KPCC business analyst Mark Lacter talks about how the housing market is looking like this year.
Steve Julian: On Tuesdays we talk about the latest business stories with Mark Lacter. Mark, is there any sign that buyers and sellers are getting back in the housing market?
Mark Lacter: You want the truth Steve?
Julian: I think I can handle the truth…
Lacter: Well, I hope so because January, which is always a slow month, was especially slow in many parts of Southern California. You can really see what's happening - or frankly what's not happening - by looking at prices over the last several years. The median prices in California peaked in May 2007 at around $595,000 - that's according to the California Association of Realtors (it’s pretty amazing looking back)- and then they began falling steadily. They reached a bottom of $245,000 in February 2009 (that's a drop of almost 60 percent - 6-0). As of January, they were back up, but only to $579,000, and economists aren't expecting 2011 to be all that great - projections are that prices will increase about 2 percent.
Julian: Real estate, though, isn't something that turns on a dime.
Lacter: True, it is notoriously slow to recover from bad recessions; back in the 1990s, it took five to seven years for the market to get back on its feet. Also keep in mind that housing markets can vary quite a bit, depending on what part of the state you're in. But regardless of location, it's pretty clear that the recovery is making only limited headway - and it's the result of several factors: The continued difficulty in getting credit, the fact that foreclosures remain a big part of the overall market (that brings down prices and discourages potential sellers), and also the large number of people still out of work. And there's one more inhibitor: No special tax credits from the government (you certainly don't hear any talk in Congress about reviving the tax credit program for home buyers). They're pretty much on their own.
Julian: Will 2011 be another big year foreclosure year?
Lacter: Most likely yes, although so far it seems as if the banks are still holding back from actually foreclosing on all the properties that they have in the queue. Part of this involves politics - the government is trying to put all kinds of pressure on the banks to institute loan modification programs (many of which don't work very well); part of it is economic - dumping large numbers of properties on the market in a relatively short time frame would depress prices in a big way; and part of it is the continued problems in processing all the required paperwork.
Julian: There was a moratorium late last year...
Lacter: Right, this was in connection with a scandal involving the way paperwork was being prepared. This year, the research firm RealtyTrac expects a 20 percent increase from last year. But it all depends on how quickly the lenders are able or willing to sort through this stuff. By the way, most of the loans going into default were originated between 2005 and 2007, which is when many lenders were offering crazy-low mortgage deals.
Julian: Are homeowners in California still falling behind on their mortgages like they were a year ago?
Lacter: No - and that's the good news. There were fewer California homeowners falling behind on their mortgage payments in the last three months of last year, which is a sign that once the logjam of current foreclosure filings finally gets resolved, the housing market will start to stabilize. But that could take at least another couple of years, and even then the operative word is "stabilize." Price appreciation - remember that phrase? - that's going to be a long, tough haul.
Julian: Mark Lacter is a contributing writer for Los Angeles Magazine and writes the business blog at LA Observed.com.