11 real estate surprises for '11
Consensus thinking, while a valuable tool for forecasting, rarely seems to catch the sharp twists of business fate that one frequently finds in the real estate game. So in an attempt to explore what might prove to be unexpected for 2011, The Register's real estate reporters asked a flock of observers of the local property scene what real estate surprises we might be talking about a year from now.
So here are 11 possible trends for '11 that may surprise -- industry change we'd find a bit startling:
1. Dramatically improved economy: Jeff Moore, CB Richard Ellis' senior managing director for the Orange County region, says to figure out his surprise, "I would need to dust off the old crystal ball to answer this one! I am hopeful that next December, I'll be talking to you about significant decreases in unemployment, positive gains in consumer confidence and spending, and increased activity across all sectors of the commercial real estate market in Orange County. There are enough positive indicators going into the new year to make this a reality." That's seconded by Frank Suryan Jr., CEO of Lyon Apartment Communities, who sees a chance of a surprising real estate revival: "By the end of the year, accelerated job creation has boosted demand and rent growth. Why? Because our county has every ingredient for success: Great housing near important job centers; a diverse economy; an outstanding climate and recreational opportunities and world-class K-12 schools and universities." Landlord Jerry L'Ecuyer -- Apartment Association of Orange County president and owner of JLE Property Management -- admits: "I will be surprised if we see a significant rise in rents by the end of the year."
2. Significant homebuying rush: Alexis McGee, president of foreclosure tracker ForeclosureS.com, says housing demand could be the surprise: "While home affordability decreases when interest rates rise, higher rates do not necessarily mean a decrease of buyers and a collapse in the housing market as others believe. The surprise in 2011 will be a strengthening in the housing market from an increase in demand for housing, when buyers who have been sitting on the sidelines, jump in to grab once in a lifetime deals, once historically low mortgage rates rise, before they are gone forever." Joe Davis, partner and executive vice president at homebuilder The New Home Co., think the surprise could be a happy one for developers: "The amount of pent-up demand for new housing in future years as a result of three-plus years of under-supply."
3. Older homebuyers: A record share of homebuyers in 2010 were first-timers, as veteran owners chose to stay put. Dan Young, president of Irvine Co.'s Irvine Community Development Co. homebuilding business, ponders a demographic surprise for '11: "Boomers will get back onto the playing field and begin looking for homes again."
4. 6% mortgages: If 2010 was the year of the 4 percent mortgage, could borrowing have a harsh reality in '11? That would surprise many folks, but not Steve Thomas, president of Altera Real Estate: "Interest rates will be the big surprise of 2011, though, with rates reaching the 6% mark. There's a ton of pressure on rates to increase. An increasing deficit with the Fed printing money at warp speed, a government unwilling to cut spending, and no leader anywhere in the world willing to come up with a definitive game plan to get us out of this pickle, translates to mounting pressure on interest rates." Orange County Realtor and housing market prognosticator Gary Watts agrees: "With all the money pumped into getting this economy going again, there is a great risk of much higher interest rates."
5. More lender bailouts: Laguna Niguel mortgage broker Jeff Lazerson, president of Mortgage Grader, thinks the surprise might be the government playing rescuer again: "Banker's bailout No. 2 will come in the form of a balance sheet clearing of bad commercial and residential debt. Something along the lines of a Resolution Trust Corp. (1990s banking cure) will be created (to buy bad assets.) This is more of a must than any one of us ordinary citizens can imagine. Banks are on the brink of failure again." Realtor Aaron Zapata at Prudential California Realty in Brea wonders if the banking surprise could be psychological in nature: "If Wikileaks follows through with their threat to release sensitive information about one of the major banks in the U.S, I think the general public will be shocked at what they learn. As sensitive information regarding the "why" and "how" policies are made that affect their customers it will play into the fear, skepticism, and distrust that people already have toward their banks."
6. Coastal housing revival: Spyro Kemble, Realtor with Surterre Properties in Newport Beach, thinks a year from now the home market's recovery will be obvious. "Understand that old saying: "No One Rings The Bell When The Market Hits Bottom" and therefore many of us missed that opportunity and wish that someone did ring that "proverbial bell" to get us off of the 'fence.' The days of flipping and using your recent home purchase as an ATM are gone, but I do believe the 2011 coastal luxury market will present itself as being a year of opportunities for buyers who are looking for a home — not a house — and are prepared to enjoy home ownership for the next 5 years while the market continues to get back what it has lost over the previous 5 years."
7. Booming level of distressed owners: Orange County condo expert Veronica Hicks, owner of Condos Etc. fears 2011 won't be pretty for attached housing with a surprising rise in foreclosures. "There will likely be another year where half or more are distressed condos. The life cycle of a condo owner on the average is 3 to 5 years. For owners who have hung on, they may have significantly outgrown their condos or need to make changes. This buyer pool also bought on an adjustable rate mortgage and most won't be able to refinance or modify their loans and may need to get out of their condos." While Kurt DeMeire, CEO of Huntington Beach-based CountyRecordsResearch.com, says the luxury home market could be surprisingly harsh: "A continuation of the significant drop in values in high-end properties and more high-end properties being sold at trustee sales."
8. Renewed development: Scott Monroe, president of the South Coast Apartment Association, says the surprise will be that "Local government will become more supportive of new construction, and will try to expedite good projects. Projects that might historically have taken 24 to 36 months for approval will now be approved in 12 to 15 months. With every local government struggling to survive financially, construction related fees are very attractive to help offset city and department deficits. New construction projects will bring much needed jobs to the area and will infuse the local economy with increased revenue from sources such as sales and property tax." Alan Reay, president of hotel consultant/broker Atlas Hospitality Group in Irvine, thinks local hotel developers could surprise us. "With rebounding values, we are going to see developers start to move back in to the market and we will have signs of new hotel construction, maybe not out of the ground but at least going through the entitlement process." And John Burns, founder of John Burns Real Estate Consulting in Irvine, says homebuilders won't want to be surprised so they "are finally doing real research to figure out what the consumer wants before committing to spend millions in construction costs based on a hunch."
9. Novel lending tools: Sean O'Toole, CEO of ForeclosureRadar.com, thinks loan products may be the surprise: "A new home loan for strategic defaulters. At some point a smart lender will realize that these folks are a great credit risk given that they are unlikely to ever default again. For most the only reason they defaulted in the first place was a 50% decline in home values ... an event I personally hope we are now smart enough not to ever let happen again." Bruce Norris, real estate investor/lender with The Norris Group in Riverside, says the surprise could be "If we're smart, we'll create a zero down payment loan program that allows the loan to be passed on to another buyer in the event of a default. This would create a much needed boost in demand and simultaneously allow the families that lost a home to foreclosure to re-emerge as buyers years before they otherwise would. In addition, with just this new loan program, if the property goes to a foreclosure trustee sale, the opening bid should be only the back payments. Six months of back payments when loans are 4% isn't a very large number. These properties would be purchased by investors wanting rentals. With these two changes -- assumable loans without qualifying and back payment only trustee sales -- we would have created a zero-down loan program with virtually no lender loses."
10. Wishing we bought in 2010: Kurt Strasmann, Orange County managing director for Voit Real Estate Services, a commercial real estate brokerage, thinks the surprise will come from learning that the cyclical bottom is behind us in the big-property markets he watches: "I believe we will see that 2010 was the year to be buying quality real estate or lock in long term leases. Starting next year, you will see value appreciation and a shortage of quality assets to purchase and lease. The reason? Right now we are starting to already have a shortage of quality assets with very limited construction. This shortage will continue and eventually it will result in increasing values on all assets."
11. Unintended consequence: Mortgage broker Randy Johnson, president of Independence Mortgage Co. in Newport Beach, thinks the surprise will be something that goes exactly opposite of what's intended: "I am a big believer in the power or the unknown and the even greater power of the unknowable. Markets have a way of responding in ways that are unpredictable. In a macro-economic sense, there were signs in 2006 that we were in trouble, but very few people foresaw the catastrophic events that led to the current crisis. There is simply no way of anticipating the unknowable. In the micro-economic scale, the world is full of surprises. The Federal Reserve announced that they would be buying $600 billion of Treasury securities with the express goal of keeping long term rates low. The market responded by increasing rates by about one-half percentage point. This is the exact opposite of what they wanted to accomplish. Who were those guys who thought that they were so smart?"
Mark Williams, Broker, ABR, Realtor
