The view from the IE: Recession

No ifs, ands or buts: Chapman University's Anderson Center in Riverside is predicting a national recession. Like, right now. Negative GDP growth in the first quarter (-1.0%) and the second quarter (-1.9%) before a rebound in the third quarter.

A major factor: The Anderson Center says consumer spending will be hit by continued declines in the amount of cash consumers are pulling out of their houses.

In the Inland Empire, the Anderson Center predicts: "a sharp drop in home sales ... a sharp downturn in jobs in real estate-related sectors ... the weakest rate of job creation since 1993 ... higher unemployment rates," plus a 12.5% decline in the median selling price of single-family homes.

Will lower interest rates help? Anderson says they will not help some borrowers facing resets on their mortgages: "Those borrowers who want to refinance need to obtain an appraisal for their property matching or exceeding their current mortgage. This will not be possible for those borrowers who used 100 percent loan-to-value mortgages and are faced with declining home prices."

Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com
Photo Credit: LATimes

Comments

[Joseph...The Real Estate Guy]

It's a "Depression" for me!

It was a "Recession" between October 2005 and October 2007.

If I was "Peter Viles" though, I would not be putting my hope on prices coming down on the Westside. You will be waiting an eternity!

[xtine]

Notes from an early-morning conversation I had with a guy at LAX.

GUY: I just bought my second house in Riverside, it was so cheap, 350K.
ME: Wow. Good for you. That sounds exciting.
GUY: My friend's thinking of buying, and I said, dude, you have GOT TO get in now. Really, owning is the BEST.
ME: Yeah, but Riverside's not for me. My husband and I hate commuting. It's like being in a climate-controlled coffin.
GUY: Forget LA. Prices are crazy. You have GOT TO do it in Riverside or you're never going to be able to afford anything.
ME: I'm so excited for you.

He was a nice guy, trying to share his happiness with a stranger on line for the baggage check. I wonder how he's doing now.

[Kathy]

Joseph, are you aware that last week's Southern California foreclosure statistics included a top ten list of most increased number of foreclosures in 2007 and in the top ten was Culver City? I believe Culver City is on the Westside...

[markl]

"If I was "Peter Viles" though, I would not be putting my hope on prices coming down on the Westside. You will be waiting an eternity!"

uh,this sounds like "its different this time".
a few months is not an eternity...no recession has ever spared any segment of the real estate market...in fact the high end is the last to tumble and last to recover.

BTW,a 12% drop in real estate is nada...still has another 35% or more to drop.Even then who will have 60k+ downpayment to buy a dumpy house for 300K?Especially with 4$ gas.Should be an interesting summer as gas prices usually go nuts before memorial day-maybe the recession will reduce demand/price of oil tho.

[jakemd]

If we have to prop up the economy with "the amount of cash we're pulling out of our houses," something is definitely wrong.

[MyLessThanPrimeBeef]

You will be waiting an eternity! --- Joseph, the real estate guy.

Well, it's like I said to the girl I once loved (I think it was a few girl friends ago), 'I will wait an eternity for you, sweetie. But not one minute over!!!!'

[Uncle Billy]

xtine: Shshsh... don't tell them. Everything is coming down, and will continue to come down, but if the airport people keep going to lefty seminars and buying houses to "cash in on the best times in socal real estate , the crash landing might be survivable.

Joseph: I just got back from driving all over Pacific Palisades and Brentwood. I don't remember seeing any for sale signs at all. I'm sure there were a few, but certainly nothing to write home to the blog about.

[mike]

you know what? i've had enough. this problem is on the backs of the home losers. notice i didn't say homeowners. these people borrowed then reborrowed. my sympathy has run dry for these people. espically since the yahoo article i just rear about these people leaving their pets chained up when they walk away from the banks house. to all the sub-prime on or reading this blog i say you are the problem. you are the reason we are in financial straits in this country and leaving pets is just the sort of irresponsible thing you would do much like you have damaged the economy and left a trail of sh$%&it behind you for us to clean up. you people will need to rent again now and i have rentals and i will gladly squeeze you for every last dime for your poor credit scores. and of course you can pay the water and gardner charges. you deserve all the bad that may befall you. YOU KNOW WHO YOU ARE!!!

[OJA]

This is the same recession that Bush created in 2002 (and blamed on the previous administration) that he'd been applying CPR on with interest rate reductions, supposed tax-cuts, and meaningless rebates. But now that he's in his final year and is a Lame Duck -- no more bailing out a sinking Titanic with buckets and paper cups.

[Victor the Predictor]

I predict that we will continue to be able to take the predicted estimates and comfortably double and triple them for the next year.

[GDC]

I agree with Joseph. So far, I have not seen ANY evidence that the high end Westside areas (Brentwood, Bel Air, BH, BHPO, Westwood, Pacific Palisades) are coming down. In fact, I've been following these areas for the past 3 years and the listing prices have INCREASED. There are fewer listings in these areas now than in 2005. The ARM resets (not subprime) will not affect these areas. The 1yr Treasury is at 2.3% (vs. 5% 8 months ago). I have a friend at Wells Fargo who tells me that the wave of ARM resets occuring this year will adjust at little over 5% - a DECREASE for these homeowners. SoCal is becoming more and more gentrified and it's the haves vs. have-nots. Anyone have any real world anecdotal evidence that prices in the high end areas are coming down?

[CaptHowdy]

GDC:

What's your argument for why prices won't fall in high end areas? And what's your explanation for why prices are falling in other parts of town?

How is SoCal becoming more haves vs. have nots when prices are falling and more people will be able to afford a home? That doesn't make any sense to me.

[Joseph...The Real Estate Guy]

Mike,

In about 5 years, your rental rates are going to be down 30-40% off.

I blame the Lenders who loaned this people the money first. They have a "Fudiciary Duty" to their investors.

In second place, I would blame the borrowers for not been diligent.

There is more people to blame...but we'll leave it for another occasion.

Oja,

Politicians are all the same. Democrats, Republicans, Greens, Blues, Etc. It's all about them. What's in it for them. Like always, there are exemptions. It's all about the $$$$$$$$$$$...

[UPTHECREEK]

BOOM BOOM ..Out Go the Lights

[Ace]

It is way too early to predict a recession. A recession is 6 months in a row with negative GDP growth. We are not even at month 1 yet!!!!

Reminds me of the saying 'economists have successfully predicted 15 out of the last 2 recessions'

I do agree with his take on the IE. They have a rough ride ahead.

[baruza]

Westsidebubble, smdistressmonitor, and Manhattan Beach Confidential are pretty much dedicated to the subject. Scroll through and look at the countless examples of top end homes selling for off peak prices and others languishing on the market even with price cuts. These places are still expensive, of course, but there's plenty of indicators to show comps drifting downward.

[GDC]

CaptHowdy

I've been living in SoCal for more than 30 years and this real estate bubble seems different. I know numerous people whose incomes have greately increased the past 10 years (above $200k) but are waiting on the sidelines. Salaries for professionals have gone up big time (e.g. over 250% for lawyers the past 10 years.) They all want a house in the same areas, good schools, parks, etc.

Also, look at this blog: while foreclosures are skyrocketing in SoCal and price drops are huge, no one wants to buy in these areas.

Also, I think people underestimate the impact of low interest rates the past 8 years. People look at monthly payment obligations first then look at the actual price of the house. In the 90s, interest rates were around 10%. Now it's around 6% or lower.

Believe me, I want prices in the Westside to decline (hopefully over 30%). I just don't see any evidence that this is happening or will happen as long as interest rates stay low and everyone wants to buy in desirable areas. Just my personal observation.

[mbob]

Chained pets:

The Los Angeles County Department of Animal Care and Control has a big, well run volunteer program.

If you'd like to help out with managing LA County's unwanted pet situation, go sign up. It's pretty rewarding.

Plus, dogs and cats don't try to hustle you into buying overpriced housing. They're just glad to see you.

[Laker]

GDC:,

Go back to 2006. LA country was sky rocketing with appreciation of 10-15%. However, riverside county has already begun to decline...at rates of 10%.
LA to riverside is exactly the same as westside to sfv or santa clarita.
What i'm trying to say is that the better areas area always lagging in response to an economic condition and you have that as proof. Taking from these numbers means that westside and all the really nice areas will start to show "real" decline in prices by the end of 2008 and maybe only in 2009. When average areas of LA will decline 40% from peak, you will see westside decline 10%. By the end of the day (somewhere in 2010-2012) All LA will be down 50% if you want it or not.

: xtine
The guy from LAX that bought for $350,000 in riverside....I hope for him that he can stay there for the next 10 years and afford his payments.
Riverside median house is heading to $150,000 not $1 more. (3500 sq ft Mcmansion in Paris Riverside will go maximum at $170,000)

[Inland Empire]

Live from the IE! Per my agent (one with more than 20 years experience), houses in the $1M range (yes, we have some) are selling rapidly. Houses under $200k in rental areas (yes, we have some) are getting sometimes 8 to 10 multiple offers. The houses in the middle ranges are sitting. These would include new construction as well as older homes.
No matter what the market, someone will make money on it and some people will buy what they want.

[Randy Adams]

Rich people aren't stupid. The buyers will turn the screws on the sellers in those areas every bit as much as in other areas. The wealthy zones most certainly went down big-time in the early 90s slump. It just takes time and this wave has only just started to hit the west-of-downtown part of Los Angeles.

Interest rates are indeed important but how low do you think rates will go when the risk of people walking away from their loans is now higher than it used to be? I don't care what the Fed discount rate is, if people end up walking away from their mortgages in the numbers that are feared interest rates will be much higher to cover the risk.

And interest rates were absolutely NOT 10% in the 90s. The 30 year fixed note on my house I bought in 1993 was 7.25%. The re-fi rate on my previous house (financed in 1991) was 7.5%. And the rates proceeded to go DOWN during the balance of the 90s.

[Big E]

Ace: December was 0.6%, sure to be revised lower at a later date. January is going to be ugly.

Can someone please explain to me how 1st Qtr (according to the Anderson Center) is going to be 1.0%, and the 2nd Qtr is going to be 1.9% (CLEARLY trending down) but we're somehow going to magically return to positive GDP in the 3rd Qtr? I think 1st Qtr is going to be ugly (1.5%), 2nd Qtr is going to be scary (3.0%) and though we may finally start to reflate in the 3rd Qtr, it will still be significantly negative.

I just don't see, with all the cascading 'events' (Alt-A/prime option ARMs exploding this year/next year) on the economy, how we're going to escape a prolonged recession..?

I mean, I'm an optimistic person but I'm also realistic.. sheesh.

[MyLessThanPrimeBeef]

IE, the ones buying $1 Million plus houses - are they foreign buyers? Specifically, are they from desert countries who find the Inland Empire to be more or less like home?

[MyLessThanPrimeBeef]

I think the government should re-define recession as 7 straight months of negative GDP growth. Then the world will be saved.

And if that doesn't work, make it 8 straight.

I call it the K.I.S.S. rule.

[longdriver]

Live from the IE, your agent is full of $#it. Nothing is selling unless it's a give away price. Yes house priced at a million will sell if it was selling at 2 million last year. I did see one house at $195k that got about 20 offers but the comps were over $300k. Most of the homes I track were listed over a million a few months ago. Many of them are now REOs listed for 600-700k. The average drop from peak for the better listings is 35% to 45%. It's not hard to find 50% if you spend a few minutes looking. The lower priced stuff is selling only if it pencils out as a rental. If it doesn't it just sits. He is right about one thing NOTHING in the middle is selling. But most of that stuff is so overpriced is nutz. I can't beleive how many people think thier crappy tract home in Corona is worth $800k. Give me a freakin break!