Burning question How low will the real estate market go?
By Stephanie Bertholdo bertholdo@theacorn.com

Home sales in Ventura County continue to drop, and home prices are just beginning to sag, but exactly how long the real estate market will stagnate and how low home price will go is still a question mark, according to a group of speakers at a recent Ventura County Real Estate and Economic Outlook Conference at Hyatt Westlake Plaza.

The vicissitudes of real estate aside, the subprime mortgage debacle has pushed home loan defaults to a 15-year record high, according to Mark Schniepp, director of California Economic Forecast, a Goletabased firm that co-sponsors the twice yearly look into the state of real estate.

"The number of foreclosures is surging and will soon reach unprecedented levels," Schneipp said in 2007 Ventura County Real Estate and Economic Outlook, a book produced for participants. He predicts the downward real estate cycle will continue for a number of months before gradually rejuvenating home sales and prices.

Schneipp said thousands of subprime loans, coupled with declining home prices, rising mortgage rates and a "spate of foreclosures" has created the "perfect recession stew" for California real estate well into 2008. But Ventura County is expected to fare better than the norm.

Schneipp predicts Ventura County real estate will level out and experience a total price drop between 10 and 15 percent, he said. Not bad if predictions on other California real estate markets are expected to dip down 18 percent.

While a record number of default notices have been sent out to California homeowners, only 317 homes have been foreclosed upon in Ventura County, according to Schneipp. Visit the website www.foreclosure.com for updates.

The current real estate slowdown shouldn't be compared to the recession in the 1990's, Schneipp said. At that time, the downturn carried on for 71 consecutive months, resulting in a 27 percent drop in prices. Schneipp said it seems "unreasonable and improbable" that history would repeat itself in such a cycle.

On the commercial end, office vacancies in the county are among the lowest in California. Apartment rentals are still tight, and rents continue to rise. "I don't see any major fallout in this area," Schneipp said.

But two local business giants- Countrywide and Amgen- have laid off thousands of employees, which adds to California's economic woes.

Although home sales are at a 20-year low, Schneipp believes other indicators should breed optimism. Incomes have remained steady, widespread layoffs have not happened, and "homebuyers are not fleeing," Schneipp said. Job growth, however, has slowed.

Terry Paulson, a psychologist, columnist and author, spoke at the conference and offered a different spin on the economic downturn. His talk, "Reclaiming the Optimism Advantage in Challenging Economic Times" demonstrated how bad news about subprime loans, a volatile stock market, foreclosures and corporate layoffs have a psychological impact on people that perpetuate the bad economic cycles longer, and perhaps deeper.

"We're grossly over-informed about bad news," Paulson said. After monitoring the evening news for 100 nights, George Washington University counted 8,600 negative news reports versus 370 positive accounts.

Paulson sees the silver lining in the drooping economy. Young, first-time buyers have a better chance buying a home if prices drop, and new investment or business opportunities often open during stressful events.

"You have to position yourself for opportunity," Paulson said. "Difficult times force you to do things that are not in your comfort zone."

William Dallas of Dallas Capital Management, who also founded Oaks Christian High School, spoke on "Rising from the Carnage in Real Estate- What's next?"

Dallas also sees opportunity in the wake of economic downturns. He said the credit markets may be in a shambles, but a return to better lending practices will be a healthy move.

Dallas sees three possibilities for economic recovery. First, the subprime crisis may be overblown, he said. "It's about people who are credit damaged," he said. In geopolitical terms, the issue is minute.

"We're about to enter a normal cyclical recession," Dallas said. Finally, the crisis may lead to fundamental changes in how the United States' banking and mortgage industries operate.

Dallas expects the real estate market to bottom out in 2007 but start its climb back to recovery in 2008.

"During the past 10 years a comatose dog would have made money, but now you have to be a lot smarter," said conference participant and personal investor, Andrew Snelgrove.