Zell sees housing recovery this spring

The guy who signs the paychecks around here, Sam Zell, opined on CNBC that he sees a housing turnaround this spring.  From Reuters:   "I think starts have already pretty much bottomed out," Zell said. "I think the housing market this spring will begin its recovery phase."

Forbes: "Many investors are agreeing with Zell's assessment that the bottom is near. They are rushing into homebuilders, which were battered throughout 2007, in anticipation of better times ahead. In the past three months, shares of D.R. Horton, Pulte Homes, and Lennar have each rallied at least 40%."

For the record, even though the big boss is bullish, I continue to believe the housing market in Southern California is a long way from a bottom, and that prices are likely to decline throughout most of 2008.  On a national level, it's quite possible housing starts have bottomed out and will soon begin a recovery.  We could also get a little bounce off the bottom this spring in L.A.-area housing activity, but my guess is that after a brief pop, rising inventory will resume putting downward pressure on prices. 

It's worth noting, though, that Zell has made a ton of money in real estate over the years.

Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com.
Photo Credit: Sam Zell, from The Chicago Tribune
   

Comments

[econo]

...and the recovery will be lead by those who's jobs you've eliminated at the LA Times.

Dream on Sam.

[Sam]

Peter I do believe that most renters in LA believe the bottom is still to come. They are hoping for that dream house at a reasonable price. I wouldnt bet on it. Zell may be onto something.

[Enlightenment]

Zell is a FOOL on this topic!

[NationalBubble.com]

Peter,

I couldn't agree with you more. SoCal still has a long ways before it bottoms out. Same thing with Florida, Arizona, Nevada. There was too much speculation in these areas and prices are coming down to reasonable levels. We still have another 20% to go.

http://www.NationalBubble.com

[alvin]

housing starts are not the same as prices.

consider the last downturn - housing starts bottomed in 1991, but prices around here drifted lower for another 5 years.

[Dave]

The real estate market moves like an ocean liner and does not make fast turns or reversals. If one considers the statistics over the past century, one sees that the market will move down for several years -- typically three to five -- and then bottom out for several more years, again typically three to five. The bigger the fall, the longer the bottoming out. Hence, no historic precedent exists for a quick bottoming out and turnaround as Zell predicts. The market hasn't even bottomed out yet, so predicting a turnaround is absurdly optimistic. The early 1990s Southern California market hit bottom about 1992 (after falling less than the present market) and didn't start picking up again until about 1997. If history is any guide, 2010 is the absolute earliest one will see a turnaround, and 2012 is the more likely date, if not even later.

[CD]

The NAR has a good friend and mouth piece with Zell.
He should read the financial section of other papers, not his, and maybe he would learn something about what is happening in California. Oh, I forgot his readers are millionaires like him, who will never be affected by a major financial crash. The paper should be called "The
Brentwood Times, for me and my friends only."

[silverfern]

From the New York Times this morning (last paragraph of the article).
As Inflation Rises, Home Values Slump, Data Show
By VIKAS BAJAJ
Published: February 26, 2008
http://tinyurl.com/2osape

"In many parts of the country, specialists note that home prices remain too high based on affordability calculations made using incomes and interest rates. A recent report by analysts at Credit Suisse, the investment bank, said that prices in some metropolitan areas like Phoenix, Miami and Los Angeles would have to decline by 20 percent to 40 percent more than they have already fallen for home affordability to be restored to its long-established level."

[Crazy]

Bottom? What is your boss smoking??? Price is still way too out for most families unless they banks are going to start giving out free credit! Has he heard of the bank going back to the old lending standards? People that buy houses today now need a job!!!! A job!!!

[mbob]

What about that banner/sign/disclosure posting in the hallowed halls of LAT that cheerily advised all the staffers that "we" all own it now?

Uh, does that include indebtedness, too?

And, er, ah, just exactly how much of that i-word now encumbers the paper?

The awkward photo poses of H. Clinton are a tired old trope of an editorial board that endorses a rival, or de facto, another party.

So, boosterism isn't much of a surprise, coming from a debt leverage specialist. What's next, Michael Milken strategy consults?

[Joseph...the real estate guy]

The market will stabilize, Prices will continue to go down on a very slow pace for the next five years.

Peter,

Do you have any figures as to how much off we are in the number of sales from 2004?

[Clint]

You're an idiot. And you obviously do not live in the real world. I guess for billionaires like you, the world is perfectly rosy. But the rest of us are struggling to make ends meet. So Mr. Zell, you and your rich buddies like Ruppert Murdoch can blame the Dems all day long for the economic crisis looming over this country but the rest of us know that this situation was brought upon by out of control republicans bought and paid for by rich guys like you. So don't even TRY to blame the other side. This is YOUR fault.

[sfvrealestate]

Peter, I think you and Zell are both right. Here's an anecdote: many Realtors in my office are reporting multiple offers on properties again and increased activity at open houses. Yes, these are homes that have had price reductions from their peak listing price.

[Michael Snyder]

It's a long way from investing in a builder's stock and buying a home. Buying into weakness and selling into strength is fundamental to profit in the stock market, and builder's stocks are at an all time low. For an investor with deep pockets and patience this is an opportunity. I really don't see the consumer confidence necessary to sell off the inventory on hand and the lenders are still as skittish as a colt in a thunderstorm.
If, and I mean IF we're not in a full blown recession by next spring housing sales might start to turn around if for no better reason than someone will have to write new mortgages to stay in business. That would make Mr. Zell's timing about spot on.

[Richard Maize]

It appears that recovery predictions are directly proportional to the resources of the predictors. Zell can clearly see the possible beginning of the recovery as an investor. But for individuals and families who have lost their jobs, have had their homes foreclosed upon and are struggling day after day with the economic realities, they are not in a position to see or benefit from the predicted spring recovery. For many, it may be 5-10 years off to get back to a decent way of life.

Richard Maize

[CD]

Peter, may I bring your attention to a Wall Street Journal article today: FHLB (federal home loan banks) lending "reckless" by Nouriel Roubini. It's all about Fannie Mae and Freddie Mac. You want to talk" Bail out" ? !!!!!!!!!!

[MyLessThanPrimeBeef]

Perhaps the logical move, as Mr. Spock would say, is to move back to residential REITs from ChicagoTribune/LATimes.

Just a suggestion, boss...and free one at that.

[TakeFive]

"It's worth noting, though, that Zell has made a ton of money in real estate over the years."

I think guys like Zell are essentially poker players. They know when to hold, when to fold, and how to bluff.

Great plan. Give people false hope so they hang on just a little longer until they become really desperate. This way they loose the flip house and the principle residence they refi'd for investment money.

I wonder if Zell will buy some banks that own lots and lots of bargin priced homes.

[arroyogrande]

I have only two comments on "the bottom is near":

Credit Suisse's "Adjustable Rate Mortgage Reset Schedule" form the 2007 report "Housing Liquidity Du Jour: Underestimated No More":
(we are now at month 14):
http://tinyurl.com/3cba6w

And Business Week's "Map of Misery":
http://tinyurl.com/laz9y

With the Credit Suisse Mortgage Reset Schedule graph, pay attention to the types of loans (especially 'pay option ARMs) resetting in 2010 and 2011. Then look at Business Week's Map of Misery, and see what percentage of recent purchases AND REFINANCES in your area have been pay option ARMs. Then guess how many people have been using pay option arms as an "affordability product", to just barely afford their expensive house. Lastly, think what happens when that wave of resets hits.

We are a long long way from a bottom here, folks.

- arroyogrande

[IToldu2CashOut]

I heard yesterday that there was an 18 month supply of unsold homes. Isn't that a record or something? Highly unlikely there will be be a recovery until many years from now unless interest rates go to like 4.5% fixed which will never happen with banks looking for money anywhere they can find it. Zell needs his head examined. Sorry Zell your crappy real estates investments are just that, crappy investments.

[Rich]

It seems for the most part that the only people who really understand the nature of this problem are the people in the trenches--little guys who have been actually shopping for homes, little guys who are trying to refinance mortgages, real estate agents trying to sell houses, etc. The big investor guys are shielded from the lurid details and make inaccurate guesses based on their ingrained experience with seasons or cycles. It's like what Cramer said about why Wall Street doesn't get Olive Garden--they never have to eat there...

Zell is probably right that there will be activity this Spring that will lift the numbers and look like the beginnings of a recovery--the price declines which have happened so far will enable some transactions, and sales and foreclosures may feed each other, causing competing narratives about whether things are improving or worsening. It's also probably the case that investors who buy home builders now will be getting a substantial discount for the long term, but traders who work with the short term would be making a mistake to believe these companies are recovering enough this Spring to enable big short-term profits...

[Ron]

I guess Zell doesn't do business with Merrill Lynch.

from CNNmoney: "The investment bank forecasted a 15 percent drop in housing prices in 2008 and a further 10 percent drop in 2009, with even more depreciation likely in 2010."

[Raul]

In other News: "Fed chief signals rate cut" you know what it means, more inflation, and when we talk about inflation, we talk about prices. The talking heads in MSNBC said: we dont have a problem with inflation because: yes prices are going up, but wages are not moving up, and that is good, every thing is ok. We are asking ourselves, ok for who? if prices are going up 5% and our wages stay the same, you are paying us less, you have cut our wages about 20% in the last 4 years, that is the reason we can not afford to buy any thing, no wonder "star bucks is going down" they better close most of the stores, we dont have money for a $4.00 cofee, we some times dont have money for milk to feed our kids. Now this guy has made tons of money in RE, but we think from far away he just can not see what is happening in our neighborhoods. Our leaders, the rich class are totally disconnected from us. Maybee this guy can buy all those inflated houses in LA, and keep half of them empty, that way the rent will go up and he can make some more money.

[ScottQ]

Let me have some of what he's smokin'!

[Rip N Tear!!!]

Zell is so out of touch with reality, he made his money in the 70's and 80's when a 30 year fixed was all there was or you paid cash for your investment property.

All I hear are people talking...............