up Buyers are driving this market. If you’re not one of those stay on the sidelines another 18-24 months if you’re only concerned at purchasing near the bottom. Yes, I’m a Realtor, but my business is still thriving because I tell it like it is. See you in another 3 months.
May 24th, 2008 at 1:52 pm
Thoughtful-
Yes, there were some 2100 closings in April, of which 800 where REO’s. That means only 1300 were actually closings that were NOT desparation sales prices.
How many of the 2600 sales last April 2007 were REO’s?
That’s why the market continues to fall…
There is no “widespread agreement” that affordability is now at a level that a majority of homeowners can afford. Look at the chart you were referring to. At a score of 6.5, it is smack dab in the middle of UNAFFORDABLE.
Either our wages are rising dramatically, or prices will continue to fall, especially in the face of competing headwinds like rising oil and food prices, along with rising interest rates.
May 24th, 2008 at 2:59 pm
hwood,
Haven’t you heard from Mr. Lanser that there is zero evidence of this “conspiracy” of the tr oll posting under his 50 names?
It does appear that this person (and I do believe it is a person even though it appears as some strange alien force) serves a purpose to Lanser( post half the comments and the others get directed at it).
So don’t feel strange if no one backs up your “conspiracy”.
I believe the blog would be many many times better if we had 1/10th the comments. A lot easier to read.
Well if you can’t have quality they can have quantity!
May 24th, 2008 at 3:49 pm
Hey, it’s the blog Realtor coming late to today’s party because I actually had to work this morning. Got some fresh food for thought, however.
I was across the “Orange Curtain” in Downey, but was surprised to stumble upon a new REO open house listed for $300,000. I checked comps when I got home & found four within a half mile that closed at $650,000 at the peak (summer ‘06 to early ‘07).
(For details check out “A market snapshot: Opportunity knocking?“)
I don’t necessarily disagree with Mr. Cameron’s analysis, just saying there are some outstanding opportunites for below market purchases available now for patient buyers. Like some REOs and “short sales.”
Remember, Mr. Cameron just spent $250 million buying land. Kind of odd behavior for someone who thinks the bottom’s two or three years off.
I think he found some great deals from some builders in distress and jumped on them. The deals are out there now, although the recovery may be a ways off.
And don’t forget the words of Freddie Mac’s Frank Nothaft about when we’ll hit bottom: “We just don’t know. We’re in totally uncharted territory.” (See “How low will prices go?“)