Friday, September 19, 2008

I Survived Real Estate 2008 part 4 #86

Part four of “I Survived Real Estate 2008” picks up with Bruce Norris introducing CEO of the California Builders Industry Association of the Southern California, Richard Lambros. There’s a little repeat from last week to get the show going.

Richard discusses real estate as a speculative investment and the cycles. Richard warns us not to think of it as a cycle because that means we can have no influence over the outcome. Total new home production is down and will produce the lowest number of homes in history. In the building industry, they say it’s a building depression. In three years, production has been cut to one third. 2009 is not looking very good. Riverside and San Bernardino account for much of the cuts.

The economic impact of less building is very important. Just in Southern California, the building industry created $48 million of economic activity in 2005. In 2008, reaching $18 billion

Homes today are no longer shelter, they are infrastructure. Energy efficiency in California is already cutting edge and new guidelines are making them even tougher. New homes are unfairly being forced to make up for the 99% of retail homes that aren’t energy efficient. This inequality is difficult for builders to manage at times as costs and regulations add not only costs but time.

At the same time, a new home is a “Prius” and an old home is the “Hummers.” New homes have come a long way in building standards and built-in efficiencies. Buying a home today is very different than buying

New home projects are difficult to get approved. He speaks on residual land value and how builders figure price for a project. Builders work from comparables down to land price and not the other way around. Valuing land right now is too difficult and no one wants to loan on it right now. Builders are focusing on costs control and concerned about anything that adds time or costs to a project.

Real strength will return to building when strength returns to all the other sectors. The state needs jobs and economic growth for builders to thrive.

Bruce Norris then introduces Joel Singer, Executive VP for the California Association of Realtors. Joel discusses the myth versus the reality of the market place. As a former CAR economist Joel has experience after being through other downturns. This downturn is definitely different. It’s unique in that price decline is really steep.

The adjustment process we can’t look at past cycles because the adjustment of each cycle is different. Joel gets asked often “When is bottom.” Joel does not know. Joel is looking at activity picking up and feels we’ve hit bottom.

Joel is aware it feels bad because price is down so much. New builders and the civilian sellers have been squeezed out. The market is full of short sales and foreclosures; all have-to-sell inventory. Roughly 2 out of 3 of all sales are distressed transactions. Joel does agree 2009 will be bad and thinks foreclosures will continue but not sure what will happen beyond 2009.

Unemployment is a problem. A bigger wild card is the notion that Fannie Mae and Freddie Mac are dead. They are insolvent. (At this point in time, Fannie and Freddie were not government controlled). One they are nationalized, Joel expects a further jolt to the marketplace. Fannie and Freddie account for 90% (with FHA) of all loans in the market place.

Affordability has improved and the number of first time buyers will be 50% of the market place. It will be the highest level in three years. Three years ago, any idiot could be a successful investor. In today’s market, good investors will make a difference. The opportunities will be risky, look at the opportunities but don’t assume explosive growth. Assume the property makes economic sense. It will be challenging but the pros will be very successful.

Bruce Norris then announces Tommy Williams, president of the national Auctioneers Association and co-founder of Williams and Williams Auction Company. Conversation to resume next week.

Special thanks to the following partners and sponsors without whom the event would not have been possible:

Platinum Sponsors:
The San Diego Creative Investors Association (SDCIA):
Investors Workshops:
Frye Wiles:
White House Catering:
MVT Productions:
Pechanga Resort and Casino:
The Denver Nuggets: nuggets
The Chicago Bulls: bulls
The Cleveland Cavaliers: cavaliers

Gold Sponsors:
7 Steps to a 720 Credit Score and Philip X. Tirone -
Chicago Title -
Elite Auctions -
Foreclosure Trackers -
Investors Resource Center of America LA and Steve and Robyn Love -
Las Brisas Escrow -
National Club of Real Estate Investors and Sam Saddat -
Northern California Real Estate Investors Association (Norcalreia) and David Granzella -
North San Diego Real Estate Investors and Linda Wessels -
RealtyTrac -
RE Ventures and Michael Pines -
Real Estate Investors Club of Los Angeles and Phyllis Rockower -
Real Wealth Investor and Scott Whaley -
Saddleback Valley Communities -
Silverstar Finance and Janet French -
Sunset Hills Memorial Park and Mortuary -
The Mission Inn -
The Mortgage Equity Group - http:
The Naked Real Estate Investor Club - Rosie Nieto -
The Short Sale Processor and Nick Manfredi -
Virtual Real Estate Tour and Layla Tusko -
Wholesale Capital Corporation -

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