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...............

[TrojanDLA]

I'm surprised. With the impending recession ahead of us, rising energy costs, and stricter lending guidelines, home purchases are not just more difficult but hard to afford. Hmmmm... this is all very hard to believe.

But then he's the real estate billionaire, so what do I know?

[JohnnyB]

Oh, sure... all the data is pointing to an imminent recovery. Including the stats just 2 blogs down.

Please, where do I sign on to start my flipping?

There are obviously HUGE vested interests in turning this mess around ASAP and they continue to try to weave niblets into corn cobs... and they continue to LIE through their teeth, while knowing better.

Expect the normal seasonal, warm weather up-tick data will be latched onto by drowning moguls like the sole remaining life raft to salvation as the Titanic continues to sink.

Guess what... those little life rafts of data will not a Titanic float.

Expect the normal seasonal, warm weather up-tick data will be latched onto by drowning moguls like the sole remaining life raft to salvation as the Titanic continues to sink.

Guess what... those little like rafts of data will not a Titanic float.

[jb]

Great!
Then there is no reason to raise limits on mortgages, no reason for any rescue of banks and FBs, and no reason to keep cutting interest rats to sodomize savers.

Zell pays less % taxes than his secretary. He scams the system like all of the super wealthy. It is time for a change - "the rage is relentless, we need a movement with some quickness" - zdlr

[CD]

I'll tell you what Wells Fargo is saying, every county in California is severely distressed and they will not do mortgages for severely distressed area because they know if you buy now, you will realize very soon that you over paid and you will be sending them back the keys. We are in a free fall, 50% off will not even be enough to reach the real price of some properties. So enjoy the ride down and KEEP YOUR CASH PEOPLE ,you will need it when bread reaches $10 a loaf soon. .As a blogger mentioned on Calculated Risk" Note to myself : invent a
steel locked comfy mattress"

[jaded]

I had no idea Sam Zell is just a leprechaun!

[KenDoMore]

Zell is a shrewd investor who knows his business well... listen to him.

[Max Thrax]

"Obviously what we have going on is an attempt to create a self-fulfilling prophecy," Zell declared. "We have two Democratic candidates who are vying with each other to describe the economic situation worse.

"The reality is that if you live on Wall Street and you're in the credit markets the world couldn't be worse. If you're a farmer and you're getting $25 for your wheat, you're having a great time. If you're a CEO and you've got a balance sheet that's bullet-proof, you're in a great position. This whole thing is way out of control, way out of hand."

Yup, it's the Democrats fault. And we're winning in Iraq. And the biggest threat to this country is the homosexual agenda. No wonder I rarely read the LA Times anymore.

[toby]

Sam Zell is running the LA Times into the ground.

Not only does he sound like a crazy hack when he blamed Obama and Clinton for the RE downturn.

Hey Sam, why don't you stick to what you know best: How to fire LA Times Editors every 2 months.

[Cal]

For inventory to clear we must hit market clearing prices to bring inventory down OR homeowners must pull their homes off the market and live there.

Since I think many homeowners see this as the last chance to "cash out" for a very long time or are in a personal situation which won't allow them to not sell the home then it all turns to the market to clear the homes. Therefore market clearing prices must be hit for volume to increase to a level to reduce inventory.

In short, I hope Zell is right (though I think he is talking more about new homes and residential investment component of the economy rather than resales) because if he is that means prices have come down to the point of incomes supporting their level.

[bottom line]

Old Sam is "whistlin' past the graveyard"' lol. The only difference is THIS time the boogeyman is real, but Sam can't/doesn't want to see.

Funny, that bubble the uber rich live in. Not only are they sooo removed from the "man on the street" reality, but their syncophants are all "yes men/women", telling them the emperor looks great in that new suit!

Like loyal bushies.

[PREFAB SPROUT]

Zell made his money in COMMERCIAL real estate. His views on the housing market are no more valid than mine. One thing is for sure---the more people he guts from the Times the longer it will take for housing to recover-we know THEY won't be buying!!

[alvin]

i said it once. i'll say it again.

housing starts are NOT prices.

housing starts measures the number of new homes being constructed. it has NOTHING to do with prices.
and no where does sam zell say prices in LA (or anywhere else) are bottoming, only housing starts.

good for the home builders. irrelevant for los angeles home prices.

does anyone actually read the articles?

[kat]

Mr. Zell seems to think it's just a time issue or a percentage issue as far as when the housing market (in hot spots like CA) will bottom out. But what it's really about is when prices will fall to a point where they are in reach of the people who are in the middle income majority. Most people who make enough to pay a $4,000 mortgage are not willing to live in a slum. At the same time, middle income people cannot afford the mortgage on a "starter" home they are willing to raise thier family in.

The homes have to get back in the reach of the middle class. That is when the bottom will fall out.

That is why it's important that the federal government not get involved in this mess. The market needs to be purged of the squatters and deadbeats to open up the homes for people who deserve them and can pay for them. When the deadbeats and squatters are run out the market will be flooded and the prices will drop.

[Keith - LetItSink.blogspot.com]

So Zell must be the one who prohibits the LA Times reporters from delivering housing information in a usable form. It probably upsets the advertisers.

For example, since LA is ground zero of the popping bubble, why doesn't this paper have a permanent and complete source of data available for readers? See previous paragraph.

[firesale]

The light at the end of Zell's tunnel is the
freight train headed your way!

Everytime you lose your money in a
market... the top 1% of this country's
wealth seem to gain. Have you
noticed? Why wouldn't he be a
cheerleader for his self-interest?

[CB]

I agree with Zell - this is a great time to buy housing stocks with prices near all time lows (wish I had bought back in January!).

Still a bad time to buy a house though.

Toby - you are an idiot and just another whiny blogger. Tell us your opinion when you've made your first billion in RE (Zell has made 20 times that).

[EconE]

HAHAHAHAHAHAHA.

no...really....

HAHAHAHAHAHAHA!

So...Mr Zell...what percentage of L.A. times advertising revenue comes from RE associated interests? You know...like builders, mortgage lenders, RE brokerages?

Oh...that's right. The majority of it.

I wonder how many condos this Zell guy is trying to flip?

[BIg D]

Of course housing prices will continue to drop. One big reason is because of Peter Viles' continued negative ranting about the So. Cal housing market on the LATimes website (blog). Remember folks, the housing market comes down to consumer confidence and Peter is doing wonders for that!

[vultur]

"Zell made his money in COMMERCIAL real estate. His views on the housing market are no more valid than mine. One thing is for sure---the more people he guts from the Times the longer it will take for housing to recover-we know THEY won't be buying!!

Posted by: PREFAB SPROUT | February 27, 2008 at 12:38 PM"

The disregard shown here for perhaps the most successful real estate investor of our time is disgraceful. To suggest that is opinions are invalid are ridiculous. He is a self-made billionaire (the real kind, not to bafoonish orange haired self-promoter kind) who amassed a fortune starting in college when he rented apartments to classmates all the way through to his $40B sale to Blackstone last Spring. His sale defined the top of the market for this cycle. He was asked his opinion on where the national housing market stands today- not the Southern California market, not the Phoenix market, not the Miami market- the national market. He expressed his opinion which may be a little optimistic but so what? He's not making any guarantees, he's expressing an informed opinion and probably hoping that America prospers and him along with it.

He created the largest apartment REIT (Equity Residential) and the largest office REIT (Equity Office), and now has bought himself a little hobby business for a few hundred mil of his own capital (The LA Times) to keep him occupied.

Give the man some credit you damn bitter bunch! You can learn more with your mouth shut and your eyes open than screaming with your eyes shut!

[At the other beach]

NationalBubble: North Florida has bottomed out. We'll be level for a while, so it's a good time to be aggressive in deals. We're probably two years ahead of LA.

South Florida is still a mess, though.

[MyLessThanPrimeBeef]

It's funny that while famed value investor David Dremen was quoted in Bloomberg 1/30/08 that he wasn't optimistic about bond insurer MBIA, Marty Whitman, another smart value guy who in his last quarterly report said he thought MBIA was oversold.

So, as much as I am sure Zell has made a lot more than Toby, I know you can find other very smart investors who are not touching real estate right now.

Argument by authority, as they say in logic, doesn't really help in this case, just as in all other cases.

[arroyogrande]

"Remember folks, the housing market comes down to consumer confidence and Peter is doing wonders for that!"

And, we you espousing the same attitude when housing prices were skyrocketing, and "the media" was falling over itself to do stories on successful real estate investors and multiple bids on houses?

Just wondering...

Because I'd always been told that the high prices of 2005-2006 were based on *ahem* "fundamentals", such as "everyone wants to live here".

- arroyogrande

[JohnnyB]

Zell said. "I think the housing market this spring will begin its recovery phase."

vultur... “The disregard shown here…”

Many know, bow and kowtow, but come on!

...this spring?

IMPOSSIBLE

MISLEADING

DISINGENUOUS

but, HUMOROUS

[El Guapo]

So Peter Viles is single handedly bringing the market down, Big D?!?! Wow, I'd call him "The Amazing Peter" if that weren't so easily misconstrued.

As for expert opinions, everybody should take a Valium. I believe he is talking about housing stocks and we can all find an expert who fits with our world view. So what's the point in getting riled up here?

[MyLessThanPrimeBeef]

Ahhhh, consumer confidence.

So, Troy felt not because Achilles killed Hector and later, the horse gift trick, but that Trojan confidence was undermined by Cassandra?

[Hula Girl]

Sure the market's coming back in Spring. Right along with the Easter Bunny. I know some folks believe in the Resurrection, but I didn't know it applied to the housing market.

Last I read about Zell, he was singing "Baby It's Cold Outside at an LA Times staff X-Mas Party. I guess that's his way of saying Hasta La Vista to the reporters who are about to get sacked.

Sure the market will turn around. Zell and his cronies will pick the meat from the decaying bones.

If indeed he's a "great Investor" he should start investing some of those profits/resources in the Times. I only read this Blog and get the REAL News from the NYT and WSJ. And my fortune cookies.

[Michael Snyder]

BIg D
Thanks for the complement; but I really don't think a few dozen bearish bloggers can tip the scales on even a local level much less nationally.
I for one would benefit greatly if we were in even in a "calf" market. A bull market would make me a very happy man. (No, I'm not a Realtor or Broker.) I'm bearish on real estate because the facts support that position. Actually I'm a bit of a bear overall as I see only faint glimmers of sanity in the bond market that drives mortgage rates. Consumer credit defaults are just ahead as people can no longer dip into their equity to pay their bills, the dollar is at record lows against most major currencies and oil's over $100 a barrel.
Now just how do you think this bunch of bloggers has managed to shift a paradigm like that?

[NoWayinLA]

Zell's mouth may say that he sees the housing market bottoming out this spring, but that's not what his money says. Take note of the stocks he's buying... big builders. A wave of fresh liquidity into the builders sees results in approximately 18-24 months, depending. So Zell's money is saying that a project started today, and priced right (welcome back your old friend linoleum), can be sold in the marketplace in 18-24 months.

Another sector of the stock market which has taken a pounding is the finance sector, and there are bargain basement deals here as well. If a bottom were imminent, THIS is the sector which would benefit immediately, and would therefore be the smarter bet. His money says "don't hold your breath."

Besides, we have to take these guys with a grain of salt. Yeah, he made a pile of money, but with the wrong bet he could lose it just as quickly. How many bankruptcies has real estate mogul Donald Trump had?

[Sam's Club]

If indeed he's a "great Investor" he should start investing some of those profits/resources in the Times. I only read this Blog and get the REAL News from the NYT and WSJ. And my fortune cookies.

Posted by: Hula Girl | February 27, 2008 at 04:31 PM
_________________
By reading and contributing to this blog you are indirectly providing him with more revenue.

If you have to question whether Sam Zell knows anything about real estate then you have by definition demoted your opinions from interesting to worthless.

If he actually gave a crap what the masses thought of him (which he clearly doesn't) the man would be a household name. I suppose the fact that he physically looks like a Keebler Elf doesn't do much for his image either but trust me this man is the real deal and the kind of person that Dumb Dumb Donny can only try to emulate.

[Joey B]

3 words:

DEAD CAT BOUNCE

[duh]

the bottom is self evident. the bottom is the period between when inventory levels start to shrink (let's say a 3 month moving average) instead of increaseing. until that happens, no bottom. and the prediction that 'this is the bottom' is a fool's statement and simply not relevant until the bottom actually occurs.

[Prices are up 400% in Lefty's metro LA it is ridiculous]

Just to put the lack of affordability into perspecive. I earn 150 as a management consultant, with rising income. My wife 125 or so, but if there's a stretch of no work that could be 70, she's a non-scripted aka reality aka 3k / wk when she works TV producer, so we treat that as non-dependable income -

We really could not find anything in Lefty's 'metro LA' which was livable, acceptable or safe without having to shell out about 4 to 4.5k/month w/20pct downpayment on a 30yr fixed. (Anything other than a 30K or 15K fixed mortgage is only for gamblers and idiots).

You tell me who less than lawyers and doctors and investment bankers and TV writers who have that kind of change lying around every month. Every.... single... month... Absolutely nobody.

Give me 2500K mortgage payment or less per month (3.5K for a flipping palace/estate maybe) - or I will rent for life.

[MyLessThanPrimeBeef]

Actually I could see why Bilbo would be buying.

Looking at the charts, I see that Toll Brothers (Tol) reached a peak of around 60 in the summer of 2005 and is now trading around 24 after having recnetly reached a low of about 15, and Kaufman Broad (KBH) was around 85 approximately the same time in 2005 and has just bounced off 20 to about 27.

So, from 60 to 15 and from 85 to 20 - equivalently, tha'ts like the median of LA going from $600K to $150K or a house in the valley dropping from $850K to $200K.

I think a lot of people here would jump at that kind of opportunity. You don't have to be smart like our Hobbit here.

All they ask is that the housing market be allowed to reach an equilibrium on its own, just like the stock market...well, sort of, it's not perfect there either.

So, if you are into playing bear market bounces, housing stocks are buys now, but real houses, here in LA, are not.

[vultur]

So, from 60 to 15 and from 85 to 20 - equivalently, tha'ts like the median of LA going from $600K to $150K or a house in the valley dropping from $850K to $200K.
_______________________________________
You misunderstand the public equity markets. What trades publicly is the market value of the enterprise net of debt. The company could have $1B in debt and $1.1B in assets and the shares could double overnight.

The correlation between the fluctuation in the equity of the public company and the unmortgaged value of homes is not particularly relevant.