Welcome to 
Eyeball 2009! This is our holiday gift to you: Two weeks of outlooks on local real estate conditions! A new vision every day of the week at noon through Jan. 6! Our eighth guest is …
Christopher Thornberg, the outspoken economist formerly of UCLA, who now works for Beacon Economics that he co-founded.
Eyeball: What’s the O.C. housing outlook for 2009?
Chris: Something between grim and nasty. Even as the subprime debacle continues to play out, the traditional source of housing weakness — rising unemployment — is now starting to kick in as well. To date the various policies the government has pursued to try to stabilize the markets have largely failed, because they do not acknowledge the fundamental issue — prices were forced to levels far out of whack with reality. Prices need to fall to fall even farther to get back to their historic norms relative to incomes in the region.
[ More Eyeball '09 HERE | Eyeball '08 | '07 ]
Eyeball: What’s the chance we bottom in 2009? What might it look like?
• Click to vote on '09 pricing!
Chris: Given the pace that prices are falling, it seems that housing will find bottom near the end of the year. But bear in mind that hitting bottom does not lead necessarily to coming off the bottom. Expect housing to sit there for years.
Eyeball: What do you fear the most about the real estate market?
Chris: My biggest fear is the crazy knee-jerk policy proposals coming out of certain corners of Washington DC and Sacramento. So far we managed to shoot down the worst of these, yet in the vacuum that will occur as the new administration comes into power we face the potential for these proposals to yet again come to the forefront and be passed. These include:
- Forcing cram downs — mortgage principal balance reductions — on banks.
- Stopping foreclosures and not allowing the market to clear.
- Rolling homes back under general bankruptcy protection.
- Providing mortgage insurance to banks for loans at best modestly
- altered and highly likely to go into foreclosure anyways.
All of these proposals either reward rechless buyers who borrowed and bought far beyond their means, will reduce the speed of housing recovery, create long run costs that all future buyers will incur and/or cost the taxpayers dearly,
Eyeball: What gives you hope?
Chris: While policy seems to be aimed at stopping the fall in prices, in many ways this is exactly the cure the market needs. Southern California has an enormous pent up demand for homes by families at the lower end
of the income scale. Eventually if prices fall far enough this will allow the potential buyers to soak up the excess supply of foreclosed homes and allow a quick recovery in the market.
Eyeball: What surprise or surprises will we be talking about at a year from now?
Chris: Well it wouldn’t be a surprise if I told you, now would it.
And you’ll want to come back …
- NEXT UP: PruCal’s Rich Cosner
- THEN: Most Agency’s John Most
- All of Eyeball 2009 to published date is HERE
Thornberg has some common sense arguments. None of the experts, however, address the impact of the tax and spend policies of Paulson, Bush and Bernanke. By destroying the currency, they have diluted the savings and wages of everyone that has a job. Anyone that works will have less purchasing power to buy a house. The Weimer Republic and Zimbabwe come to mind.
Even if a deflationary environment emerges, as Paulson gives billions to his friends, workers will be getting pay cuts and layoffs. Business will sell less and cut back even further, laying off more people. As the Country struggles with layoffs they will also be crushed by currency destruction.
Not until Bush, Paulson and Bernanke’s family names are spoken about in disgust will this end.
Oh, this guy Thornberg really knows what he is talking about. Most people forget that the OC economy is losing lots of jobs and that is going to impact the OC housing market in 2009.
Even when we finally reach a bottom ( my guess is late 2010), the housing market is going to be flat for years. Those who see real estate as an investment are going to be very disappointed in the next few years.
Well, at least he isn’t hiding his political views. Kind of ruins his analysis though.
His argument that lower prices will clear out the excess doesn’t hold water. There is a very limited supply in the lower ranges. The excess supply is in the higher ranges. I guess he wants to push all housing into the lower ranges. Curious stance for a republican.
that is not true, there is plenty of supply in the lower ranges, that’s where the most foreclosures are.
By the way, there is a huge load of foreclosures that the banks are going to dump in the market at the beginning of the year after the holidays. That will put even more pressure on the OC housing market.
My heart goes out to the thousands of people who are going to lose their homes. There will be some great deals for those who are willing to wait to buy until 2010.
Merry Cristmas-
Well if my wife finds a new job maybe 2010 will be the year to buy. Her company is consolidating offices out of state and as of Feb. she is unemployed. I guess one person working is better than none. Good thing I have been stashing my cash and paying off my debt. The economic downturn finally rears it’s ugly head in my household. Hope everyone else can keep it at bay. Good luck!
Bubble is right after the new year you will see a flood of FC’s hit the market and it is going to get ugly.
Best wishes to you and yours for the New Year!
Trust me, Thornberg is not someone you would label a Republican. Like most of us, he’s ‘conservative’ on some issues, ‘liberal’ on others, but if you throw off the political labels, what he’s recommending are common-sense approaches in favor of the long-term strength of the housing market and not temporary band-aids. He’s just saying things like mortgage cram-downs and halting foreclosures only delays a true rebound.
NB says: “My heart goes out to the thousands of people who are going to lose their homes. There will be some great deals for those who are willing to wait to buy until 2010.”
Give me a break. Can you at least be sincere and stop saying that you feel sorry for the people who are losing their homes. Have some balls and at least be straight about your stance. You cheer for people to suffer. You are a slime ball.
It’s funny how all the bears are ready to get on their knees and bl@w Thornberg. I think you all attending the same Thornberg seminar. You even have all the same canned responses memorized.
Finally Lasner interviews someone who makes statements grounded in reality.
It’s not complicated. Prices rose far beyond what imcomes could support and not that there is no more free money prices are coming back down to where incomes will support them. Its that simple. All the bickering back and forth between the Bulls and the Bears is really silly. Prices will continue to decline until they fall back in line with incomes.
Excluding those with a vested interests and politicians seeking to score political points I don’t understand why people keep proposing programs to prevent homes from falling back in line with incomes.
there are really only 2 options here folks:
1. home prices keep falling
2. incomes start rising
ok folks, step right up and place your bets……
Does anyone have an idea what CDs will be paying next April and June? I am rolling over CDs at 9 month-13 months, and don’t want to chance missing out on a deal if I am stuck in long term CDs. Will I get 5% or more by then, or lower?
I’m a little bit more positive about the market. It seems like the same type of sentiment that drove prices so high is driving them too far down. If people were once willing to pay high prices for beautiful southern Ca, then they will be willing to pay them again in the future.
You guys don’t realize that buyers have always paid a premium for Southern CA homes. SO CAL home prices have never been in line with incomes. The gap was not as wide as 2004-2006, but it will never be in line with the incomes. However, places like Alabama and Texas market are exactly in line with prices! This is exactly where your theories will fail.
shocked gee come back as shame with the old baloney about how this area has always been 10X the national average.
Getting backed to my $ making ideas for RE brokers. Another easy to sell item while doing an open house are magazine subscriptions. An agent can easily pull in 10-20 bucks per open house.
Okay, Shane, What should be the premium for OC? You think that premium price has been reached? If so, then why are sales still 30% off historical averages and why are prices still falling? Come up with a theory to explain why distressed homes make up so much of the market and what happens to all those people who short sale or foreclose? Do they move up the RE ladder? What about Savingmycash, does he still qualify for that premium loan price? No, and how many others are like him? Eventually, you run out of qualified buyers with the attitude that everyone needs to pay premium. Get real.
Shockg,
Even real estate economist Walter Hahn has thrown in the towel and admitted to future heavy losses in real estate.
You are lying on the tracks in one of the biggest train wrecks of all time.
It looks like we’re in for yet another year of watching you be completely dumbfounded by this meltdown as you lose even more of your wealth.
One thing I am sure of is that you won’t be able to survive after taking another huge loss in 2009.
On that note,
Have a Happy New Year!
Thornburg is kind of middle of the road on his ‘09 predictions when you put him up against everybody else. I did a little round up of several predictions: http://terrafirmala.com/2008/12/when-will-housing-market-recover.html
Good luck after the Alt-A loans waves to end in 2011
Shane, you are correct, OC will always command a premium relative to other areas. But, since that premium is still grounded in income, and OC’s median income continues to fall, so then housing prices must decline. It’s all relative.
Also keep in mind that lax lending guidelines allowed people to pay this premium, but take away those easy loans and even if people WANTED to pay a premium, banks will not let them. So that OC premium was artificially supported by bad banking guidelines. The more accurate reflection would be the sort of guidelines in effect back in 1989. Whatever the premium differential for OC was back then, so we are headed there again.
Shane,
What does this mean, “SO CAL home prices have never been in line with incomes?”
As much as you might want 1+1 to = 3 it doesnt.
Unless banks again decide to give out loans that ultimately wont be paid back(very unlikely for at least 60 years) there will be a relationship between incomes and real estate prices.
I cant believe Im responding to your post because It doesnt make sense.
Spring Hill Realtor Says:
“I’m a little bit more positive about the market. It seems like the same type of sentiment that drove prices so high is driving them too far down. ”
Well, you are realtor, of course you are going to be more positive about the housing market.
Your job is to find suckers to buy homes. You don’t care if the buyer will be able to pay back the loan or not. As soon as escrow closes, you move on to another sucker and let the buyer figure out how to pay for the loan he just got himself into. Of course, you’ll keep in touch with the buyer in case he needs help with a short sale of the house he just bought. .
I’m sure you were positive about the housing market last year and the year before, and in 2005, 2004, etc.
As realtors always say “it’s always a great time to buy a home”
Besides, what the heck do you know about the OC housing market? You are in Tennessee, you guys never had a big housing boom.
I find it interesting that we have a group of self proclaimed doomsayer economists on this blog who argue we are in huge future trouble because of deflation and another group of doomsayers who argue we are in huge future trouble because of inflation. I’m just waiting for another group of doomsayers to proclaim we will have deflation and inflation.
yes, but this group of doomsayers have been right for the past 2 years and that bothers you big time. LOL
Crystal Balls Says:
December 27th, 2008 at 12:09 pm
“I find it interesting that we have a group of self proclaimed doomsayer economists on this blog who argue we are in huge future trouble because of deflation and another group of doomsayers who argue we are in huge future trouble because of inflation. I’m just waiting for another group of doomsayers to proclaim we will have deflation and inflation.”
If you paid attention, you would realize that the two can co-exist. Because we are printing so much money to avert doomsday, our money will be worth less than it was before (inflation). Eventually, producers will demand more for their finite goods (i.e. food, oil, gas, etc.). Because individuals will be spending more of their income on basic needs, they will have less to buy expensive items (i.e. Orange County real estate).
If you spend more at the pump and grocery store, how easy will it be to save up for a downpayment on a $300K house?