Single family home sales in California will be up 12 percent in 2008 over 2007’s sales, but average home prices will be down 33 percent compared to last year, economist Leslie Appleton-Young predicted during her annual Shorewood Realtor’s address last Wednesday at the Manhattan Beach Marriott.

In August of this year California median home prices were down 40 percent from August 2007. In the Beach cities, median home prices were down 24 percent, from $1.15 million in August 2007 to $875,000 this past August.
Instability in the housing and financial markets, Appleton Young stressed, is not only the result of subprime loans.

Cheap credit and lax underwriting were in part to blame she acknowledged. Prior to 2004 subprime loans accounted for just two to three percent of loans. After 2004 the number jumped to 15 percent. Nevertheless, 96 percent of homeowners are making their mortgage payments on time, she said.

The financial crisis is way more than a housing issue. You really need to look behind the curtain at a lot of things, which in retrospect, should never have happened in an unregulated environment, Appleton Young said.

Refinancing to cash out had nothing to do with selling homes. Homeowners who used their houses as ATMs went from solid loans to riskier loans and got in trouble, she said.

Another factor that had little to do with our industry was technological innovations on Wall StreetWhen George Bailey was making loans in Bedford Falls deposits from the community were used for loans to the community. Most lenders were portfolio lenders ‘ they kept the loans.

Today it’s not so simple, she said, while recalling investor Warren Buffet’s observation that derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.

The financial meltdown has been traced largely to banks selling bundled mortgages, which lost value when large numbers of sub prime borrowers defaulted.

Now it’s an issue of credit and liquidity. Fortunately Federal Reserve chairman Ben Bernanke’s dissertation was on the Great Depression. He won’t make the mistake of Hoover, whose credit policy led to the banking crisis.

Kudos to Washington ‘ after blowing it ‘ for pulling out all the stops, she said.
The question is, How long until the stock market hits bottom? I don’t think it will be long, but no one knows.

In the housing market, some analysts see the slump continuing through 2011 because of foreclosures, she said.
Look at the resets. Most mortgages that originated in 2005 had two year adjustments. But a lot of others are coming up. We need the bad loans to be cured, modified or burned off so we can get a stable market, she said.

In the meantime, she said, be prepared for new lending regulations.
A rollback to where you had to document your income… and first time buyers put 15 percent down is a reasonable thing to ask. Home ownership is a wonderful thing, but not for everyone all at the same time, she said. ER