OC Real Estate Voice

The New Housing Policy – Will It Repair the Housing Market?

Linsey Planeta — Wed, 01 Sep 2010 14:35:43 +0000

Recently a friend and colleague, Robert Hahn, encouraged the readers of his own blog to submit posts for his upcoming ‘Carnival of Housing Policy’, hoping to collect thoughtful discussion around the potential changes in housing policy.

I’ve been somewhat reluctant to participate so I’ll start with this disclosure: Until recently, I have followed politics superficially at best, I have limited understanding of how housing policy is decided upon, and I generally think Hahn derives some pleasure from his consistent ’sky is falling’ outlook. That being said, I will credit Hahn with a breadth of understanding on the topic, and a careful consideration of the political underpinnings. He inspires me to become significantly more aware of the way the political environment impacts the industry and overall economy. Clearly, in today’s environment, a superficial understanding falls far short.

And while I try to avoid politics here, the current market environment makes it unavoidable. The current administration policies have pushed us closer to Socialism than we’ve seen before in our history - whether it’s Wall Street, the automobile industry, or health care. The housing market appears to be next.

Much of what I deal with on this blog tends to be local market considerations. Yet, there is no question that the changes that are clearly coming down the pike have the potential to have a massive impact on the housing market – nationally, and locally, so I feel like it certainly has a home here.

Housing Policy Changes in the Air

July’s housing numbers rocked the nation. They had been expected to be low given the expiration of the home buyer tax credit, but sales down 27%…that was a little steeper than had been anticipated. In the days following, it created a tidal wave of response. I saw articles come out on, and offline, both indicating this was nothing to worry too much about, as well as those that would make one decide not to get out of bed again…ever.

There’s no question, housing policy is one of the most important matters impacting our economy today. And certainly significant change is coming. As Treasury Secretary Timothy Geithner states, “This administration will side with those who want fundamental change. It is not tenable to leave in place the system we have today.“ It’s the specifics of that change that are of interest and of concern to me.

‘Fundamental change’ is too ambiguous at this stage. I’m interested in seeing change that reflects a solution to the existing problems. What parts of the ’system’ that got us here – are not ‘tenable’? Let’s come from the three C’s of home ownership perspective:

Capacity – the ability to repay the loan (employment history, salary)
Credit – the history of how one has paid back debt
Collateral – the value of your home (recently justified by overbloated appraisals brought about by easy lending practices)

What if we simply embrace these simple tenants: make quality loans, with credit worthy individuals, on quality property. In the past decade, had we not swayed from that simple idea, it’s highly likely, we wouldn’t be here.

No More Mortgage Interest Deduction?

Since Hahn has one more of the dismal outlooks, I think it’s interesting to examine it from his ‘worst case scenario’ environment. In a recent post, he speculated on some of the possibilities:

1- The mortgage interest deduction will be eliminated, or at least sharply scaled back
2 – Fannie/Freddie will wind down participation in the single family residential market, and raise participation in multifamily housing (aka, rentals)
3- The 30-year fixed rate mortgage is headed to the ash bin of history; I rather expect the “new normal” will be something closer to a 10-15 year adjustable rate mortgages that adjust every year or even every quarter.
4 – Down payments are headed up, up, up from its current levels (some FHA loans are still requiring only 2-3% down); Bill Gross of PIMCO has said that if he were funding mortgages, he’d require a minimum of 30% down payment. I think that’s where we’re headed.
5 – Some form of national regulation for rentals, in order to (a) encourage rentals by those who would otherwise be first-time homebuyers, and (b) protect renters from eeeeevil landlordz. It may be as heavy handed as a national rent control regime, or (more likely) an expansion of Section 8 to include far more “middle-income” units.

Are These the Changes That Repair Housing?

There are some valid arguments for some of the preceding speculations. As Hahn states, “…the overall impact is to decrease the pool of buyers, drive housing prices lower, and have fewer transactions.“ This may in fact be a requirement of the overall recovery. There were less buyers, lower prices, and less transactions when stronger lending practices were in place.

However, when the Housing Policy changes are considered I wonder about this simple statement of fact from Mark Zandi, Chief Economist for Moody’s Analytics, “…when housing values are falling, nothing really works all that well in our economy.“ Our economy cannot possible heal with a crippled housing market. And some of these speculations from Hahn only seem to me as the types of things that can only further cripple the housing market, in an extreme way.

While Hahn is rather fluent in politics and rather adept at speculation, one area of expertise I have is in understanding the profile of today’s distressed homeowner. I know what it’s like to sit across the kitchen table from someone that is faced with these very real and personal set of circumstances.

Lest the Pendulum Swing Too Far in the Other Direction

I will grant you, in the early days of this crisis, those faced with short sale scenarios or potential foreclosure, might have been the higher risk buyer profile. They may have been the 100% down buyer. They may have had the ‘Neg-am loan’ or some other questionable loan program. They may have been the buyer that had borderline qualifications coming into this game.

However, the Orange County homeowner of today that sits across from me at the kitchen table is often the one that put a fair amount of money down, they may have been highly qualified, excellent credit, documented income sources, and yet, with the decline in values, personal circumstances (divorce, long term unemployment, relocation) they are forced into a financially devastating course they couldn’t have anticipated. And these homeowners ask the same question nearly every time: ‘How long do you think it will be before I will recover enough to be able to buy a home again?‘ They ask this because they value home ownership. Remember, they were not in this market for a quick turn on their money. While some bought houses, the short sale/foreclosures we are seeing today are the buyers that bought homes.

These individuals consider home ownership as part of their claim to middle class. They certainly consider it part of their ‘American Dream’ and they fully anticipate their ability to reestablish that claim. They are voters. They have historically been high income earners. And I highly doubt they will be interested in satisfying themselves with long term rentals as their housing solution.

And why, in the course of establishing a National Housing Policy, would we take measures that serve to cripple the ability for those individuals to own again, cripple the potential recovery, and cripple our ability to recover some economic stability – because clearly, they go hand-in-hand.

The Meaning of Home Ownership in The United States

It’s interesting to look at the psychology of home ownership in this country. The big land rushes of the late 1800’s illustrate the deeply ingrained desire to own a chunk of dirt to call your own. That desire is something you can’t simply legislate away, and I really believe voters’ voices will be heard when you start hacking away at their long term ability to grab that golden ring once again. I think it will take more than a Time Magazine article to convince them that home ownership is not all it’s cracked up to be.

There was a time when home ownership was valued for the sake of owning a home, and not much more. Then came the profit taking in the later 80’s as home prices soared with the onslaught of dual income families. The late 90’s and early 2000’s brought easy money and get-rich-quick buying, leading to our current collapse.

But I still believe, most folks want to own their home, they will take a mortgage to buy it – maybe even without a mortgage interest deduction. Prices may fall. Maybe we’ll adjust our expectations. Maybe we’ll begin to be satisfied with a slow appreciation over the life of a homeowner, rather than the promise of a lifetimes wages in a year or two of owning a home.

Kicking the Dog While It’s Down…

Some of the things Hahn is speculating may indeed come to pass, in one form or another. But, I think there is value in considering the fact that kicking the proverbial dog while it’s down, may not be the answer. Bill Gross, with PIMCO, states, “Policymakers should quickly re-engineer a refinancing opportunity for all mortgagees that are current on payments and are included in GSE securitized mortgages.“ There are some solutions that could be examined that help sustain those that are currently impacted and in turn further housing and economic recovery.

The pendulum may have swung too far in encouraging home ownership, but it would seem a mistake to me to have it swing so far the other way that we eliminate the ability for our middle class to recover and reclaim their ability to own once again.

BTW Rob – it may satisfy you to know, this may be one of the longest posts I’ve ever written.

Goodbye Formal Living Room, Today’s Orange County New Home

Linsey Planeta — Mon, 23 Aug 2010 04:25:29 +0000

New home construction has begun again in Orange County. But there are some significant differences from the standpoint of the developers, as well as the product that is being offered, and who is actually working with the home buyer. Few things are as they were during the construction boom of the early 2000’s.

Who Is Building My House?

It’s not exactly a coup for the home building industry. The big beneficiary of this new construction will rest squarely with the land owner, The Irvine Company, or Donald Bren. Of course, we understand that one of the biggest land owners in Orange County would have a good deal to gain, so how is this different?

Normally a home builder ‘takes down’, or buys the land and they develop that housing project. Today, the builder’s inability to secure financing has forced home builders out of the role of developer. Instead, in the most recent, and upcoming projects you see in Irvine, The Irvine Company has decided to step back into the role as developer. They are responsible for sales, marketing, warranty, design, options, etc.

And the home builders they have hired for the construction process are in essence, simply acting as general contractors. The home builders are taking what they can to stay afloat and finding new ways to adapt their company skill set in this economic environment.

It helps to illustrate the pains that the builder Lennar is experiencing as land owner for the languishing Great Park. Without the ability to finance, development continues to be at a standstill.

No More McMansions – Today’s Housing Product

The Irvine Company has been around the proverbial block once or twice. Their development plans have been well thought out. They’ve carefully crafted a plan based on solid consumer research, a real understanding of the local economy, and I suspect, a fair amount of insight into the National Housing Policy.

The emphasis is clearly on higher density product – apartments, condos, and high density single family housing with nothing over 2500 square feet. Long gone are the days of the McMansion development.

The Characteristics of Today’s Orange County New Home

Open floor plans – big windows, great rooms tied to the kitchen. Great rooms are genius – space where we live!
Granite is standard – we love our granite for some reason
Goodbye to formal areas – don’t pretend you are disappointed. I sit in my formal living room once a week, just to say “See, I use it”. My husband would rather move the furniture out and use it as an indoor football field.
Pre-wired for plasma television – sorry, I just can’t relate to our love affair with the idiot box, but there it is….and standard no less.
Big fireplaces – slightly confused here, but they didn’t call me for this one. It can’t possibly be those harsh cold winters…maybe we’re just romantics.
California Rooms – now this, I like. They are stucco covered patios with ceiling fans in the backyard – it’s a form of extending the living space. The downside, when you have little or no yard (as these developments surely do), it pretty much takes up what little yard space you have.
Smaller homes – no more sprawling floor plans and massive square footage. Very little is over 2500 square feet.

But Is Anyone Buying? Actually, They Are …In Irvine

There’s an interesting phenomenon happening in Irvine. Demand has remainded strong throughout this bubble burst, and interestingly enough, Irvine has one of the lowest percentages of distress inventory in South Orange County. It appears to be it’s own micro-economy supported by local industry, UCI, and the long-standing desire that consumers have had to own within Irvine.

The premium location, the highly ranked school district, the low crime rate, and the ease of commute, keep Irvine highly sought after. Recently, the KB Home’s Southern California president stated that the KB Coronado development in Irvine, was their best selling product in the nation.

By creating lower price points with some of the new high density product, those that have wanted to live in Irvine, but previously may have found it out of reach, are finally finding their way in. This type of product has never been available on the ‘ranch’. Homes are selling same day as release and people are on a waiting lists.

The upcoming projects will continue to be in Irvine and some development is slated for the Laguna Audubon area. Although the original product was to be luxury, large homes, those projects have again been scaled back to high density product as well.

Robinson Ranch – Low Taxes and Magnificent Views

Linsey Planeta — Tue, 03 Aug 2010 16:27:19 +0000

Robinson Ranch is a unique community, just Northeast of Rancho Santa Margarita. It’s technically in the Trabuco Canyon zip code and is one of the gems of South Orange County. Few neighborhoods afford the views found in Robinson Ranch.

Friends know that I think one of the great gifts of South Orange County is Saddleback Mountain. Growing up in Southern Oregon, surrounded by hills, mountains and lush trees, I have often struggled with the Southern California transition. Part of the reason we chose to live in the Rancho Santa Margarita area, was the solace I find in living with that mountain as the backdrop.

Robinson Ranch is a community served well by the varied elevation, affording residents spectacular city light and Saddleback Mountain views. With just shy of about 1500 homes, it’s got an intimate feel in the vastness of Orange County.

Property taxes are relatively low. Original period of construction varies from late 80’s to early 90’s. Beautifully planned with large greenbelts, tennis courts, trails for hiking or horseback riding, this community is one that continues to appeal to buyers attracted to close-knit communities, cul-de-sacs and views.

Robinson Ranch is served by the Saddleback Valley Unified School District.

Here are a list of the current homes for sale in Robinson Ranch

1 - 27 of 27 active listings.

$340,000

32032 Lazy Glen Ln

MLS: 95493257616

Beds:2 Baths:2

SqFt:1100 YrBlt:1985

OC Real Estate Voice

The New Housing Policy – Will It Repair the Housing Market?

Housing Policy Changes in the Air

No More Mortgage Interest Deduction?

Are These the Changes That Repair Housing?

Lest the Pendulum Swing Too Far in the Other Direction

The Meaning of Home Ownership in The United States

Kicking the Dog While It’s Down…

Goodbye Formal Living Room, Today’s Orange County New Home

Who Is Building My House?

No More McMansions – Today’s Housing Product

The Characteristics of Today’s Orange County New Home

But Is Anyone Buying? Actually, They Are …In Irvine

Robinson Ranch – Low Taxes and Magnificent Views

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