Bruce Norris is joined once again by Chief Economist for the California Association of Realtors, Leslie Appleton-Young.
Bruce begins by asking Leslie about the CAR payment protection program. Leslie says that C.A.R. has a housing affordability fund, which was developed around 2002. It is a fundraising arm, run by a group of members, which gets proposals from local associations for various projects. Since the downturn, the committee has decided to do something that has potential to impact the market by putting people into homes. The committee has developed a $1 million dollar program, which can be used to pay a premium on an insurance policy for a qualified first time home buyer who uses a California Realtor.
The criteria for this program includes someone who has not owned a home in 3 years and you have to have been employed for a minimum of four months. The policy does not begin to pay on a job loss situation for six months, and then the policy will pay for $1,500 dollars of the mortgage payment for six months. If there are two buyers then the second buyer will get $750 dollar benefit. The application does not take place until the close of escrow. The buss has been tremendous. Leslie is hoping that this program will be able to help 3,000 home buyers.
Bruce asks Leslie if the funds given from this program need to be paid back and she says no. She says that it is an insurance policy that does not need to be paid back. She is hoping that this insurance policy will encourage 3,000 people will make the choice to buy their first home. Hopefully it gets people off the fence.
Bruce asks Leslie what encourages her most about the current California market. She has seen a tremendous amount of resiliency within the last year and a half. The damage that we have withstood since the beginning of the downturn can be compared to a forest fire; things get damaged, but in time you begin to see the green seedlings come up. Seeing 7,000 people attending the first time home buying fair was very gratifying to her. People are starting to look at homes as a place to live and a long term investment which is very important. The motivations and expectations are changing.
Bruce has studied migration for years, and he is sure that California is losing migration right now, but he believes that when California gains more job stability that we will receive more migration from all states, because we are a very desirable place to be, and our monthly payment will be lower in ratio of earnings here than in other places. Leslie says that it is difficult to predict what will happen to California because of all the socioeconomic and demographic changes going on in society. One of the things that will have to happen is making more livable cities. Technology allows you to live and work anywhere. It has been argued that the younger generation will be more mobile because they will have 8 jobs in their career, rather than just 1 or 2 like the boomers. Location isn’t as relevant because society is becoming so mobile.
Bruce believes that the retiring baby boomers will be attracted to California. They will have the choice to pay a $300 dollar gas bill, so that they do not freeze during the winter, or they can move to California where you can survive without a heater. Climate is huge.
The traditional buyer, which is the person that hires the Realtor that they knew or the person that drives by the for sale sign, has been replaced with the online buyer. Leslie says that 78 percent of home buyers use the internet during their selection process, and most of them say that they found their agent on the internet, but different surveys produce different results. The only explanation that she can come up with for the different results is that people are being exposed to more advertising and different types of advertising, which is why she tells her members that they cannot do only one kind of advertising. Only 20 percent of home buyers have claimed that they use print in their home search, and 75 percent of that 20 percent said that they looked at the weekend supplements for open houses.
Bruce believes that Realtors have to understand that customers are always looking for and up to something new. Leslie says that she knows a lot of Realtors who team up with people of different ages, so that they can appeal to a larger number of people.
Bruce says that there are two factors, shadow inventory and a large pile of notices of default that will affect trustee deeds and more REOs. He believes that inventory levels are giving us a false indicator, and that the REOs are going to greatly affect the market before the end of the summer. Leslie believes that we will see a second wave of foreclosures during the 4th quarter of this year. The notices of default are going to affect the market, there are Alt-A and option ARMs that are typically a five year fix, and there will be a continued loss of jobs. Lenders are saying the inventory is out there but clearly there is a bottleneck.
There are now three times as many foreclosed properties in comparison to normal listings compared to last cycle. That is the one ration that Bruce believes must rectify itself before a normal price environment can return. We have to get through the bulk REOs. The Norris Group used Krunching.com to track trust deeds back to the lender when they could not find the inventory reemerge as a grant deed or a listing, and they discovered that there were many cases like this.
Obama claimed that the government would give $75 billion dollars to loan modifications, and that not one dollar of it will go to investors. This worries Bruce because he fears that Obama may have been speaking about all investors, rather than just speculators.
Bruce believes that many of the problems in the 90’s were solved because of the 203K loan that investors could use, but this loan option has not reopened to investors yet. It allowed investors to buy a fixer upper and include their purchase price plus the repair cost in the loan. Bruce hopes that they will reactivate that loan for investors.
Bruce asked Leslie, “How do realtors view investors?” She replies investors are a very important part of the market. They are one of the forces behind the current market strength. One of the issues that she has heard is that first time buyers are having difficulty competing with investors. In defense of the REO agent, Bruce claimed that investors get offers when they protect the owner occupant from a failure. The inventory will not work for a conventional loan at this time.
Bruce asks Leslie how she feels about the cram downs. She says that CAR has been opposed to cram downs because cram downs increase the cost of financing for every one else. Bruce thinks that is a scary thing to start because it gives bonuses to people who declare bankruptcy. Usually that is something you do not want to do because it prevents you from getting a loan, but in this case it can help you.
Bruce asks Leslie what she believes will cause the market to become healthier. She believes that inventory and foreclosures are the most important factors. The future is unknown because it all depends on how quickly the economy reinvents itself.
Bruce asks Leslie if she thinks our current interest rates will remain low for a significant amount of time. Leslie believes that interest rates will increase significantly in a few years. The price and interest rate combination are an amazing bargain right now.
Leslie Appleton-Young is Vice President and Chief Economist for the California Association of REALTORS® (C.A.R.), a statewide trade organization with members dedicated to the advancement of professionalism in real estate.
Mrs. Appleton-Young directs the activities of the Association's Member Information Group. She oversees the analysis of housing market and brokerage industry trends, member communications, and membership development activities. She is also closely involved in the Association's strategic planning efforts and is a well-known speaker in California’s real estate community.
Before joining C.A.R. in 1984, Leslie Appleton-Young was a consultant with Telesis Inc. in Rhode Island. She also spent several years working as a research associate at the Federal Reserve Bank of Philadelphia and as an instructor at the University of Pennsylvania.
Mrs. Appleton-Young earned a Bachelor of Arts degree in economics from the University of California, Berkeley, and her Masters from the University of Pennsylvania.
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