Bay Area Economic Conferences start this week

Looking for an update and forecast for the national and local economies in the San Francisco Bay Area? MetroIntelligence partner Beacon Economics will present the first of three conferences this week in San Francisco ("Revving up Reform and What it Means for California's Economy" - Sept. 16th), followed by the East Bay ("Green Energy, and Economic Engine: How Real, How Soon?" - Sept. 17th) and the South Bay ("What's Next -- The Road to Economic Recovery - Sept. 22nd).

Find out where the national, state, and San Francisco regional economies are headed in 2010 from some of California's leading forecasters and economists. These events are already generating a buzz, and seating is limited. So reserve today!

Attendees receive Beacon's updated forecast books for each regional area. This original, in-depth look at the region’s labor markets, income, real estate markets, demographic trends, and other indicators, is a valuable and enduring resource for anyone facing important economic and financial decisions over the next year.

(MetroIntelligence Real Estate Advisors has authored the real estate sections in each of the forecast books).

To register for the San Francisco event at the Hyatt Regency Embarcadero on Sept. 16th, click here.

To register for the East Bay event at the Oakland Marriott City Center on Sept. 17th, click here.

And to register for the South Bay event at the 4th Street Summit Center in San Jose, click here.

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.

2008 in review and a look ahead

When 2008 began, the common wisdom of the day was that 2008 would prove to be a difficult year, and that builders should prepare for a market rebound sometime in 2009. However, with the world falling into recession and federal government bailouts becoming a staple of daily news, it now looks like any sustained market rebound could very well be postponed until 2010. Yet before you look for the nearest window in which to jump out of, there do remain specific opportunities for builders who are willing to conduct detailed demand studies and plan for worst-case scenarios that have the potential to improve along with the economy.

The current recession, like any others, began with a large shock to the economy – in this case, correcting a large imbalance in real estate markets nationwide. But what’s making this shock even worse is that the combination of falling prices and tighter credit is preventing people from either refinancing their way out of trouble and staying put or simply selling their homes and perhaps changing both locales and careers. Moreover, career paths once considered safe havens – such as in government, finance or media – have become just as perilous as technology, entertainment or, as many of you well know, in real estate.

If that wasn’t enough with which to contend, this same lack of credit is beginning to force a correction in a related area -- consumer spending and savings. Over the last 12 or 13 years, American households have been saving little and spending more on newer cars, larger homes and the latest in consumer gadgets. Add to that the wealth effect from rising home values and fatter stock market valuations, and it’s not hard to see why contributions to 401k accounts and savings accounts declined as household debt rose while incomes remained mostly stagnant.

Consequently we’re in what the folks at Beacon Economics have dubbed ‘the mother of all hangovers,’ which in the short-run leads to something called the ‘paradox of thrift:’ as the savings rate goes up (which is good for household budgets) the overall economy shrinks due to less overall demand. Yet in the long run, these types of economic shifts are critical for an eventual recovery better able to leverage a productive workforce, great technology and solid investments in infrastructure.

So what’s ahead for the overall U.S. economy in 2009? At this point in time, the forecast calls for mostly more hangovers with occasional sunny days in particular markets. As forecast recently by Beacon, GDP is expected to continue declining through the third quarter of 2009 as excessive demand based on debt is wrung out of the economy.

Rising unemployment rates, which are being met by calls for a second stimulus package from the nascent Obama Administration, will continue to gradually increase, peaking at 7.8% in early 2010 before dipping back down by the end of that year. Fortunately, the fear of near-term inflation will be kept in check and rise only slightly to approach 1.29% per quarter by the end of 2010, although the entire amount of various federal bail-outs of the automobile, housing and other industries will also undoubtedly impact long-term inflation rates if the Federal Reserve continues to print money.

What that likely means for the new home market in 2009 is continued turmoil, although retiring NAHB chief economist David Seiders is hopeful for a mid-year rebound. Looking at the most recent figures, although the pace of annual new home sales rose slightly in September over August levels to 464,000 units, that level is still down by one-third from a year ago and marks the lowest September numbers since 1981 (just three years ago in the boom year of 2005, 1.3 million homes were sold.)

Even as builders continue to clamp down on production in an attempt to bring down inventory levels, at current sales rates, the number of unsold single-family homes – 394,000 -- would take just over 10 months to sell. Still, at a recent semi-annual construction forecast, Seiders was hopeful that 2009 would be a rebound year and finish up with a seasonally adjusted rate of 600,000 single-family sales. Of course he is also paid to be optimistic!

One thing on which most economists agree is the important role played by new home affordability. With a median selling price of just over $218,000 in September, the sharpest spikes in regional sales have been in markets suffering the steepest price drops, and the consensus is for prices not to fall more than another 10 percent in 2009.

It’s also in those same areas that builders, who have already cut prices just about as far as they can and still remain in business, continue to compete with foreclosures, which in the West can account for as much as 40% of existing home sales. Yet as one economist presenting at the NAHB forecast concluded, builders don’t have to convince everyone to buy a new home – just some people.

Housing market to worsen without bailout plan

So what happens if there is no consensus on a plan to unfreeze the credit markets? For starters, a frozen real estate market. From an AP story:

The recession in the U.S. housing market is expected to be deeper, longer and scarier if lawmakers continue to be deadlocked in their effort to pass a $700 billion bailout of the financial industry...

U.S. home prices have already fallen about 20 percent since their peak in early 2006 and are expected to sink another 10 percent over the next year, according to Mark Zandi, chief economist with Moody's Economy.com. New data for July out Tuesday from the Standard & Poor's/Case-Shiller home price index will likely show more price declines in cities coast to coast.

Without a broad government response to the credit crisis, the economy, which many believe to be in recession or near it, would certainly worsen, analysts say. Unemployment, currently at a five-year high of 6.1 percent, could rise to double-digit levels as credit dries up.

"Businesses are going to begin shuttering operations and laying off workers," Zandi said. "That will hammer all consumer spending and housing demand."

Existing home sales were down almost 11 percent in August, compared with a year ago, while new home sales tumbled almost 35 percent. There's more than a 10-month supply of homes on the market.

Making matters worse, many potential homebuyers are having a hard time qualifying for a mortgage. Lenders, burned by record defaults and foreclosures, are only giving loans to borrowers with the best credit.

One silver lining, however, is that falling home prices have made homes more affordable for working families. And nervous investors helped push down the average rate on a 30-year, fixed rate mortgage to 6.12 percent on Monday, down from 6.22 percent on Friday, according to financial publisher HSH Associates.

But plunging stock markets and epic bank failures are bound to have a negative impact on home shoppers' psychology...

The credit crunch has crippled many homebuilders' ability to stay in business, and the industry has been among those calling on lawmakers to pass the financial rescue measure.

Most of the large, public homebuilders have been hoarding cash and aren't facing funding problems. But many smaller, private builders have seen their access to credit choked off, leaving the fate of building projects in limbo, said Nishu Sood, a Deutsche Bank analyst.

Private companies are "in a terrible condition right now," Sood said. Their ability to conduct business has been "effectively shut off."

Builders have lobbied in favor of the bailout in hopes it will ease the sector's access to financing and lift worries about the economy.

Industry groups said the House's failure to pass the bill Monday was a grave mistake, and the action shocked Wall Street, sending the Dow Jones industrial average down 777 points. House lawmakers were planning to reconvene Thursday to try again instead of adjourning for the year as planned...

Still, many Americans were baffled by the need to bail out Wall Street banks. And consumer groups -- which long warned about reckless lending practices -- were irate about the bailout, saying it didn't do enough to stop foreclosures and rewarded the institutions that fueled the boom in risky lending practices.

"The financial institutions that got us into this crisis are asking to be bailed out," said Michael Calhoun, president of the Durham N.C.-based Center for Responsible Lending, who called the government's actions a "textbook case of how not to manage a crisis."

Plus, consumer advocates said, if the Bush administration had been more aggressive last year in requiring loan modifications for homeowners in default, the crisis could have far less severe.

What? You mean to say the voluntary plan to initiate work-outs with borrowers didn't work? Well, when was the last time any business did anything voluntarily that wasn't in its own short-term interest. 1400?