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Real Estate Recovery Won’t Arrive Till 2013 Or Beyond

The real estate market will see improvement in the remainder of this year and in 2012, but is unlikely to recover until 2013 or beyond, said speakers at this week’s Pacific Coast Builders Conference (PCBC). The conference is sponsored by the California Building Industry Association.

Held yearly at San Francisco’s Moscone Center, PCBC attendees include builders, investors, developers, manufacturers, scientists, architects, environmental engineers and landscapers, among others.

“We’re in a ‘broken W’ economy. A couple of quarters up, then down,” said Ken Rosen, chair of UC Berkeley’s Fisher Center for Real Estate and Urban Economics. He was one of three panelists in a session titled “Translating the Macro Economic Forecast to Real Local Market Knowledge.”

“The housing market may have bottomed, but chances of a housing recovery this year are pretty slim,” said Elliott Pollack, CEO of Elliott D. Pollack & Co., an economic and real estate consulting firm.

Overall, “the recovery is happening, it’s just not happening as fast as we’d like,” Rosen said.

Tight credit restrictions are one of the biggest factors constraining that recovery, he said.

“Thirty to 40 percent of the people who want to buy a house don’t qualify,” he said.

“Credit should be loosest at the bottom of a cycle,” he added.

Because 78 percent of all mortgages are held by Fannie Mae and Freddie Mac, he said, it’s up to them to ease credit standards. But any progress on that front is unlikely to happen until after the 2012 presidential election, he added.

“We won’t see anything happen until they change policies in Washington. I don’t see that happening until 2013.”

Rosen predicted homeownership might reach a low point of 65 percent before then. The rate was 66.4 percent in the first quarter of this year.

Citing CoreLogic data, he said prices for traditional, nondistressed homes are likely up slightly year-over-year. But distressed properties are “inventory we still have to liquidate,” he added.

In a separate panel, Rick Sharga, senior vice president of foreclosure data site RealtyTrac, said that at the current sales pace of about 500,000 a year, there is a 12-year supply of distressed properties hanging over the market.

That calculation includes 4 million loans currently delinquent, 1.1 million homes currently in the foreclosure process, and nearly 900,000 REOs (bank-owned properties).

That 12-year supply is a “worst-case scenario,” he said. “It won’t be that bad … but that’s the batch we have to get through.”

Some of those loans will be cured or modified, or the homes will be sold as short sales or traditional sales, he added. The biggest factor that will affect that supply, however, is a recovery in the economy, he said.

Not only should sales demand pick up, but those with delinquent loans “would have the financial wherewithal to meet” their obligations, Sharga said.

The economy lost 8.8 million jobs as a result of the downturn and has gained only 2 million of those jobs back, Rosen said. He expects the economy will regain 0.7 million jobs this year, 1.7 million in 2011, and another 1.7 million in 2012.

“It’ll be 2014 or 2015 before we regain those jobs,” Pollack said.

Much of the crisis in jobs stems from structural problems in the job market, said John Silvia, managing director and chief economist at Wells Fargo Securities LLC.

“We just have too many people in the wrong spot who don’t have the skills to compete in the 21st century,” Silvia said.

As a result of high unemployment, household formation rates have slowed, Pollack said.

“Your 25- to 34-year-olds, your first-time homebuyers, where are they? They’re living at home with mom and dad,” he said.

“When jobs improve, so will the (housing) market.”

While building activity will increase progressively between now and then, Pollack said “balance between supply and demand will not be fully achieved until about 2014. By that time, I think housing prices will go up a lot, a lot more than people are anticipating.”

His prediction echoes a survey conducted in April that found that most U.S. adults don’t expect a housing recovery until 2014 or later.

According to a report released today from the U.S. Census Bureau and the Department of Housing and Urban Development, sales of new, single-family homes rose an estimated 13.5 percent year-over-year in May to a seasonally adjusted annual rate of 319,000. Sales fell an estimated 2.1 percent from April. The median sales price of new homes fell 3.4 percent year-over-year in May, to $222,600.

Unsold inventory of new homes stood at seasonally adjusted estimate of 166,000 at the end of last month — a 6.2-month supply at the current sales pace.