Eye on "Eyeball '07"

In case you're following real estate here in Orange County, you've probably also been reading Jon Lansner's blog over at the Orange County Register and reading his "Eyeball '08" - a set of opinions about how the market will fare in 2008.

Since he also did this feature last year, we're checking up on some of the posts to see how things panned out. Below is a sampling of interesting tidbits - including some big misses and surprising hits - from Eyeball '07. To kick things off, first is Lansner's column from the December 31 newspaper that sums up some of the expert sentiment.


Will '07 housing surprise us all?
"...Almost every knowledgeable person in and around the industry whom I've talked with seems to agree on the coming year's outcome: Orange County home values will simply slip - but not tumble - in 2007. Even somewhat outside observers draw largely similar conclusions." ...

"O.C. housing circa 1997-2005 was clearly an asset that may have gotten a little too hot. In 2006, we saw the first signs of the market correcting itself: the end of double-digit appreciation, growing choices for buyers and a growing number of owners missing mortgage payments.

It's not rocket science to guess 'more of the same' for '07." ...

"Momentum and shopper psyche are weak. Some owners are in trouble, too, placing added pressure on the market. It feels like it would not take much to turn 2006's skittish housing market into a full-fledged 2007 fire sale."

Now, here's how a variety of his guests answered the question "What’s your outlook for the local housing market for 2007?" plus some interesting responses to others.

Note: For the 22 business days ending Dec. 14, 2007 (most recently reported data), the DataQuick median was down 7% from last year.

Lender/investor Bruce Norris of The Norris Group
Outlook: Orange County prices down 5 percent. ...

What might be the housing surprise we’ll be talking about a year from now?
Bruce: The greatest year-over-price year decline since the Great Depression, nationally.

Anil Puri of CSUF business school
Outlook: 3 percent to 5 percent drop in median price, monthly data, year-over year.

Reader comment on that post: "Anecdotal 10% drop doesn’t equal a 10% drop in mean. I would suggest you take advantage of those individual 10-15% drops (they’re bargains!) rather than complaining that the entire market hasn’t come down that much.

The sale is ending soon."

Consultant Walter Hahn
Outlook: A slow drift downward in terms of sales to a bottom in second half 2007. Slow recovery thereafter. Price change in 2007 of zero percent, plus or minus, based on Dataquick data.

How would you describe the risks for a huge drop?
Walter: 2 percent probability.

Talk show host Mike Roberts
Outlook:Most likely, stay close to what it has ended at this year. I see little in the way of further price declines or any real measurable appreciation. The wild card is whether or not sellers believe that the market is indeed falling and start a wave of panic selling. As you know, very little inventory is actually selling. Many people have dropped their prices up to 10 percent without getting an offer. Many of them have just taken the property off the market to wait for another day. However, if a few buyers start to actually buy some of these properties, they could set into motion a whole wave of selling. Most of those that would panic sell are investors trying to cut their losses. Unfortunately, it will still create a new set of comparable sales that everyone else will have to live with.

Pimco portfolio manager Saumil Parikh
Will loans be harder to get in 2007?
Saumil: We believe the subprime mortgage market will re-price credit risk during 2007, thereby making it more expensive and onerous for first-time homebuyers to enter the market.

What might be the housing surprise we’ll be talking about a year from now?
Saumil: The surprise will likely be that activity will not rebound meaningfully upon realization of lower mortgage rates....

Bill Plattos, executive VP at First Team Real Estate
Outlook: I think along with (ex-Fed boss Alan) Greenspan that we have hit bottom. But it does not mean we will now start back up next year at the previous pace. Rather, prices and sales will coast through 2007. We really have not seen the prices fall, such as they did from 1990 to ‘95. Nor do I expect that to happen. I think the latest (2007 price) forecasts that I have seen sound reasonable at flat to maybe minus 2 percent. I also believe that it could go up a few points, especially in pockets, because everyone is starting to become more secure where the market is going and that there is still a lot of normal pent-up demand.

What events might change your outlook, pro or con?
Bill: I do not see anything that would shake things up in O.C. I believe we will work ourselves out of Iraq as we know it now and that inflation fears are overblown.

Charles Rother of American Strategic Capital
Outlook: Orange County home prices are likely to decline 5 percent in 2007. To sell their homes, homeowners may need to price their homes 10 percent or more below the highest price ever paid for a similar property on their street.

How would you describe the risks for a huge drop?
Charles: For 2007, there is a 26 percent probability that Orange County home prices will decline more than 7 percent, and an 11 percent probability that prices will drop more than 10 percent.

UCLA economists
Outlook: "From 1990 to 1995, the median sales price of an O.C. home fell 9 percent. We don’t see anything like a 4.5 percentage point jump in unemployment in the next year or two in O.C., so I think that 9 percent drop over five years is the worst case scenario — worse than anything we’re likely to see given the current economy. Without any recession-sized job loss in O.C., we expect more of what we’ve already seen in 2006: flat prices and falling sales. ... Nationally, I expect low levels of sales of both existing and new homes, aggressive pricing of new homes (e.g., a 10 percent decline in price), but very little erosion (2-5 percent) of sales prices of existing homes."

Real estate broker Gary Watts
Outlook: Both sales and prices will be up from 2006. Sales should rise to our 10-
year average of 40,100, which puts sales up 10 percent, and prices should rise 7 percent for homes and the 4 percent-5 percent range for condos.

So inventory will be … ?
Gary: Our housing supply (inventory) should average three to four months this year. (That’s homes for sale divided by the sales pace.)
Note: Inventory now in January 2008 is double what it was last year - 14 months worth

Veronica Hicks of Condos Etc.
Condo market outlook: I still believe there is some instability in the condo market, particularly for first-time homebuyers....

CAR VP and chief economist Leslie Appleton-Young
Outlook: Sales statewide will be down about 24 percent in 2006 and another 7 percent in 2007. Orange County will see slightly larger declines because the run-up in sales activity was initially stronger than the state as a whole and the median home price in Orange County at $699,200 is well about the statewide median of $555,290. Affordability issues also will work to constrain sales activity in 2007. We are projecting a 2 percent decline in the statewide median price (this) year as the market continues to normalize. Orange County prices may be slightly softer because the inventory of unsold homes for sale is higher in Orange County than in many other parts of the state.