Us: How would you describe the state of the Orange County/Southern California home market today? What's a reasonable time frame for a turnaround?
Gary: I would describe the market as stable. Given the large run-up in home prices over the past decade, and the current market conditions, I would expect this to persist for the next two years.
Us: How does it relate – or not – to the local apartment market? Fewer homebuyers would seem to be good for landlords. Homeowners forced to rent out properties would seem to create competition.
Gary: This is a great time for landlords. Rents are expected to be increasing for the next couple of years. This is partially due to catch-up in rents, which have lagged behind house prices, and partially due to less demand for owner occupation. While homeowners may rent out properties, there will not be enough of these to keep rents from going up.
Us: How much of an issue is availability of mortgage money today, vs., say, a year ago. Obviously, the marginal buyer/borrower is finding loans are much harder to get.
Gary: It is a big issue for the marginal buyer. As homeownership rates are at or near all time highs, the only way for the marginal buyer to get into this expensive market was for very favorable terms for mortgage financing. With the implosion of the subprime market, this credit has dried up. This means that more properties will stay on the market longer, but because the economy is still strong, there is no reason to expect a sizable decline in home prices.
Us: What events or trends might change your outlook, good or bad?
Gary: Job losses in the region could cause a prolonged decline in prices. A global financial crisis could dry up the current high levels of liquidity, and lower demand for real estate. Ironically, lower corporate earnings and lower stock prices could cause more capital to flow toward real estate.
Us: Any less-than-obvious numbers you're watching carefully that perhaps I or other market observers should follow, too? Why?
Gary: Always keep an eye on China currency. If they decouple it from the dollar, then it could lead to inflation and higher interest rates.