Real Estate Chat - May 2, 2008

Union-Tribune writers Lori Weisberg, Emmet Pierce and Roger Showley answered readers' questions about the real estate market during a Friday chat session at uniontrib.com/chat.

moderator(P) Welcome to today's real estate chat. Lori Weisberg and Emmet Pierce are here, and they have already begun to answer questions. Feel free to submit a question at any time.

DanT(Q) are we able to see answers to other people questions?

moderator(A) Yes you will. Once a question is answered, both the question and answer will appear.

DanT(Q) Thanks

moderator(A) You're welcome. Do you have a question right now for either Emmet or Lori?

DanT(Q) Cool format, I am excited to participate and observe

moderator(A) We're happy to have you here.

Happy_Hair(Q) What is your outlook for North County Coastal Residential Real Estate 1, 5 10 years.

lori_weisberg(A) Based on the most recent data we reviewed from DataQuick Information Systems, some of the North County coastal areas, most notably Encinitas, have held up well, even in the downturn. I would expect areas near the coast to have an edge in maintaining their value and also increasing in value well into the future.

DanT(Q) HOw long do you think the downturn wll last regionally?

emmet_pierce(A) Hi there. That's a tough one. Anyone who says he or she can accurately predict downturns and rising markets is probably kidding themselves. Many experts in the lending industry dismissed concerns about highly leveraged loans until the bubble burst. Most real estate analysts I talk to think a recovery is unlikely this year.

DanT(Q) What sector in the market has gotten hit the hardest?

lori_weisberg(A) Geographically, inland areas up and down the state that attracted scores of first-time buyers who stretched their finances to get into homes. That is why areas like southwest Riverside County and eastern Chula Vista have had a number of foreclosures. So, you're seeing in some cases larger declines in values among lower-priced areas where there is a larger proportion of first-time buyers.

Happy_Hair(Q) Is it a good time to invest in REIT's?

lori_weisberg(A) Investment advice is really outside our area of expertise.

Happy_Hair(Q) I'm 50 years old and my wife and I own a home and it will be paid in full at 63 years old. My monthly payment is $2,100. I can sell the home today and with the proceeds buy a smaller home 1,500 square feet and own it free and clear. That will allow us to increase our savings from 10% to 20%. Is that the best move, or should we continue with our present home and low tax basis and own it free and clear. The other question is, Is it smart to refinance and lower my payment by $600 a month but the mortgage will be paid off when I'm 80 rather then 63. Thoughts on these scenarios?

emmet_pierce(A) Downsizing can make sense, depending on your changing needs as you age. Remember, you are selling in a down market, so waiting until prices turn around could be helpful. Owning a home free and clear and holding a mortgage-burning party was the goal of previous generations. In recent years, buyers have been willing to take on more and more debt, sometimes with disasterous results. The basic rules of economics don't change.

zapatista(Q) I live in Denver CO and the downturn here seems to have peaked earlier than in So Cal. That being said....the market isn't recovering here either yet.

lori_weisberg(A) Bottom line, real estate analysts here are telling us that the Southern California market won't start to recover until at least next year.

Happy_Hair(Q) In other words is this the bottom?

emmet_pierce(A) Hi, as I said earlier, no one can predict the bottom, but many analysts think we won't see a turnaround this year.

Happy_Hair(Q) Many say that a reverse mortagge for elderly people can be a safety net. Will a reverse mortgage ever be made available to Condo Owners?

roger_showley(A) Yes, of course - but there are many questions to consider before signing up.

Happy_Hair(Q) I get the feeling that the oublic in general are not trustring of banks, brokers, and the Real Esatte industry die to high commissions, pumping ARM loans, and false mortagge applications. Will that ever be overcome?

lori_weisberg(A) I think there is less trust these days because of the sub-prime mortgage meltdown, but we still need to rely on professionals to conduct real estate business, and as is the case in any industry, there are still very competent professionals whom we can seek out for advice, as long as we do careful research.

livechat_moderator(Q) The following question was submitted via e-mail by Jerry: After reading a article in Money Magazine I invested a modest amout of money into the Vanguard REIT ETF stock symbol VNQ and it has been appreciating. The Home builders ETF is also up about 12% YTD. Based on this data do you believe we have hit bottom in RE ( Commercial, apartments, hotels) on a national basis? What is you outlook for San Diego Residential RE for North County Coastal?

emmet_pierce(A) Hi there. This question is outside our area of news coverage, which is residential real estate. I don't give investment advice.

livechat_moderator(Q) The following question was sent via e-mail by leigh: Do you see any markets in San Diego that are not being affected by the economic downturn?

lori_weisberg(A) Geographically, there are only two or three ZIP codes that are unaffected by the downturn, but higher-end, upscale areas tend to be affected less than lower-income areas of the county.

Happy_Hair(Q) Real Estate in San Diego is still cheaper then many pats of Orange County, Los Angeles, Santa Barbara county, and Ventura County, etc. Based on that do you see San Diego as a great buying opportunity?

roger_showley(A) As the realtors like to say, it's always a good time to buy - but it's an individual decision dependent on your own personal finances and housing needs. Many people are holding off buying now thinking they'll get a great bargain in three to six months. But it's possible interest rates will be higher then and whatever savings you might gain in price will be lost in the mortgage terms.

ayoungbuyer(Q) There were many condo conversions done up untill about 2006, most did not get FHA approval, do you see them trying to get it now?

emmet_pierce(A) FHA's loan insurance program is undergoing changes. I don't know the answer to this question, but I can try to find out for you.

DanT(Q) While looking at values of properties, is there a rule of thumb to use while trying to asses value of foreclosures versus value of typical RE?

lori_weisberg(A) While we've found from a recent analysis of data that foreclosure properties typically sell for less than non-foreclosure properties, certain rules of thumb still apply. Look at comps, but rather than just focus on recently closed sales, also look at asking prices for homes in the same neighborhood. Also, because some foreclosure properties are in not as good condition as other homes, there should be a discount applied for that.

DanT(Q) What Zip codes in San Diego county have taken the biggest hit?

lori_weisberg(A) We recently published a spreadsheet looking at values by ZIP code. You might want to take a look at that. Here's the link: http://www.signonsandiego.com/news/business/images/080426foreclose_chart.pdf

ayoungbuyer(Q) Current listings for condos <200k are starting to require that loan pre-approvals need to come from banks and not mortgage brokers, is this being seen in the wider market? and what is the resoning?

emmet_pierce(A) This is tied to the credit crunch that occurred when many adjustable-subprime loans began failing. It's sort of a Catch-22: foreclosures have depressed prices and increased affordability. However, credit is harder to come by. The days of no-doc, nothing-down loans are over. Some of my sources in real estate say that virtually no one was turned down for a loan at the height of the housing boom. In the long run, tougher rules for loan underwriting are likely to be a good thing. Weak underwriting helped fuel the home buying surge, but the result was not good for all consumers and certainly not for lenders.

Happy_Hair(Q) Does it make sense to buy newer construction home versus an older home with respect to maintenance costs i.e. roof replacement, etc.

lori_weisberg(A) Not necessarily. You should buy the home that appeals to you most, regardless of whether it's a resale or new. That said, you should realize that even new construction has its own set of problems. We've seen scores of construction defect lawsuits filed by homeowner associations throughout the county. While those claims may not always be totally legitimate, they remain an issue for many buyers. You should also be aware that a lot of the recent condo conversions were once older apartment buidlings and while they have a patina of newness, you need to be aware that not all of the internal systems are up to date.

zapatista(Q) Is it only inland areas being affected in San Diego....or some costal parts too?

lori_weisberg(A) Some coastal areas as well are being affected. As I pointed out in an earlier response, take a look at the chart we ran a week ago of housing prices: http://www.signonsandiego.com/news/business/images/080426foreclose_chart.pdf

Happy_Hair(Q) Is there a connection with the local economy and real estate values?

roger_showley(A) Yes, there's usually a direct relationship between economics and housing prices, but there's also the supply and demand element, particularly in San DIego

UT_Reader(Q) To help prevent the behavior in the reality loan market that was part of the cause to the melt down, is the home loan industry imposing any regulations on itself?

emmet_pierce(A) Consumer activists say more needs to be done, but lenders have changed their approach to lending. That's because so many loans have gone bad. Consumers should always take a cautious, buyer-beware approach to major purchases. Most of us know when we can't afford something, but it's tempting to listen to someone who tells us we can. Many consumers gambled that prices would continue to rise, and they share a portion of the blame for the suprime mortgage market meltdown.

Happy_Hair(Q) Why did Dataquick change it methodology in 2005? Is median home values a good tool i.e. when homes are expensive people tend to buy smaller cheaper stuff thus median values does not address home values?

roger_showley(A) Their methodology only involved the calculation of regional medians not ZIP code medians and the difference was so slight as to be unimportant in the great scheme of things. The reason why median is the preferred metric is that it describes the typical property value - with half above and half below that figure. The average tends to overstate on the high side and cost per square foot tends to overstate on the low side. But in every case, the gross number isn't necessarily indicative of your particular value, which is where appraising and comparable sales become more important than the DataQuick level of pricing. We're looking always at the big picture in the newspaper and leaving it to individual people to interpret the impact on them personally

leigh(Q) I recently attended a forum for Real Estate Appraisers. Alan Gin was a speaker. He stated that he felt San Diego would not go into a recession. Would you tend to agree or disagree? He based his opinion partially on the fact that San Diego is a tourist destination and will remain a tourist destination even in if the nation is in a recession because it will be a "short hop" destination for people who under better circumstances would have traveled much further.

emmet_pierce(A) I think that the debate over whether we are in a recession misses the point. We all know that there has been a serious downturn in the housing market. If you are one of the homeowners affected, it certainly must feel like a recession.

DanT(Q) What are some of the ramifications of the lack underwriting that went on? Besides the tighter credit markets, are there any investigations of corporate misdoings? Where was the senate committe that lookes out for this type of mis-doing?

lori_weisberg(A) The main ramification, as I'm sure you know, is the growing number of foreclosures faced by people who got loans with little underwriting. Now, of course, credit has tightened considerably. Periodically, we hear about mortgage companies or operations that are being prosecuted for fraud. As for the Senate committee that would oversee this sort of thing, I don't know what happened.

DanT(Q) Lori, could you post that foreclosure map again

lori_weisberg(A) Here you go: http://www.signonsandiego.com/news/business/images/080426foreclose_chart.pdf If there's a problem with the link, let me know. It's a spreadsheet.

DanT(C) I don't think they know either! Thats the problem. Too much vacation

Happy_Hair(Q) Should Congress increases the tax deductions for Mortgage interest? Will this help in the recovery?

lori_weisberg(A) I'm not sure that would necessarily be the answer to a very multi-faceted, complicated issue.

Happy_Hair(Q) Wages in San Diego for the average family is close to the national average. However the avearge home value is 2X the national average.Nationaly the homeownership rate is 70% but only 50% in San Diego? This is a receipe for a problem, low wages, high cost of living. Do you see real estate as a class issue?

emmet_pierce(A) For many years, homeownership here has been moving beyond the reach of moderate-income households. Even with two persons working, it's a stretch for most folks to buy their first home. Many people dismiss this as "The Sunshine Tax," but it's deeper than that. To lower prices, there needs to be more home construction. Local jurisdictions have put limits on construction because of legitimate concerns about traffic, crowded schools and overburdoned public services. Solving this problem would take an attack on many fronts.

Happy_Hair(Q) Why do I have to pay Property taxes for schools if I have no children?

roger_showley(A) You can just as easily ask why do I pay taxes if I don't use libraries, parks, fire fighting services, police protection etc. As a matter of fact, your property taxes for schools are go up to Sacramento and then they come back to the school districts on an average-daily-attendance formula according to how many kids go to school each day. The upshot is poor areas get more money and rich areas get less and everybody gets the same, more or less.

25_pct_ltv(Q) are any actions being taken against borrowers who lied on their loan apps? any whistle blowers awards?

emmet_pierce(A) Part of the problem is that lenders offered loans that made it very easy for people to exaggerate their incomes. No-documentation loans may have their place, but they often were misused. You have to remember that during the fevered housing boom, everyone was pushing for these loans to go thorugh: buyers, sellers, agents, brokers, and lenders all stood to gain as long as prices were rising.

Happy_Hair(Q) Many experts claim that the percentage of income allocated to housing expenses (Motgage or Rent) is out of wack in San Diego compared to other parts of the nation? How can that be resolved?

lori_weisberg(A) The traditional ratio is that you shouldn't spend more than 30 percent of your income on housing costs, but in high-cost areas like San Diego, that's unrealistic. And because wages typically are lower in San Diego County, compared to the rest of Southern California and even other states, that is why that ratio is more out whack here.

Happy_Hair(Q) What has local government done to attract high paying jobs beyond what they have already?

roger_showley(A) This is rather beyond our pay grade to be talking about job generation strategies. But it's probably best to say no matter what local governments do, it's up to private enterprise and entrepreneurs to decide if they want to come here, expand or leave.

DanT(Q) Do you think gas prices are going to start having more of an effect on RE market?

emmet_pierce(A) I think gas prices will have a broad affect on consumers and the overall economy. Everyone is affected when the cost of transporting goods rises. People likely will shy away from properties that would force them to make long commutes to work. The expansion of the freeway system and the formerly cheap price of gas enabled housing to sprawl into distant suburbs.

DanT(Q) There are a lot of condos that are affordable now!

emmet_pierce(A) Yes, my sources tell me there are good deals to be had in lower-cost suburban areas, especially for fixer-uppers.

Happy_Hair(Q) I'm getting hungry, where can I get a decent Fish Taco in San Diego?

moderator(A) Fish tacos sound really good. The only two places I've ever had them are at Rubio's. Does anyone in our audience want to chime in and let Happy_Hair know where to get good fish tacos.

lori_weisberg(P) As for fish tacos, try Tin Fish downtown near the ballpark

DanT(C) Go to south beach in OB. Best in town!

DanT(C) Sorry Ocean Beach. It is on Narraganset i think

Happy_Hair(Q) Is there a connection between higher education attainment and home ownership. Ranch Santa Fe has the highest education attainment percentage in the county? Thoughts? I wonder if my kids can afford to buy a home. Is the key to homeownership educated our children beyond the averages?

emmet_pierce(A) Education of course is linked to economic success. It expands employment opportunities. However, I think our situation has changed. Kids graduating from college are finding it harder to get established. The average age for leaving home has risen as parents stretch to help their children gain an economic foothold. It definitely was easier for the previous generation to attain homeownership in San Diego County.

Happy_Hair(Q) Thank You UT. Excellent discussion. I will get that Fish Taco now...

lori_weisberg(A) Thanks for all your good questions.

DanT(Q) I guess they are just thinking that it is so wide spread, that it will not have as stinging effect as I thought!

emmet_pierce(A) The housing market is highly cyclical and it always recovers from downturns. The trick is not to get in over your head by betting that prices will rise to increase your home equity.

DanT(Q) Yes, thank you for sharing your thoughts with us

emmet_pierce(A) You bet.

DanT(Q) I was out to dinner with a group of friends who were talking about foreclosing and walking away from their properties. They were talking about it as it was no big deal and that every one was doing it! HOw long will that effect them? Will it have as devasting as it has in the past?

roger_showley(A) The fact is foreclosures and defaults are growing very rapidly and people who are affected are frightened and speculators are itching for a bargain. People who are upside in their mortgages but can afford to keep their payments current should think long and hard before walking away. Not only does their credit suffer (7 yrs is the usual time it appears on their credit record) but their personal reputation for employment, character standing and other nonmonetary aspects of their lives can be ruined for many years. The word is this should be a last resort entered into with eyes wide open and all other options out of the question. The other point worth making is that a downturn never lasts forever and prices will bottom out and go back up eventually (it took seven years for the 1990s downturn to return to the previous levels).

lori_weisberg(P) Thanks to all of you who joined us today. Look forward to hearing from you next month.

roger_showley(P) That's all for now. Read more in the Home section this Sunday.

emmet_pierce(P) Thanks for all the interesting questions. I hope we can do this again soon.

moderator(P) Thank you all for coming. The transcript of this chat will be up shortly. Just click on the transcripts tab.

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