My interview with Jon Lansner of the OC Register now online

On Monday I was interviewed by Jon Lansner with the Orange County Register, who runs the "Lansner on Real Estate" blog and has recently added BlogTalkRadio.com podcasts to his site.

We mostly discussed what builders are doing today to cope with the housing market, the fact that cheaper will land will eventually lead to more affordable new housing, and when we can expect a rebound to a more normalized market.

You can listen to that interview here.

Home prices still declining but flattening out?

The latest S&P/Case-Shiller numbers are out, and the news remains bad, with declines of over 40% since the market peaked in several metropolitan areas. But in some markets, the rate of decline is starting to flatten out. First, from an L.A. Times story:

The S&P/Case-Shiller index of 20 U.S. metropolitan areas was down 19% in January from the same month a year ago, the largest decline for that month on record.

Every one of the 20 metropolitan areas in the index showed a price decline in January from a year ago. Since peaking in 2006, the index now shows double-digit declines in all of the cities measured, and the overall 20-city index has fallen 29% from the peak.

The Los Angeles area, which includes Orange County, was down 39% from its peak in 2006. But the worst decline was in Phoenix, at 49%, and four other metro areas showed greater than 40% declines from their respective peaks: Las Vegas, Miami, San Francisco and San Diego.

Los Angeles area prices declined 26% in January from the previous year. The three sharpest January declines, however, were in Phoenix (35%), Las Vegas (33%) and San Francisco (32%)...

However, Jonathan Lansner thinks that the declines in the Los Angeles area (which this index includes with Orange County) may be flattening out. From his blog:

January’s Standard & Poor’s/Case-Shiller home-price index report for LA/OC region says …

• Local pricing was down 2.8% from December, extending monthly loss streak that dates to February 2007.
• Down 39.2% from the peak in September 2006.
• Down 25.8% in a year, 24th consecutive annualized loss — but it’s the 4th straight month where the year-to-year loss shrank.
• January’s price level for Los Angeles and Orange counties was last seen in September 2003.

Apartment rents now falling across the U.S.

Although rents in many places of Southern California started falling at least 12 months ago, it's been more recently that the declines have shown up in multiple markets throughout the U.S. Bad news for flippers hoping to earn cash flow until the market rebounds, but generally good news for potential renters. Some advice for landlords: if you keep your rents slightly under the market and resist the urge to push them up as high as possible, you'll keep your tenants longer, which will more than even out for vacancies you'll suffer over the long run.

First, from a Bloomberg News story:

U.S. apartment rents fell in the fourth quarter from the third as the national vacancy rate climbed to a four-year high of 6.6 percent, Reis Inc. said.

Job losses and lower wages are cutting into the pool of potential renters in their twenties and thirties, defying the expectation that apartments would benefit from the housing slump, the New York-based research firm said.

Asking rents fell 0.1 percent from the previous quarter, to $1,052 on average, their first quarter-to-quarter decline in almost six years. They rose 2.4 percent from a year earlier. Effective rents, what tenants actually paid, fell to an average $996 last quarter, down 0.4 percent from the prior quarter and up 2.2 percent from a year earlier...

Next, from an L.A. Times story:

After rising for several years, rents in the Los Angeles area are declining because of the economic recession and depressed home prices, researchers, real estate agents and property managers say.

The lower local rents match a national trend, according to a report released Wednesday showing apartment rents fell in 54 out of 79 U.S. metropolitan areas in the fourth quarter of 2008. Softening rents add another obstacle to a housing market recovery, economists say, because tenants with low rent payments feel less urgency to buy a home...

Los Angeles apartment rents fell 0.7% in the fourth quarter, the first decline since 2001, although overall rents for the year were up slightly over 2007.

Property owners and real estate agents say the supply of rental units has climbed in the last year. Overbuilding during the real estate boom added vacant units to the rental pool, and some home sellers discouraged by the moribund real estate market are renting their houses or condominium units rather than trying to sell. Foreclosures add both supply and demand to the rental market, as foreclosed homes become rentals and former owners seek places to rent.

Declining incomes and rising unemployment also mean people have less to spend on rent.

Mark Verge, owner of the property listings service Westside Rentals, said he'd seen rents fall faster in the last three months than at any time since he founded the company 13 years ago.

"I used to have to beg owners to lower rents. Now they ask me, 'What do you think I should lower it to?' " Verge said.

Verge said his service had 24,000 units listed for rent -- a 33% increase from the 18,000 he had at this time last year.

Rents had been holding up in the early part of last year, Verge said, as property owners accustomed to annual rent hikes continued to ask for relatively high amounts. In recent months, however, owners have found they must lower rents or let their units lie vacant, Verge said...

Finally, from the Lansner on Real Estate blog:

It may take landlords awhile to catch on, but rising vacancies should result in lower apartment rents in 2009, a local Grubb & Ellis Co. manager says.

Grubb & Ellis, a Santa Ana-based national commercial brokerage, issued its 2009 outlook saying that Orange County is the third-best multi-family market to invest in out of 56 U.S. apartment markets.

But Kurt Strasmann, Grubb’s regional managing director in Newport Beach, said the high ranking is due more to Orange County’s “long-term fundamentals” (good job growth, diverse economy, etc.) rather than prospects for landlords in the coming year.

Rents will be affected by two contradictory trends, the Grubb outlook said:

• The pool of renters is increasing because foreclosures have forced more homeowners into apartments and because many would-be homebuyers are waiting for home prices to fall further.
• There’s also been an increase in supply as more houses and condos that don’t sell are leased out. Many new college grads unable to find work are doubling up with room-mates or moving back home, decreasing the pool.
  

The plight of 'rebound renters'

For those considering joining the 'jingle mail' crowd and thinking that they'll simply move out and find a rental home elsewhere, a story in The Washington Post reminds readers of the pitfalls of renting:

Foreclosures have doubled over the last year, which means a lot of former homeowners are becoming renters again for the first time in a long time. And there are new lessons to learn: You're not quite the master of your own domain, because you lease the property instead of owning it. You have to live by the landlord's or building's rules and regulations. And you have to remember to change your insurance coverage.

And, on the Lansner on Real Estate blog, he cites at National Multi Housing Council study that concludes most foreclosure 'refugees' are not looking for apartments managed by large companies, but individual homes owned by individuals. And why is that? Some reasons:

Experts have several theories about why there hasn’t been a flood of foreclosure refugees into apartments:

• Foreclosures may involve investment properties
• Some are renting houses rather than apartments
• Those with credit problems are applying for units that don’t screen applicants
• They could be moving in with family...

“Given that foreclosures take time and that additional pressure will be put on financially burdened homeowners as adjustable-rate mortgages continue to reset in 2008 and 2009, it is reasonable to expect the number of applicants with foreclosures to continue to increase, perhaps dramatically, from current levels,” said the report.

OCRegister's "Lansner on Real Estate" blog wins award

For a long period of time before launching this blog, I regularly read Jonathan Lansner's blog at the Orange County Register, "Lansner on Real Estate." Jonathan brings two very important elements to his daily posts: (1) he's a longtime Orange County resident (so he has the benefit of perspective and local knowledge); and (2) he's a longtime business writer for the paper, so he's comfortable with economic statistics, terms, methodology and can write comfortably about it. Unlike many real estate blogs, he also covers the entire real estate spectrum including apartments and the commercial market. Finally, he regularly interviews experts in various fields, making his blog one of the most well-rounded in the blogosphere.

But I'm certainly not the only one who noticed: besides regularly topping blog directory lists as one of the Internet's most popular real estate-oriented sites, his blog was just named by the Society of American Business Editors & Writers for a "Best in Business" Award:

Lansner on Real Estate was one of three winners in the medium-size Web site category. (Other blog winners were the Fort Worth Star-Telegram’s “Barnett Shale: Drilling for Answers About the Natural Gas Boom in North Texas” and Seattle Post-Intelligencer’s “Todd Bishop’s Microsoft Blog.)

SABEW judges said of this blog: “Lansner takes advantage of the Web to deliver complex material to readers that can help them make important decisions about their business and personal lives. His blog creates a discussion and an environment where people can engage. And that’s what a blog is.”

The Register also won a SABEW certificate of merit for its coverage of the subprime lending mess. To read more about the 13th annual awards from SABEW, the largest U.S. trade group for financial journalists, CLICK HERE!

Congratulations, Jonathan on a very well-deserved award.

CEO of homebuilder Standard Pacific retires

Home builder Standard Pacific, based in Orange County, has announced that CEO Steven Scarborough will be retiring, effectively immediately. The imperiled builder, which reported losses of $767 million last year, will be temporarily led by a member of the board of directors. From the Lansner on Real Estate blog at the Orange County Register:

The longtime chairman and CEO of Standard Pacific Corp. has retired — effective immediately — with a member of the board taking over the reins of the Irvine-based homebuilder in the midst of a housing slump that threatens the survival of many development firms.

Stephen J. Scarborough, the highest paid Orange County executive in 2004, is leaving the company after 27 years. He is being replaced by Jeffrey Peterson, a board member since 2001 and a former managing director at Trust Company of the West and Kidder, Peabody & Co.

In a conference call, Peterson declined to say whether the company is contemplating the filing of bankruptcy or to explain why Scarborough abruptly retired after seven years at the helm...

Although Peterson said the board has ordered management to act with “a sense of urgency,” company officials declined to say what, if any, conditions have changed to make such urgency necessary. Management could not have done a better job in addressing the challenges of the housing slump, said company chief financial officer Andy Parnes. But Parnes and Peterson would not say if conditions for Standard Pacific have deteriorated.

Demographics point to strong future apartment market

A good catch on the Lansner on Real Estate blog this morning about apartments. The National Multi-Housing Council is predicting that 75 million 'echo boomers' will put upward pressure on rents given that construction (aside from the over-building in the for-sale market) has not kept up with demand. What does that mean? Once the inventory overhang in single-family homes and condos is absorbed (which contributes to the 'shadow rental market'), the opportunity for multi-family investors looks very bright indeed:

“The outlook for the apartment industry going forward is very strong,” said Mark Obrinsky, HMHC chief economist. “The nation’s 75 million echo boomers are already entering the housing market, and most begin as renters. … Strong immigration levels add even more demand for rental housing.”

Obrinsky said apartment owners are benefiting from restraint during the housing boom, which kept them from overbuilding. “As a result, they have escaped the oversupply problems plaguing the single-family sector,” Obrinsky said.

Renters nationwide are expected to increase by nearly 4 million households over the next 10 years, with half of those likely to rent apartments, according to the council. In recent years, construction has only met two-thirds of the apartment demand. With the vacancy rates little changed over the last five quarters, apartment owners continue to be able to get modest rent increases.