L.A./Ventura Update & Forecast

According to the latest data from Hanley Wood (and included in my presentation at the BIS '09 "Town Square", which you can find here), new home sales in the L.A/Ventura region are definitely seeming to stabilize, rising by 1.3% between Jan-Sep 2008 and the same period of 2009. For September alone, net sales rose by nearly 19% over the same time of 2008, although that bump could also be due to buyers trying to nab tax credits they thought were expiring at the end of November.

Buyers today are also more serious, as evidenced by the sharp drop in cancellation rates to the low double digits versus 26% in Sep. of 2008 and just 9% for the first 9 months of 2009.

Overall new home prices continue to drop, with a median of $421,000 in Sep. 2009, or $332 per square foot. For single-family homes alone, however, prices actually rose by 15% to $614,000 during Sept. 2009, although YTD they're still down by nearly 11% to the low $400,000s.

Although total new home inventory -- those units currently available for sale as well as those planned in future phases -- would still take 3 years to absorb at current sales rates, completed inventory, although rising by 18% over the past year, stands at just 6.51 months, which is very close to market equilibrium.

For more information on current conditions for other counties of Southern California, click here for the entire presentation. A summary table is included below:

Category	9/09	% YOY	2009 YTD	% YOY
Net Sales	282	18.5%	3,362	1.3%
Absorption	1.44	46.3%	1.77	22.4%
Can. Rate	11.3%	D-26.1%	9.0%	D-20.9%
Median Price	$421k	-6.8%	$420k	-10.7%
SFD Price	$614k	14.9%	$423k	-10.7%
Median $/SF	$332	22.8%	$320	11.9%
SFD $/SF	$234	12.2%	$178	-12.4%
Inventory	10,212	-20%	-	-
Months Inv.	36.21	D-53.60	-	-
Standing Inv.	1,836	17.8%	-	-
Months SI	6.51	D-6.55	-	-

Looking ahead to 2010 and according to the LAEDC, although population in L.A. County will continue to increase given its enormous base, the employment picture is a bit different. During 2009 the county will lose 4.1% of its non-farm jobs base, and although the pain will continue in 2010, it will be half as bad, or 2.0%. This, of course, will continue to be a drag on housing demand until at least 2012 as the unemployment rate rises to approach 13% in 2010.

Inflation, which is now under control due to temporary deflationary influences in the marketplace, will re-emerge to 1.6% in 2010 but certainly be kept under control by stagnant demand for all but the necessities of life.

Housing permits are estimated to total 6,465 units in 2009 and rise slightly to 6,855 in 2010, but the commercial sector will be under great pressure, with non-residential permits falling below $2.4 billion.

According to projections I just completed for Hanley Wood's latest LA/Ventura Market Monitor, annual new home sales will total 4,000 units in 2009 and rise by about 15% in 2010 to 4,500 homes. Prices, which seem to have bottomed out this year, will end at $420,000 and rise by 5% next year to $440,000. See table below for summaries on these forecasts, and for the complete presentation, click here.

Category	2009	2010
Population	0.8%	0.7%
Non-Farm Employment	3,902m	3,823m
Annual Change NFE	-4.1%	-2.0%
Unemployment Rate	11.7%	12.8%
Personal Income	-1.6%	1.0%
CPI Change	-0.7%	1.6%
Housing Permits	6,465	6,855
Non-Res. Permits	$2,470m	$2,370m
Ann. New Home Sales	4,000	4,600
New SF Home Price	$420k	$440k

IBS Economic Forecast calls for difficult 2009

Reporting from the International Builders Show in Las Vegas - I attended the IBS Economic Forecast yesterday, and David Crowe, Chief Economist for the NAHB, as well as economists from Freddie Mac and PMI, are predicting a difficult 2009 as 1.5 unsold units (many of which are resales and not new homes) will take time to absorb. From a BuilderOnline story:

A subdued group of economists speaking at the International Builders’ Show in Las Vegas this morning agreed on one thing: the housing market will weaken still more in 2009.

“My forecast is built upon an imbalance of supply and demand,” said David Crowe, chief economist at the NAHB, who estimates the country currently has more than 1.5 million existing and new homes available for sale or for rent that no one wants or can afford to buy.

Frank Nothaft, chief economist at Freddie Mac, and David Berson, chief economist at The PMI Group, also spoke during the morning press conference.

Such excess inventory—the result of foreclosures and other factors--is hammering builders in specific and the housing market in general as home values slide. (Overbuilding by new-home builders is not a factor in this excess supply, according to Crowe, who said that less than one-third of those 1.5 million excess homes are new. “What builders are facing is an oversupply of homes not entirely of their making,” he said.)

Regardless of the reason, home prices are expected to weaken still more, particularly in major metropolitan areas, according to Berson, who suggested it may take two to three years for the housing market to stabilize. According to a proprietary index developed by PMI, 97 percent of the nation’s metropolitan statistical areas (MSAs) are at risk of having lower home prices in two years than they did in late 2008. For some of the most troubled markets—Riverside-San Bernardino, Calif., and many in Florida—the likelihood of having lower home prices is more than 99 percent.

Click here for full story.

Optimistic economists?

Even though we are clearly now in the worst recession since the 1930s, economists surveyed by Blue Chip Economic Indicators -- such as those working for investment banks, trade association and large companies -- are now viewing 2009 with some optimism and declaring the worst to be behind us. From a New York Times story:

If the dominoes fall the right way, the economy should bottom out and start growing again in small steps by July, according to the December survey of 50 professional forecasters by Blue Chip Economic Indicators. Investors seemed to be in a similarly optimistic mood on Friday, bidding up stocks by about 3 percent. But in the absence of that government stimulus, the grim economic headlines of 2008 will probably continue for some time, these forecasters acknowledge...

Even if the economy begins to right itself by this summer, the recession would still be the longest since the 1930s, which was the last time the government engaged in widespread public spending to overcome the persistent inertia in consumer and business spending...

Still, it's important to remember that most of these economic forecasts are based on computer models -- the same kind that completely missed the misery of 2008. That's because although economics is based on numbers -- and therefore lends itself to mathematical formulas -- since it's really a study of human behavior, such models can easily miss swift changes in consumer sentiment and other factors.

Click here for full story.