The World's Most Dangerous Profession

The World’s Most Dangerous Profession If you think dismantling bombs for an Explosive Ordnance Disposal group is a scary profession, I found one that’s even more dangerous: Predicting the future. The difference is that with EOD you aren’t allowed any mistakes. When predicting the future, almost no one ever gets it right.

My favorite expression about this is: There are only two types of people who predict the future: Those who are wrong, and those who do not know that they are wrong.

Nonetheless, everyone in Orange County, whether they own their homes free-and-clear or are under water everyone is interested both in what is happening to home values and the prognosis for recovery.

There is mixed news on the national and state scene. Home sales increased in July. In the case of newly constructed homes the Census Bureau reported an increase of 9.6% from June although the seasonally adjusted annual rate was only 433,000. The figures for the West are better too, but still anemic from an historical perspective. One large, national home builder announced that they had stopped lowering prices and were raising prices on some projects.

In Orange County, however, the OC Register reported that sales of new homes in late July and early August were only 121 homes, off 17% from a year ago. However, those 121 homes represent only 4% of transactions so the new home market is practically at a standstill. Statewide, over 200,000 new homes were sold in 2004 whereas this year the total is likely to be only about 24,000, a decline of almost 90%.

The news for sales of existing or re-sale homes was much better. According to the National Association of Realtors sales were higher nationally by 7.6% over June and 5% higher than in 2008. In Southern California, sales in July were up 18.8%, in line with the statewide numbers.

In Orange County sales of existing homes in the most recent reporting period were almost 3,000 units, a gain of 10%. Prices continued soft overall but 20 ZIP codes showed price improvements.

A friend of mine who monitors foreclosure sales at the Courthouse steps reports brisk sales. These are not normal sales and many of these investors are “flipping” the properties, fixing them up and putting them back on the market. It’s what I would call foreclosure recycling.

We are also seeing more activity among first-time homebuyers. Many of these people have been on the sidelines and are coming back into the market, lured by a combination of lower prices, low interest rates, and the $8,000 tax credit. Clients of mine were recently out bid on a property where the price attracted other competing offers. I hear many stories of multiple bidders in the lower end of the market.

Activity in the higher end of the market is showing some signs of life as well. In the seven ZIP Codes with average prices over $1,000,000, all showed double digit increases although the total number of houses sold in those ZIP Codes was only 126.

This news is largely positive and suggests that we are at or near the bottom in the housing market. But there are still some storm clouds on the horizon. Foreclosures and short-sales comprise a sizeable segment of the market, and there’s more. Two other negative aspects are exceedingly difficult to track but they represent additional supply of future distressed listings.

The first is the number of homes that are in some state of forbearance by lenders. The loans may technically be in a state of default but the lenders have stopped the foreclosure process. In a related group are homes that have been foreclosed upon, are owned by lenders, but haven’t been put on the market. From a lender’s standpoint, I can understand this. If they have 50 foreclosed homes on the market in an area and have another 50 in inventory they may be saying, “Wait until some of those first 50 sell before we put any more on the market.”

So now we get to predicting. I believe that housing market is related to job formation. Orange County has lost 100,000 jobs, 20,000 of which were in real estate and finance. We have a much better economy than most areas and I think we will recover faster than the rest of the state or the nation. I also think there is good pent up demand for housing in the County. We still have the foreclosures to work through but I’m glad to be here rather than Las Vegas.

Finally, it is amazing how the media fails to emphasize good news. If our Gross Domestic Product increased from 2% to 5.6%, the media would be going crazy. As announced today August 28th, the GDP has improved from a negative 4.6% in the first quarter to a negative 1% in the 2nd Quarter. That is great news but no one seems to have noticed. I did and it made me feel better. I hope it makes you feel better too.

 

Randy Johnson is a shareholder of Plaza Bank. A 29 year veteran of the mortgage industry, he is President of Independence Mortgage Co. in Newport Beach. He is the author of several books and serves as the Mortgage Guru for credit.com