In a recent report Chapman University’s Anderson Center for Economic Research said, “More problematic is the inventory of unsold homes. Not only are there still too many unsold housing units in the market, there are a large number of homes in the foreclosure process that will keep the supply of resale housing units at an elevated level.” They are projecting the median sales prices will remain flat.
In this same report last year, Chapman blew it and projected an increase in the median sales price. The supply problems that caused their forecast to fail in 2011 became the reasoning for a more bearish forecast in 2012. Better late than never.
In my post on January 1, 2011, Predictions for 2011, I made the following predictions:
Basically, my outlook for 2011 is unchanged from 2010. (1) Inventory will go up. (2) Properties selling at or below rental parity will be the norm. (3) Sales volumes will increase. (4) Prices in Irvine will fall 2% to 5% in 2011.
I was right on all four points, and my first point, “Inventory will go up” is precisely what Chapman failed to recognize last year.
Chapman: No home price gain for 2012
December 7th, 2011 — posted by Jeff Collins
Forecasters at Chapman University predict that Orange County home prices will stop falling in 2012.
That’s the good news, considering that home prices here have done nothing but that in 2011.
But prices won’t go up much either. In fact, they’ll be virtually flat, with no more than a 0.2% gain.
So does this mean they are calling a bottom? Or is this a chickenshit forecast which could be interpreted either way? I think it’s overly optimistic to believe prices won’t decline further, particularly since we know lenders are increasing their foreclosure. Next year’s spring rally will be greeted with an abundance of REOs. The only real question is whether or not the number of REOs pushes prices a lot lower or a little lower.
“Our forecast calls for the median selling price of a single-family unit … (to) remain flat in Orange County in 2012,” the forecast from the school’s A. Gary Anderson Center for Economic Research stated.
“More problematic is the inventory of unsold homes,” the report said further. “Not only are there still too many unsold housing units in the market, there are a large number of homes in the foreclosure process that will keep the supply of resale housing units at an elevated level.”
Of course, forecasting is a tough business. Last year, Chapman forecasters said prices would go up. They went down.
Oops. The problem with running complex econometric models and calling it forecasting is that these models all fail to account for the unusual or uncommon. We have never had a huge nationwide housing bubble before. The forecasters have never modeled what happens when banks foreclose on millions of homes.
Of course, the weaknesses of econometric modelling does not excuse forecasters for missing the obvious. The model should be a point of departure from which a good forecaster can adjust the findings based on a subjective interpretation of the unique circumstances of the day. Given the obvious problems with foreclosures and delinquencies, forecasting a drop in prices in 2011 wasn’t rocket science.
Among the highlights of this year’s housing forecast:
- The index value of an existing single-family home is expected to rise to 219.5, with 100 equal to 1990’s base value. That’s up 0.2% from 219.1 this year.
- This time last year, Chapman predicted that house prices would be up 3.3% in 2011. The university now project’s that the 2011 price will end the year down 5.1% from 2010 levels.
I predicted prices would be down between 2% and 5% in 2011. I was off by 0.1% as prices overshot my downside range.
- By comparison, California house prices are projected to drop 2.5% next year, following a 5.9% decrease estimated for 2011.
- The decrease in home sales has occurred despite historic high levels of housing affordability. A homebuyer earning the median family income in O.C. would need to spend 28.2% of his or her paycheck on housing at today’s prices. That compares to the need to spend 46.6% of the monthly earnings on housing back in 2006.
A 28.2% DTI is affordable, particularly by OC standards. If anything were to make the market strengthen next year, it is the tremendous affordability brought about by 4% interest rates.
The continued downturn in housing is putting a damper on the overall economic recovery, the forecast said.
“The sharp drop in home prices is the main culprit (for slow job growth), leading to a very weak recovery,” it said. “With high inventory of unsold homes and high commercial real estate vacancy rates, construction spending nosedived.”
The forecast also predicted that Orange County employers will hire more than 21,000 new workers next year, an improvement over 2011, but it won’t immediately turn the economy around, Register staff writer Mary Ann Milbourn reported. To read the full report on Chapman’s overall economic outlook, CLICK HERE!
Next year will be more of the same. House prices will continue to drop, particularly at the high end, and the economy will be weak, albeit improved over 2011.
This pending sale at $233/SF in Irvine represents a 35% drop from the peak. If 2006 construction starts selling for the low $200/SF, what hope does the rest of Irvine have? How is the Irvine Company supposed to get $400/SF for its new construction? What does that do to the value of older houses?
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This property is available for sale via the MLS.
Please contact Shevy Akason, #01836707
949.769.1599……
sales@ochousingnews.com…..
We're sorry, but we couldn't find MLS # S678062 in our database. This property may be a new listing or possibly taken off the market. Please check back again.
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Proprietary OC Housing News home purchase analysis 
192 GUINEVERE Irvine, CA 92620
$455,000 …….. Asking Price
$692,500 ………. Purchase Price
12/14/2006 ………. Purchase Date
($237,500) ………. Gross Gain (Loss)
($55,400) ………… Commissions and Costs at 8%
‘============================================
($292,900) ………. Net Gain (Loss)
‘============================================
-34.3% ………. Gross Percent Change
-42.3% ………. Net Percent Change
-8.4% ………… Annual Appreciation
Cost of Home Ownership
——————————————————————————
$455,000 …….. Asking Price
$15,925 ………… 3.5% Down FHA Financing
3.95% …………. Mortgage Interest Rate
30 ……………… Number of Years
$439,075 …….. Mortgage
$141,546 ………. Income Requirement
$2,084 ………… Monthly Mortgage Payment
$394 ………… Property Tax at 1.04%
$300 ………… Mello Roos & Special Taxes
$114 ………… Homeowners Insurance at 0.3%
$505 ………… Private Mortgage Insurance
$260 ………… Homeowners Association Fees
============================================
$3,657 ………. Monthly Cash Outlays
($460) ………. Tax Savings
($638) ………. Equity Hidden in Payment
$22 ………….. Lost Income to Down Payment
$77 ………….. Maintenance and Replacement Reserves
============================================
$2,657 ………. Monthly Cost of Ownership
Cash Acquisition Demands
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$6,050 ………… Furnishing and Move In at 1% + $1,500
$6,050 ………… Closing Costs at 1% + $1,500
$4,391 ………… Interest Points
$15,925 ………… Down Payment
============================================
$32,416 ………. Total Cash Costs
$40,700 ………. Emergency Cash Reserves
============================================
$73,116 ………. Total Savings Needed
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14 Responses to “Chapman: Excessive supply prevents appreciation in 2012”
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The $233/SQFT on this Woodbury property (desirable neighborhood, apparently well laid out floor plan and newer construction) is not an anomaly, but an indicator of where things are headed in Irvine. See following 2 listings (Short Sales that are Pending) which are in same/similar neighborhoods close by and are approximate same home sizes:
53 Flameco, Irvine CA 92620 (Woodbury) $242/SQFT
http://www.redfin.com/CA/Irvine/53-Flamenco-92620/home/17473957
9 Cabazon #23, Irvine CA 92602 (Northpark Square) $233/SQFT
http://www.redfin.com/CA/Irvine/9-Cabazon-92602/unit-23/home/5917641
There appears to now be more Short Sales that are going into Pending and being processed than previously. Are others also seeing this?
The banks are finally starting to clear out their shadow inventory. There is no telling how long the short sale occupants have gone without making a payment.
It will be interesting to see if the banks slow down on their REO sales and short sales as their activity impacts the market.
Headwinds for Housing
The Federal Reserve and the Federal government have attempted to boost the housing market’s demand and valuations by introducing moral hazard on a vast scale and by making it impossible for the open market to discover the price of housing, mortgages, and risk. Prudent lenders and buyers have been forced by this systemic risk to withdraw from the market, even as artificially low mortgage rates, near-zero down payments, and government-backed mortgages have created generous incentives for the most reckless buyers and lenders to take their chances. After all, if you can’t lose more than 3% by buying a spot on the real estate roulette wheel, and all mortgage losses will be made good by the taxpayers, then why not gamble?
In this manipulated market, the reckless have nothing to lose, while the prudent cannot possibly assess the real risk or price of assets and debt. The grand irony is that in attempting to “save” the housing market by suppressing mortgage rates and the market’s discovery of the price of homes, debt, and risk, the Fed has systemically crippled the housing market.
There is a subtext to the Fed’s fervent intervention in the mortgage and housing markets: By propping up housing prices, it also props up the sagging balance sheets of its favored (and politically powerful) “too big to fail” banks. From this perspective, we can see that the Fed’s public concern for employment masks its real concern, which is keeping the “too big to fail” banks from a market recognition of their insolvency.
When will the housing market “recover”? Housing can only find solid footing if the market is freed to discover the prices of property, mortgages, and risk. Until then, the market will drift along in a haze of moral hazard and official support of the imprudent and reckless.
Solid. 100% agree.
Housing prices will begin to rebound (in real terms) once the Treasury bubble (our current bubble) has burst.
As rates go higher, we will likely see a rout in the dollar, as confidence wanes in the US government’s ability to service it’s OPTION ARM T-bill debt. If the inflation we have been exporting for decades starts coming back home (repatriation), nominal house prices may start to actually rise (priced in US dollars) but will still be falling in real terms.
Search ZEROHEDGE and HYPOTHECATION and see how much crap the central banks will need to paper over to keep the house of cards glued together. MF Global is to NOW as AIG was to 2008. We are witnessing in real time the law of diminishing returns as related to debt, throwing good (er printed) money after bad.
There are slightly big problems right now and Chapman is either persuaded to ignore them or in LaLa Land. Prices going up when priced in US dollars; prices going down when priced in gold. Chapman grads are asleep at the helm; all is well in Keynesville. Shame on them for polluting the minds of our ‘educated’.
Chapman’s predictions for 2012 tell me one thing: Chapman forecasters paid too much tuition for their (lack of) education.
Job growth *Estimate **Forecast good grief. Stupidity is free, why pay a college to teach it to you?
Thanks for stopping by and commenting. I want to rekindle the conversation like we all had on the IHB.
I would like to see that rekindling and hopefully a broader audience can benefit from the knowledge. And i hope you benefit financially from it, because it is money well earned.
Shills cannot stand the test of time and blog/internet/youtube is the perfect market filtering mechanism because it is recorded and available to the masses. Those spewing BS eventually get weeded out.
This site documents and reaffirms people’s gut level feeling that realtors are generally full of it.
I urge you to read up on the zerohedge rehypothecation articles. I dont work for zerohedge, so i dont benefit from anyone else reading it, but the explanation of leverage to assets is daunting to say the least. Citizens need to know this because it affects everyone.
I agree with most of the comments on the board. In its most basic case, real estate will revert back pricing levels that are sustainable to the income that area generates based on debt/income and rental parity ratios.
I guess Chapman U. was too busy convincing rich kids to take on way too much student loan debt for a degree that won’t pay them jack. Perhaps they can work for the Bank of Mom and Dad.
If the kid can loan out Mom and Dad’s money without regard to actually getting paid back, and secure some bailout sugar, the kid could bonus himself quite handsomely.
I would like to thank the Mae’s and the Mac’s and various other guarantee stamps for making this possible on a grand scale. For without you, this scenario could never have become such a bottomless pit. Bravo!
Do you know of a way to short the student loan portfolios via CDS market without having $1M? I’ve been trying to do this for a year and have not found a way in….and the longer it goes more people will understand this bubble and the oppurtunity slips away. Would love a 100 to 1 return on a CDS.
I am sure those kids graduating with a degree in cosmetics are not going to service their debt…which in fact is another reason why housing will suffer even longer….say goodbye to debt inflation!
No clue.
Pool money? partner with someone who has more than you?
Leverage is a double edge sword, always sharper on your downside so only gamble with what you can afford. Market acting irrational longer than you can stay solvent a concern? Should counter party risk also be a concern?
I hear people in thier late 20s early 30s talking about signing up for multiple credit cards, maxing the cash advance, paying down the student debt, and defaulting on the credit cards. I’m not sure the ramifications, but do ramifications even matter to someone hopelessly in debt? This could affect your bets possibly. Either way, they will default en masse. It absolutely is part of the bond bubble.
It seems the Occupy Wall St crowd feels student debt should be forgiven. I completely disagree but that platform could be effective for buying votes.
I like Eric Sprott’s investment philosophy and allocation.
The next AIG? Zerohedge rehypothecation links:
http://www.zerohedge.com/news/why-uk-trail-mf-global-collapse-may-have-apocalyptic-consequences-eurozone-canadian-banks-jeffe
http://www.zerohedge.com/news/shadow-rehypothecation-infinte-leverage-and-why-breaking-tyrrany-ignorance-only-solution
http://www.zerohedge.com/news/denials-begin-interactive-brokers-first-claim-it-has-not-engaged-commingling-rehypothecation
John “I don’t know where the money went” Corzine is a thief and should go to jail. How can this guy be elected in the senate or govern New Jersey. Maybe he was “fist pumping” all the way to the top. Even worse, he is part of the Vampire Squid alumni (Goldman Nutsacks) who systematically along with the FED and other financial institution turned the American middle class into the American debt slavery class.
Why are people being put in jail for jaywalking, but people like Corzine and Mozilla (Countrywide) walk away? The game is rigged and everyone knows it. The great thing about the internet….looks like the middle class is waking up after decades and decades of being ass-raped by Wall Street. We need to do a Robespierre/Salem witch trials on these guys. Probably won’t happen cuz I bet they have a ton of leverage on every politician on the hill.
I’d like to know the source of Chapman’s inventory status data. While I discount most of the data in the OC Register, and even more that which is obtained from Steve Thomas, recent articles have suggested that MLS shows unsold inventory at about half of what it was at this time last year. Worse, 58% of it is ‘distressed’. Dialed down to communities; 63% of homes for sale in Ladera Ranch are ‘distressed’, a higher percentage in Portola Ranch, about the same in Mission Viejo. And 57% of “pending” (i.e. sales in escrow) are ‘distressed’. Without knowing what the pipeline still has, I submit it’s a bit too early to be calling a rebound.