Milken Institute
read bio
California housing: Let the healing begin
By: Milken Institute
October 19, 2010
Are better times ahead for California's housing market? A panel of real estate experts at the State of the State Conference pondered whether affordability and low interest rates would carry the day, or whether continued unemployment would stifle the burgeoning recovery.

We've already cleared out a lot of inventory, noted the Milken Institute's Ross DeVol. In fact, California is well below the national average in terms of the months' supply of homes on the market. He cautioned that a national moratorium on foreclosures would be the fastest way imaginable to kill the momentum.

If we're not at the bottom, we're pretty close, said OneWest Bank CEO Steven T. Mnuchin, and that means we're eventually heading up. This time around, he feels that housing won't lead the economy. He emphasized that the priority has to be job creation -- the housing market will fully recover only when people feel more secure about their prospects. Mnuchin also said lenders have learned their lesson from the bubble years and are much more diligent about underwriting standards.

The market will come back at some point, insisted Emile Haddad, CEO of FivePoint Communities, and that favors investors who can wait things out. He noted that construction permits for new single-family homes are at lows not seen in decades. This restricted supply means prices will eventually rise, especially when inflation kicks in.

Bert Selva, CEO of Shea Homes, followed up Haddad's point regarding new home construction, noting that his own firm went through a period of painful layoffs. He believes the housing market is getting better, though it remains sluggish. Selva thinks that uncertainty and a desire to time the market is keeping buyers on the sidelines.

Market ups and down have happened many times before, said Steve Goddard, president of the California Association of Realtors. He believes there are fantastic opportunities for first-time buyers. When distressed properties are priced correctly, sellers are receiving multiple offers.

Panelists agreed that interest rates are likely to stay at or near their historic lows for the foreseeable future. The market is stabilizing and we are taking steps in the right direction, but it will take more time to work our way through foreclosures. Now the task is to create jobs and confidence. Once that happens, predicted Goddad, "California will lead the nation out of this."