Friday, November 28, 2008

98-TNG Radio - Mark Fleming 11-29-08

Bruce Norris is joined this week by chief economist of First American Corelogic, Mark Fleming. First American CoreLogic, Inc. is the nation’s largest provider of advanced property and ownership information, analytics, and solutions.

Mark starts by explaining what Corelogic’s Core Risk Monitor is and what it evaluates. This evaluation tool is used to forecast mortgage default risk areas. The report makes use of house price dynamic trends, economic trends, foreclosure delinquency trends and collateral risk trends. Bruce asks of those trends which is the one that causes the others to follow. Mark says the economic and house price trends are the most important. Issues with price decreases and the ability for people to pay their mortgages continue to create problems.

Bruce asks if the downturn from 1991-1997 in California is following the same model we are seeing today. Mark says it’s slightly different. Mark says in the 90s it was more a function of unemployment. This time around, the house price downward trend is causing more of a problem. The economic downturn is following.

Bruce asks if the core factors are different for different states. Mark says yes but these two primary conditions are key. Mark talks about the Midwest and how their market has changed and reacted.

Bruce asks Mark about his take on affordability and if increasing affordability means less risk. Mark says that increasing affordability means more individuals will be able to enter the market on the demand side and means that inventory will be able to stop the price slides. There are a few steps along the way to get the market really going but affordability is important.

Bruce asks about Corelogic and how much emotions play part in the economy. Mark talks about the emotions to prices and houses and how individuals don’t like to lose. Bruce talks about people and the fear of people not wanting to buy for fear of losses. Mark says that some homes become such a good deal they get back in anyway.

In Corelogic’s report in the 3rd quarter of 2007, Bruce asks how Ohio and Michigan topped the highest risk market but aren’t in this year’s report. Mark says it wasn’t that they improved, other markets got worse. In Corelogic’s 3rd report of 2008, California has 8 of the top 10 riskiest markets and did not appear in their 2007 report. Mark says the price declines got these areas on the list.

Bruce talks about the historic nature of price declines in California and how it’s the worst he’s ever seen. Mark says even nationally it’s bad. What once were the top markets are doing so poorly it’s bringing down the national numbers. California and Florida are seeing large price declines and they are two of the largest markets. Historically, housing recessions are more localized.

Bruce asks about the percentage of houses that are upside down in California. Mark says 28% of loans in California are in the negative equity position. Corelogic only recently started these evaluations so has no idea what happened in the 90s. Corelogic uses market trends and valuation models to figure out home prices and ran data for September for their most recent report they released.

Bruce asks if there are states that are in worse shape compared to California. Mark says Nevada is in the lead with 48% of homeowners owing more on their property then it is worth. The 48% includes investors and anyone with a mortgage is counted. The mortgage stock in Nevada is much younger than California. They didn’t have the time to pay down the mortgage hence the reason they are so upside down. California has many more mature loans.

Bruce asks about unemployment and how it might cause further price declines. Mark says rising unemployment will lead to more foreclosures as more people can’t afford their payments. However, when individuals are in the negative equity position, studies shows mobility decreases and will tend to look locally instead of moving out of state for jobs. Bruce brings up that California is a nonrecourse state and people will find it easier to walk. Mark says it will be interesting to watch the behavior of people in this cycle.

Bruce asks if the bailout will help stem the foreclosure situation. Mark says the more loans that are modified the better we’ll do. Bruce and Mark discuss the moral hazard of re-writing some loans but not others. Mark says this is part of the challenge for those creating these mortgage modification programs.

Bruce says the actually foreclosure data says we’re actually down in foreclosures because of SB1137. Lenders have to go through more steps in the foreclosure process now and data is very misleading at this time. Corelogic says they are ignoring the seeming improvement in foreclosure numbers because of this bottleneck.

Bruce asks if in the model if the percentage of those over encumbered include those that refinanced to get money out of the house. Mark says the report includes all mortgages. For more information, see corelogic.com.

Mark Fleming is chief economist for First American CoreLogic, America's largest provider of advanced property and ownership information, analytics, and services. Fleming leads the risk management economics and research team, responsible for developing collateral and credit risk models—the basis of the company's risk management product suite—through monitoring the real estate market, identifying real estate and mortgage market trends, and analyzing the data in light of demographics and the economy.

Prior to First American CoreLogic, Fleming worked for Fannie Mae, developing property valuation models designed to drive collateral assessment applications used in mortgage origination, quality control, and loss mitigation. He has published research on spatial econometrics and presented at many international conferences.

Fleming graduated from Swarthmore College with a BA in economics and holds MS and PhD degrees in agricultural and resource economics from the University of Maryland.

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Friday, November 21, 2008

97-TNG Radio - John Husing 11-22-08

Bruce Norris is joined once again by Inland Empire Economist and Specialist John Husing.

Bruce Norris mentions that The Norris Group is now ready to start purchasing properties with the intent to hold them as rentals. Bruce says we’re buying at 28% of what the lender was owed.

John takes Moreno Valley as an example of what happened in the last cycle with rentals. The injection of rentals in areas that were traditionally owner occupied caused problems. Rentals are generally not as well cared for as owner occupied properties in the area. Home values go down because of this. In areas dominated by rentals, calls for police soar. Soon turnover increases as renters look for the best deals and there’s soon a rent war. Side effects of too many rentals can cause many issues. John says Moreno Valley was destroyed by HUD in the last cycle because they didn’t even think about the effects to the communities.

In the stabilization act, money has been given to cities to help stop this issue. Cities can negotiate prices in bulk and then double escrow the homes at certain prices over to construction firms to bring them back to nice homes. They then sell these homes to qualified first time home buyers. San Bernardino did this in the last cycle. 90% of the people who purchased those homes were still in 10 years later.

Bruce mentions that homeownership levels got too high and that more rentals will be a natural conclusion. John thinks it’s more of a pricing question. If prices got down to a level that’s affordable, people will buy. He says California has never built enough homes for its population.

John says that demand for homes is accelerating greatly. Unfortunately, the supply of foreclosures is still coming in great quantity which continues to bring down prices. John feels the only real solution is to get the principal down.

Bruce says Riverside is one of the possible hot spots once this all turns around. John says the Inland region has more construction dirt available then other counties. Over the next 25 years, Southern California will add 6 million people. Orange County and San Diego are built out or zoned out of being able to build. LA is in a similar situation. Once we get through this downturn, the Inland region has tremendous growth opportunity.

Bruce says that people would rather be in California then many other states. For the next couple of years, people from other states will start to recognize the opportunity to move to California and be making the same payment or less and be able to live in a better climate. Bruce thinks we’ll see massive in migration. John says he too thinks people will be looking at California as a place to retire.

Bruce talks about how he got to Riverside and the massive growth that’s taken place. John explains the three stage growth process. By the late 70s, Riverside developers started developing in the area. People were putting up houses where people didn’t want to live. But affordability is important. Later, the entrepreneurial developers come out here because there was a market. Retail centers soon follow because of demand. Housing boom tends lead to population serving businesses coming into the area. Industrial developers follow after which creates blue collar jobs. The Inland area was in Stage 3 where we saw increasing upscale houses being built. The Inland Empire saw much younger people move into the area. This influx of young talent with higher education opens up the area for much different jobs and services. The Inland Empire economy will be back on John’s three stage development once we get through this cycle.

John says San Fernando and Orange County went through this same three stage growth cycle. Orange County went through stage three in the 70s. John tells the story of South Coast Plaza. Orange County is actually worried because it’s losing its young and educated workers to the Inland Empire.

In Riverside, all industries are having a difficult time. Residential construction brought in a large about of jobs. Warehousing and distribution have also been main drivers for jobs. Now that these have both slowed, unemployment has boomed.

Bruce asks John if the Feds will crank up infrastructure projects. John says that would be the way to help the economy. The influx of cash to consumers by the government in May didn’t work because they paid off debt or went to Walmart.

Bruce asks John about the difference in median incomes from the Orange County and Riverside. John says they are very different. However, if you take the median income and then subtract the cost of housing, it’s about dead even. As the economy approves, we’ll continue to pull more and more people from Orange County for this reason.

More on John Husing and his research at johnhusing.com

In August 2006, Dr. John Husing was listed by the L.A. Times Magazine as one of the 100 most powerful people shaping life in Southern California. He is a leading authority on the impact of the goods movement industry on the region, and in particular its role as a provider of upward economic mobility to blue collar workers. He has just completed major studies on the impact of the proposed Clean Truck Program at ports of Los Angeles and Long Beach and has recommended some changes in strategy.

In addition, Dr. Husing has spent decades studying the city & county economies of Southern California with a specialty on the Inland Empire. This research began when he began working on his doctoral thesis at Claremont Graduate University in 1964. For the past 43 years, Dr. Husing has conducted extensive research plus interviews with executives and entrepreneurs to understand the forces shaping Southern California. He has a deep understanding of our political process, having managed over 100 partisan and non-partisan campaigns. Today, he uses his extensive knowledge of the region and his political experience to explain the economy to business leaders and policy makers throughout the Southland.

Privately, John Husing enjoys life as an adventurer, taking treks into uncharted territories as well as traveling to 52 different countries. In recent years, he has twice entered the unexplored jungles of NW New Guinea to make first contact with previously undiscovered stone-aged tribes. His last trip was trekking over the Himalayas from Nepal into Tibet. Closer to home, Dr. Husing is an amateur genealogist with his American roots traced back 12 generations to Robert Fuller and his family on the Mayflower.

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Friday, November 14, 2008

96-TNG Radio - John Husing 11-15-08

Bruce Norris is joined this week by Inland Empire Economist Dr. John Husing. Bruce asks John if we’re facing the biggest mess he’s ever seen since he’s been an economist. John says it’s the worst mess he’s seen in his life.

John talks about how we got here. In 2004 the real estate market detached from reality. The housing shortage created unbelievable demand creating massive price increases. Investors came into the picture. Prices started increasing even more since they tied up supply. It had nothing to do with real supply and demand issues. The creative financing made it even worse.

Bruce brings up that the same financing was available to consumers just as well as it was for investors. The consumer too became the speculator.

Bruce asks if the Feds are taking the correct steps to fix the problem. John thinks they haven’t fixed the fundamental problems. John says all homes bought in 2004-2007 are upside down. John says it’s one third of the market. That does not include those that used their home as a piggy bank and refinanced.

Bruce asks if foreclosure moratoriums have worked in the past. John thinks it’s just a delay. There are three parts to a loan: the principal, interest rates and the terms. Ultimately it’s about the principal. The mortgage backed securities market is where it’s getting held up.

Bruce talks about some for these solutions and how they only apply for those that have the adjustable loans and how that doesn’t fair well for those that didn’t participate in those programs.

John thinks we’re only about one third through the houses that are upside down and that doesn’t include people who refinanced. If the price gets down far enough, they could just walk away anyway.

Bruce asks if commercial areas are affected by residential. John says the office market was the third tightest office market in the US because many firms were moving here because the size and growth of our economy. There was a subsequent boom in commercial building. We’ve gone from 7% vacancy to 19%. There’s more being finished so it will bring it over 20%.

Retail sales have plunged due to unemployment in residential building in the Inland Empire (Riverside, Moreno Valley, San Bernardino, Corona, Perris). We have a 10% decline in sales so now the shopping malls are being affected. General Growth, who owns several shopping malls, might go under. Their stock price has been hit hard.

John thinks we’ll see a few more large retail stores go under. Numerous furniture stores are already out of business. The auto industry is getting hit hard but that’s part of an industry issue that’s ongoing.

Bruce asks John about the cities in California and if they will be dealing with difficult issues in their budget as real estate taxes take a big hit. John says cities will be affected. The biggest item in the discretionary budget is retail sales. When sales go down, that makes things difficult.

Bruce asks about the ramifications of when cities go bankrupt and who ends up holding the bag. John talks about damaged credit and investors not getting paid. The typical investor in bonds includes pension funds. Bonds are typically considered a secure and safe investment. Triple A has really been misleading as many of these investments have not turned out to be safe at all.

As real estate supply increases, the supply of homes has dropped significantly. Demand has gone up but the supply is still too strong. The supply is what has to be addressed. As long as the supply still is too high, we won’t see new homes being built as it won’t pencil. Locally, if builders get the land for free, builders still can’t build because the fees and materials are still too expensive. Homes are going for less than replacement values. So many industries are connected to the building industry. 95% of all job losses in the Inland Empire can be traced back to the residential construction industry. The unemployment rate in the inland empire has reached 9.1%.

John doesn’t think high unemployment is causing too much out migration. John thinks nationally we are having a difficult time so there are no real safe havens.

Bruce asks if California has ever seen 12% unemployment. John says no and the worst for the Inland Empire area was 1993. That was localized because of the space/defense industry job losses.

Commercial construction is now not penciling. The projects currently underway will be finished. John doesn’t think another office space will be build until 2013-2014. We have to absorb around 20% vacancy rate.

With the US going into recession, world trade has slowed down substantially and directly affects the Inland Empire because of lack of warehousing and distribution space needed. Construction will now stop in the industrial market which is typically very strong.

Bruce asks who the typical lender is in the commercial market. Local banks and pension plans are behind some of these projects. Bruce feels they will own a lot of real estate in the coming years. This is happening in Orange County as well because the Financial Industry was hit so hard.

Technically many of these buildings are still leased but are now vacant. They don’t show up as vacancy. Therefore the availability rate is a better indicator John says.

Bruce asks about apartments. John says the coastal markets have the best chance of doing well. In the Inland Empire it hasn’t shown up as a bright spot. John thinks many people are moving closer to their jobs. Vacancies have actually increased. It’s a market we don’t have good data on.

Bruce and John discuss about the oil market. John says lower gas prices are like a tax decrease which helps in the short term. In the long term, projects we were hoping was going to happen are now on hold (alternative energy projects). Bruce talks about the how this is a repeat of the 80s.

John talks about an oil set price solution and how it might help.

Bruce talks about the new regulations and how REO agents are going to adjust. They’ve laid off staff knowing they will have to hire them back to handle the huge volume coming shortly. John really thinks we need to find out how can we get restructuring on the underlying loan on the mortgage backed securities. See Dr. John Husing on his website at johnhusing.com.


In August 2006, Dr. John Husing was listed by the L.A. Times Magazine as one of the 100 most powerful people shaping life in Southern California. He is a leading authority on the impact of the goods movement industry on the region, and in particular its role as a provider of upward economic mobility to blue collar workers. He has just completed major studies on the impact of the proposed Clean Truck Program at ports of Los Angeles and Long Beach and has recommended some changes in strategy.

In addition, Dr. Husing has spent decades studying the city & county economies of Southern California with a specialty on the Inland Empire. This research began when he began working on his doctoral thesis at Claremont Graduate University in 1964. For the past 43 years, Dr. Husing has conducted extensive research plus interviews with executives and entrepreneurs to understand the forces shaping Southern California. He has a deep understanding of our political process, having managed over 100 partisan and non-partisan campaigns. Today, he uses his extensive knowledge of the region and his political experience to explain the economy to business leaders and policy makers throughout the Southland.

Privately, John Husing enjoys life as an adventurer, taking treks into uncharted territories as well as traveling to 52 different countries. In recent years, he has twice entered the unexplored jungles of NW New Guinea to make first contact with previously undiscovered stone-aged tribes. His last trip was trekking over the Himalayas from Nepal into Tibet. Closer to home, Dr. Husing is an amateur genealogist with his American roots traced back 12 generations to Robert Fuller and his family on the Mayflower.

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Friday, November 7, 2008

95-TNG Radio - Matt Le Vesque 11-8-08

Bruce Norris is joined this week by radio host of the Construction Zone Radio Show on KTIE 590am, general building contractor, and industry expert for the State License Board, Matt Le Vesque.

Bruce starts by asking Matt about the term general contractor and what type of license is implied. Matt talks about the different A, B, C, and D licenses. A license is a general engineering license which means streets and bridges. B is for general building contractors which means they perform two or more unrelated trades on a particular project. C license allows the contractor to subcontract out parts of a job.

Bruce asks if that having a general contractors license describes capability and expertise. Matt says there are many that have a license that shouldn’t try to do other areas of specialty and how that comes into play. Matt says four years of experience in general construction working for someone else or specific education is necessary to become a general contractor. There are three parts to the test to pass: legal, trade and within the trade is a large section on math. General contractors can’t do specialty projects out of their industry not does it always work out well when they try.

Matt talks about people who pose as general contractors who are not. Matt describes what happens to those who pose as generals and get caught.

Bruce asks what licenses a handyman is required to have. Matt tells him none and expands to talk about the limitations of what a handman can and cannot do and the dollar amount allowed. Overhead does change quite a bit when you get the general contractors license. Matt talks about the bond costs for different specialties.

Bruce asks Matt what people should have to be protected. Matt says general contractors should have workers compensation and why it’s necessary. Bruce talks about a certain issue that the Norris Group has recently found about. Matt talks about how people get around the rules or work the loopholes.

Bruce asks what happens if people are caught not paying workers comp. Matt talks about Workers Comp fraud laws and what could happen. People can search sclb.ca.gov to find out info on contractors. He says not to be fooled by the except status and explains what to look for.

Matt and Bruce discusses general liability and when that kicks in. Matt talks about a third party that gets injured on a job and not an employee or home owner.

Bruce asks about the rights of the consumer if the general contractor who do not deliver. Matt talks about how many consumers get shamed, especially with early payments. Some people pay before the work is complete which is a mistake. Don’t let the payment get ahead of the work he warns.

Bruce talks about the scenario about contractors who do work and get paid but who fail to pay supply stores like Home Depot and Lowes for the materials. Matt says this is actually a problem for the consumer and how to protect yourself. Matt reminds people to get the lien release and talks about preliminary lien notices. Consumers want to make sure they have the opportunity to write a joint check. Bruce and Matt talk about how this works with subcontractors.

Bruce asks Matt the best way to get connected with reputable contractors. Matt likes when people talk to their friends and neighbors and to make sure you do your homework.

Bruce asks about a warranty of work from a contractor. Matt says there’s a four year minimum for all work. Most contractors don’t know that or believe it and sometimes write something different in their contracts. They can extend it but can’t make it shorter than four years.

Bruce asks about how to be a good customer. Matt says payment is key followed by interesting and/or challenging work.

Bruce asks about Matt’s radio show and what they do. The Construction Zone Radio Show has live experts and also has live callers call with their questions. See czronline.org or visit ktie590am.com.

Matt Le Vesque is a long time resident of Southern California. He currently lives locally with his wife and youngest of three sons. He is involved with many local charities including Habitat for Humanity, Arthritis Foundation, and United Cancer Research Society.

After several years as a marketing consultant, Matt changed careers and started working in the construction industry in the late 1980s. Over the years his positions included Technical/Marketing Manager and Vice President of a national remodeling company. In 1992, he started Bishop Construction Services.

As a licensed contractor, Matt is a member of the International Code Conference, National Association of Home Builders, Building Industry Association of California, and the Remodelor's Council. He is also an Industry Expert with the Contractors State License Board and the American Institute of Architects, California Council. Matt is a residential and commercial builder/remodelor and a consultant on construction matters. Matt is an "A" licensed General Engineering Contractor.

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