OC RE market: Close to the bottom?

A recent post appeared on ocrealestateblog.com with the title "Signs that the Orange County Real Estate Market may be close to the Bottom" Here's a link to that entry.

The prognostication has probably taken a credibility hit considering on the front page of today's OC Register it mentions how CAR economists are predicting 2008 could be the worst housing market in 25 years...precisely the same time this blog is saying the market could be already back on the way to recovery.

Here are the blog post's main points: "Tell-tale sign number one...the subprime lending debacle. A dismal milestone may soon move into the...rear view mirror. Homeowners owing a total of $31.8 billion in subprime adjustable-rate mortgages began paying higher interest rates (in) September...That is the highest amount of subprime ARM's due to reset over a one-month period in this housing cycle."

This "rear view mirror" idea is slightly contradicted by the later assertion that "there will be a delayed affect of anywhere from 6 to 12 months..." (should be EFFECT). This seems to argue that even if the worst is truly behind us, we won't even begin to feel the impact for at least another six months.

My question is: Since we're already looking at record numbers of foreclosures, how much worse is it going to be once this huge wave finally makes its presence felt?

It also fails to mention that, assuming the info is correct and September has more subprime ARMs resetting than any other month, September is surrounded by many other months with significant amounts of resets. So, even if September represents the biggest bump, it is surrounded (before and after) by other pretty large bumps as well. Click on the chart above to see more.

More info from the Register: A staggering 40.3% of first-time buyers in the state put $0 down on their house purchase in 2006. This number decreased to 29.4% in 2007. Also, 10.2% of repeat buyers didn't put anything down this year, compared to 11.3% in 2006.

Back to the blog..."The other tell-tale sign, is the very low rate of sales as compared to history. Current sales volume is a bit lower then it was back in 1995 when the real estate market hit bottom...Given that Orange County now has considerable higher population and a greater number of homes then it did in 1995, one would have to conclude that today's low sales numbers can't last much longer and will gradually return to more normal levels."

The logic is very fuzzy here, because I'm not sure why it's relevant to compare now to the bottom of the last market in 1995 and conclude that since the sales figrues are similar, we will soon rebound. What it actually shows is just how bad things are now - even though there are a record number of people and houses here, the rate of sales is still suffering. It also doesn't mention that the recent real estate boom was many times more significant than others in the past. Therefore, it would be unproductive to assume that this one will bottom out and rebound in such a short amount of time just because such poor performance "can't last much longer." Unfortunately, it can, and some would argue that it will last much longer.

Commentor bassist provided a good response to the post. Here is a snippet of it: "...No one has a crystal ball to tell the direction of the market at this time, but chances are high that it could get worse. Keep in mind houses are still relatively very expensive and unaffordable to the typical buyer, so prices must drop before we start seeing a recovery. You already know lending standards are now very tight, and it's taking longer and longer to sell a home as very few qualify for mortgages...We're only at the beginning...This whole thing may not hit bottom until 2010 or beyohnd and deep down, like with previous housing downturns, you know it!"

Our take on that blog in general: There's some good info here, but unfortunately they're saddled with the ominous perception-perceived-as-reality issue: If you're not buying or selling real estate, they're not making money. Therefore, they have a financial stake in local real estate and theoretically would want people to perceive it as a good time to jump into the market. Even if their analysis is as fair and balanced as possible and is actually without agenda, some people are going to inevitably assume they have one anyway. Tough situation.

UPDATE: Stick a fork in this argument. The CAR just said that a housing recovery could be as much as three years away.