UCI economist eyes housing recovery in 2011 or later

January 3rd, 2009, 10:00 am · 38 Comments · posted by Jon Lansner

Welcome to Eyeball 2009! This is our holiday gift to you: A 19-part series of local real estate conditions! A new vision every day of the week at noon through Jan. 6! Our 16th guest is …

Kerry Vandell is UC Irvine’s Merage School Business’ director of its Center for Real Estate. He came to UCI two years ago from the University of Wisconsin’s real estate program and got his PhD from the MIT-Harvard Joint Center for Urban Studies.

Eyeball: What’s the O.C. housing outlook for 2009?

Kerry: I believe prices will start to feel bottom beginning in mid-to-late 2009. It will be a soft bottom for some time to come, however. My guess is that it will be another 2 to 3 years before we start to see clear recovery after we hit bottom. The bottom will depend greatly on the state of the capital markets. The banks need to begin lending again, especially in the “jumbo” sector of the market, and a secondary market needs to re-form. At first, underwriting will be very conservative, with low payment-to-income ratios and high downpayments required.

[ More Eyeball '09 HERE | Eyeball '08 | '07 ]

Eyeball: What do you fear the most about the real estate market?

• Click to vote on '09 pricing!

Kerry: “Wrong-headed” government intervention programs that in an attempt to keep people in homes and reduce foreclosures will re-create the previous problem environment by making too-cheap money available to households who cannot support the loan amount or are deep underwater in terms of equity, thus merely forestalling the inevitable ultimate default.

Eyeball: What gives you hope?

Kerry: The aggressive stance taken by the Fed, the current Administration, and the incoming Obama Administration in recognizing the seriousness of the problem and the potential for worldwide financial system meltdown. Those who have failed to support such efforts are either completely out of touch with the ways of the marketplace; or are so ideologically hidebound that they are willing to sacrifice the economy to maintain their ideological “purity.”

Eyeball: What surprise or surprises will we be talking about a year from now?

Kerry: If I were able to predict, it would not be a “surprise” by definition. However, my guess is that the changes in priorities and “world view” of the new Administration will have begun to take hold among the American citizenry, and in fact internationally. This new set of consumer values and attitudes will begin to usher in a new plane of growth in a new direction under a new set of perceived rules about what creates a healthy economy.

And you’ll want to come back …

NEXT UP: Realtor Steve Thomas
THEN: Lender Norm Bour
All of Eyeball 2009 to published date is HERE

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T.O. Jason says:

January 3, 2009 at 11 am

This guy makes good sense, but it’s hard for me to see even a soft bottom in 6-9 months. Many would-be sellers still are pricing their homes above what they paid in 2005 and 2006. Even homes selling at lower prices are being bought only with government-backed mortgages, and those loans are probably being underwritten with an eye towards propping up the housing market, rather than with good financial sense.

republicans are TRAITORS says:

Republicans are TRAITORS eyes housing recovery in 2009 or later.

Eyeball: What’s the O.C. housing outlook for 2009?
A: Home prices might bottom, stay the same, go down or recover.

Eyeball: What do you fear the most about the real estate market?
A: The largest bailout fraud in world history won’t be able to bailout the largest housing ponzi scheme ever created.

Eyeball: What gives you hope?
A: Obama. He has dreamy eyes and his bailout fruad is going to make the republican bailout scam look like chump change.

Eyeball: What surprise or surprises will we be talking about a year from now?
A: Nothing surprises me because I’m a college professor. But the new “world View” will be that the American Citizenry accepted socialism as the best form of economic system. We happily hand over our wages to the ultra rich because they are the smartest people in the world and no one would have a job if it wasn’t for their benevolence.

How come it’s so hard to post on this da#@ website?

rants says:

OMG another clueless academic- why do I say that- simple
just read what this guy says in response to the questions

what do you fear most–

wrong headed government intervention programs….

what gives you hope–

the agressive stance taken by the fed- the current administration
and the incoming ……

HELLOOOO first he says he fears wrong headed govt intervention
programs- then he turns right around and says the fed and current
and future administrations will solve the problems with their
aggressive action because they “understand” the severity of the
problems

blogger why did you not question the obvious contradiction?????
that is without doubt the most absurd statement I have ever read
on this blog — flabberghasting

Whatflavorisyourkoolaid says:

What a waste of fonts.

rants –

I don’t see any contradiction.

On the one hand, there is government intervention to maintain a functioning banking system and prevent a chain reaction of financial firm failures.

Then, there are the proposals that would rewrite the terms of individual borrowers’ mortgages, subsidize interest rates, and generally attempt to keep people in homes they can’t afford and never will be able to.

This guy favors the first and is opposed to the second, which seems to be a valid point of view to me. Stabilizing the banking system can be done without propping up that subset of homeowners who are in trouble. Trying to keep those people in their houses can’t possibly work in the long run, will not stop downward pressure on prices, and would be a huge slap in the face to those who are financially responsible. You can’t legislate prosperity.

dafox says:

January 3, 2009 at 12 pm

# NEXT UP: Realtor Steve Thomas

oh my…

I have a question about banks lending.. Mr VAndell says: “The banks need to begin lending again, especially in the “jumbo” sector of the market, and a secondary market needs to re-form. At first, underwriting will be very conservative, with low payment-to-income ratios and high downpayments required.”

Umm, arent we merely returning to profitable lending standards? The same standards that were around for ~50yrs before we threw them out the window circa ~Y2K?
Are banks not lending to fully qualified people? I mean, someone who qualifies at a 36% DTI for a 650k loan w/ 750+ FICO - thats a jumbo, but they’re also making some serious cash and a worthy borrower. Or are they just not lending to the lax ’standards’ we had for the past ~decade?

samson says:

I think this guy is making a lot of sense. From what I gather he is stating that the bottom will come sometime in mid to lat 09. From there it should be flat for 2 years. What that tells me is the price that homes are selling for in 6 months will set the bar. Those that think their home is worth more will have to lower their price and sell at the recent comps. In some senses, this may still lower the median, but it will likely not decline in huge percentages following the end of 09.

I agree with Jason, I think he is saying that going too far can be a mistake…but it was important for the government to step in and do something. Allowing a 100% free market may have lead to a true depression…the main purpose of the “bailouts” was to prevent this. His hopes is that the financial institutions do the right thing and eventually loosen up lending enough to allow those that can afford to buy to be able to do so. At the same time, banks must not go back to the easy money days of the past.

In his final statement I believe he was alluding to changes in consumer attitude in the US and the world. His hope is that with the new administration, people will begin to learn to spend within their means, and only buy what they can actually afford….and being more responsible. I agree with this, but very lofty hopes to say the least.

NationalBubble.com says:

# dafox Says: NEXT UP: Realtor Steve Thomas”

Let me guess, Steve Thomas is going to say that the real estate market is going to go up double digits every year from now on.

There should be laws against people who profit from the housing market (like Steve Thomas) and give opinions and try to get the general public to buy houses when unemployment is going up. Very irresponsible.

read karl denningers market ticker website everyday- he expalins
in easy to understand - logical reasoning why we are in this mess
and why the government is going to compound the problem by
continuing to create more and more debt on top of the debt we
already have.. their “solution” is the equivalent to a doctor telling
his alcoholic patient to drink whiskey instead of beer

http://market-ticker.denninger.net/archives/P1.html

Enlightenment says:

Don’t Buy Stuff You Can’t Afford:
- http://www.hulu.com/watch/1389/saturday-night-live-dont-buy-stuff
- http://consumerist.com/consumer/clips/snl-skit-dont-buy-stuff-you-cant-afford-252491.php

jim says:

da fox da fox da fox, lenders are an extension of the politically correct culture. They lend to anyone the government deems worthy. This means illegals, so called refugees and any other person scamming under the rules of political correctness. We all pay for this mental disorder. When the new administration enters it will only accelerate at warp speed.

I am glad to see O.C. Register asking someone with a College PHD, instead of the usual flunky realtor.

Tom M says:

January 3, 2009 at 1 pm

I’m waiting for tomorrow’s eyeball 2009 with Steve Thomas. On the question “Eyeball: What surprise or surprises will we be talking about a year from now?” I know he going to say the surprise will be how much sales and prices bounced back.

The guy is worse than an 8 track tape. He always says the same thing.

Joe Shmoe says:

Post of the week–”I am glad to see O.C. Register asking someone with a College PHD, instead of the usual flunky realtor.”

FastNCrazy says:

OC home prices will average $250,000 by end of ‘09.

Real Estate agents only mission is commission, nothing else, the same goes for mortgage brokers. During the top of the market, Real Estate agents said “buy now, the prices will continue to go up, ” again, all they’re concerned with is their commission, that’s it. I can’t believe how may people bought at the top. I guess people will never learn.

VoiceofReason says:

January 3, 2009 at 3 pm

Par for sir-rants-a-lot. He calls a guy with a PhD in urban studies from MIT-Harvard clueless. But, by all means listen to a serial blog spammer and his fellow angry guys in bad shirts blogging from their mothers basement. HAHAHAHAHAHA.

pdu says:

January 3, 2009 at 5 pm

A two year resident of OC with a background in Wisconsin real estate and an MIT-Harvard “Urban Studies” degree qualifies this guy for commenting on the future of the OC real estate market in exactly what way?
Education is a fine thing, but so is experience and a track record.

Rants was calling it correctly before this guy hit town.

Give it up VOR. The government won’t save your sorry a$$ and striking out at those who were right, while you denied it all, only makes you more tiresome as time goes on.

A background in Wisconsin real estate and an MIT-Harvard “Urban Studies” degree qualifies this guy for commenting on the future of the OC real estate market in exactly what way?
Education is a fine thing, but so is experience and a track record.

Vandell has been in OC for 2 years - Rants was calling it correctly before this guy hit town.

Give it up VOR. The government won’t save you and striking out at those who were right, while you denied it all, only makes you more tiresome as time goes on.

Shane says:

Rants,

Don’t you have a life? Everytime somebody is interviewed, you have to post 10 times saying the same old things! Okay we get it. Market is going down another 75% and will recover in 25 years. What do you do anyways? Do you work? If not, I have a job for you. Stop posting here rants or rats! people are about to throw up reading that name “rats”

Bogey says:

Shane,

Don’t you have a life? Everytime Rants posts anything, you have to post 10 times saying the same ol things Okay, we get it. Your life is trolling Rants around on an RE blog.

Price of Bad Tidings says:

Shane:

“What do you do anyways? Do you work? If not, I have a job for you. Stop posting here rants or rats! people are about to throw up reading that name ‘rats’”

Do you see the irony of your post? If Rants elicits a response, he’s doing an effective job.

January 3, 2009 at 6 pm

hey shane- lansner pays me to piss you off- I
must say– I’ve earned my money- llooll @ribsplitter
phd in urban studies? sounds like a waste of
tuition money to me get a real job there mr urban studies-
by the way all the morons that didnt see this train wreck-
even as it was staring them in the face- like bernanke
and “hank” paulson- have degrees from ivy league schools-
I can sum them up with one word– OVERRATED- if theyre so
damn smart why is our economy sinking faster than the
titanic? shane/ken just loves listening to overrated beauracrats
who arent any smarter than he is lloolll@ribsplitter

January 3, 2009 at 7 pm

heres a wall street journal article on japans lost decade-
we are about to perform the perfect copy cat version- with
a few stark differences- 1) our citizens are in debt aka
have no personal savings- their citizens have actually
saved money–2) our nation -unlike japan-
has a trade deficit of over 600 billion dollars- hey barak
you speak japanese? me so sorry

http://online.wsj.com/article/SB122938932478509075.html

OMG more great news for shane- our deficit- that means we
spent more than we made- this year will be 2 trillion dollars-
the question that keeps coming up is– how are we gonna pay for that-
when are those kind foreigners gonna say enuf is enuf when it
comes to lending us more money? or are we gonna saddle our children with the bill? or will we just continue printing funny money out of thin air and reap the eventual inflation that will ruin our very currency? hey shane maybe you in all your infinite wisdom can answer those questions– go ahead were waiting…..

http://www.washingtonpost.com/wp-dyn/content/article/2009/01/02/AR2009010202322.html

Bill says:

January 3, 2009 at 8 pm

VoiceofReason, Shane, Helen Highwater,

You must be getting stressed because your multiples are starting to come out.

Yet you have every right to be stressed out because as you know, we are headed for another depression in the near future as the video below describes.

“Another depression in the near future”

http://finance.yahoo.com/video/time

Home prices will continue their decline as the public’s wealth continues to evaporate.

These posts by me are meant to raise awareness about what is really going on nowadays and what I believe lies ahead.

Mike Hawk says:

January 3, 2009 at 9 pm

Soft bottom after a fat (other word for) donkey of a spiraling housing price crash that impacts at the top a mountain and rolls downhill.

Next up… Live from New York it’s…. Steve Thomas.

Shane=Shlame
Helen Highwater= Hellin Highwaiter
VoiceofReason= VoiceofCheeseone
Remember if you can’t beat em’ you can join em
(us the bubble believers)

Post of the week considerations please!

bloodinthestreets says:

Kerry: “I believe prices will start to feel bottom beginning in mid-to-late 2009.”

Blood: “I believe Kerry will start to look at adjusting his bottom-call timing in mid-to-late 2009” *

Kerry: “Those who have failed to support [plans from fed, Paulson, PEBO, and . . . really the plans from anyone who stands authoritatively in front of a microphone with a flag pin on their tie] are either completely out of touch with the ways of the marketplace; or are so ideologically hidebound that they are willing to sacrifice the economy to maintain their ideological “purity.” “

Thanks Lansner - I’ll add this name to the long list of RE hacks that aren’t capable of identifying realistic scenarios. This one at least has a fresh new ploy: reprimanding those not willing to say “sh’yeah, that might work, let’s do it!” to every ‘plan’ offered by government. For example:

“Raise sales taxes to keep CA government bodies solvent ! (because NOTHING stimulates economies better than a tax hike!)”

Everyone, lets have a warm ‘sig heil’ to this popular chant:
“We will work to strengthen housing prices, and will force banks to rework utterly non-sense loans in order to stem foreclosures”

* The blood-letting that happens in the next 4 months in particular will “shock and awe” guys like this who apparently don’t understand BASIC public-sentiment driven economic behavior (specifically: he can’t seem to understand how it is that a public-sentiment driven super-bubble will inevitably be followed by an equally impressive period of public-sentiment driven economic meltdown).

RE Samson: “ begin to learn to spend within their means, and only buy what they can actually afford “

In my humble opinion, your statement describes, in plain terms, a huge part of the reason that we will inevitably have this ‘reset’ (extended recession), as people “begin to learn to spend within their means (because their bank account is empty, and their cards no longer ’swipe’), and only buy what they can actually afford”. Do not forget that this time coincides with a period where people pay down colossal personal and government debt.

January 3, 2009 at 10 pm

Interesting new story from Toscano:

Fed to purchase $500 billion worth of mortgage-backed securities by mid-2009

http://www.voiceofsandiego.org/toscano/

Dave says:

January 4, 2009 at 12 am

My predictions are here
http://case-shiller.blogspot.com/2009/01/extrapolation-and-prediction.html

If REAL prices fall to the previous trough which they should, then Case-Shiller index will fall 47% from the peak and bottom in 2013. This would wipe out about $9T of household wealth. It will be the end of 2010 before we start seeing prices flatten.

Brain says:

# Bill Says:
January 3rd, 2009 at 8:39 pm

“VoiceofReason, Shane, Helen Highwater,

You must be getting stressed because your multiples are starting to come out.”

Bill, remember Shane has been proven to use multiples. Remember this post?

# Sean Says:
December 7th, 2008 at 8:14 pm

“It looks like I rattled some day dreamers who expect to buy a home with their $10 an hour wages in California! Don’t be so pissed off. I hope the home prices drop down to 1972 levels so you can buy your one bedroom condos and get on with your lives. Cheers!”

# Shane Says:
December 7th, 2008 at 8:17 pm

My response:
OK so we know the “what.” I’m curious about the “how.” I’ll take a stab at this one:
(1) Change name and attempt to post
(2) Post seems to fail
(3) Refresh page
(4) Re-paste comment
(5) Forget to check which alias (of many) got auto-completed by browser
(6) Original post doesn’t actually fail. Revelations ensue.

Linky: http://lansner.freedomblogging.com/2008/12/06/oc-housing-will-level-off-in-2010-insider-qa-told/8580/

Snacker says:

January 4, 2009 at 1 am

Agree with some of his principles, but not the idea that we need to support the massive spending this government plans to make.

What is the reasoning and logic behind this $1 trillion of spending that we don’t have?

The theory behind this is that this is what got us out of the Great Depression. We have put our entire future in the hands of the ideas of one man, John Keynes, a guy from Britain who believed that you should spend your way out of a depressive cycle.

This is not what helped us get out of the Great Depression; what helped us was the 2nd World War.

Japan tested this theory in the 90s and guess what? It failed pretty miserably.

You know why Bernanke thinks Japan’s plan didn’t work? Because they didn’t act fast enough or strong enough to combat the problem.

The idea that we can control the economy is dangerous and will cause current and future ramifications. Time will tell what the consequences are. 2009 will be an interesting year.

Brain,

Give your brain a break! You’re going to burn it out!

ozajh says:

January 4, 2009 at 3 am

Mr Vandell makes a good point in passing about Jumbo lending, or the lack and/or expense thereof.

I wonder if one feature of 2009 in areas like Irvine will be the cramdown (short sales?, foreclosure sales?) of homes CURRENTLY valued at $5-600K to meet the non-jumbo limit.

Buy Houses Now! says:

January 4, 2009 at 8 am

This guy’s reasoning is no better than a Realtor’s. He justifies his forecast with “the Fed is being aggressive” [and have been so for more than a year with zero effect], the current and future administrations “take it seriously”, and anybody who disagrees is an “ideological purist”.

Curiously, “ideological purist” fits the Keynesian economist who clings to the “government stimulus spending will save us” faith after so many spectacular failures from the 1930s, to the 1970s, to 1990s Japan, to today.

netteligent says:

“Existing-Home Sales to Trend Up in 2008″ —Headline of a National Association of Realtors press release, Dec. 9, 2007
On Dec. 23, 2008, the group said November sales were running at an annual rate of 4.5 million—down 11% from a year earlier—in the worst housing slump since the Depression.
“I’m not an economist but I do believe that we’re growing.” —President George W. Bush, in a July 15, 2008 press conference

k.o. says:

January 6, 2009 at 9 am

Awesome post!

Slice	Price	Ch.	Sold	Ch.
House	$495,000	+4%	1,841	+3%
Condo	$304,000	+3%	845	+8%
New	$500,000	+4%	150	-26%
All OC	$430,000	+2%	2,836	+2%

Orange County Register