SAN FRANCISCO — Call it the trillion dollar question: When will housing markets turn?

Experts like PIMCO managing director Bill Gross say that when all is said and done, the lending and finance industry could tally up $1 trillion in cumulative losses in the housing downturn.

SAN FRANCISCO — Call it the trillion dollar question: When will housing markets turn?

Experts like PIMCO managing director Bill Gross say that when all is said and done, the lending and finance industry could tally up $1 trillion in cumulative losses in the housing downturn.

Because banks and other lenders need to maintain about $1 in capital for every $10 they lend, that could translate into a $10 trillion contraction in borrowing, said Patrick Stone, chairman of The Stone Group, during a panel discussion at the Real Estate Connect conference.

Considering that U.S. gross domestic product (GDP) is around $13 trillion, the impact on the economy could be "very severe," Stone said. The credit crunch is like a guillotine hanging over the economy’s head, and with dozens of banks thought to be on the Federal Deposit Insurance Corp.’s watch list, it’s hard to feel at ease.

"The number one thing I focus on is the stability of the financial system," agreed New York-based appraiser Jonathan Miller, co-founder of Miller Samuel Inc. "Right now we have lenders on the brink."

If lenders were too lax during the boom, now the pendulum has swung too far the other way, making it harder for would-be borrowers to obtain loans, "which is choking affordability," Miller said.

Miller questioned the wisdom of trying to call a bottom, saying that’s “not the dialogue we should be having." All housing markets are local, Miller said, "and to sit here and call a bottom is not something that’s going to pull you in as professional and say (to clients), ‘I understand my market.’ “

Stone said he thinks about one-third of the nation’s housing markets have hit bottom, and the rest will bottom out in a year.

Joel Singer, executive vice president of the California Association of Realtors, said a bottom may already be forming in California markets. CAR reported Friday that while the median home price in California fell 37.7 percent in June compared to a year ago, home sales were up 17.5 percent.

"Purely numerically, statistically we have hit bottom in California," Singer declared. With more than 60 percent of sales activity in the state driven by foreclosures, Singer said, it could be a "false dawn." But, he said, "I tell my daughter, who is 26, she needs to buy a home right around the end of this year."

Singer’s declaration brought a round of applause from the crowd of Realtors, agents and real estate vendors assembled in the Grand Ballroom of the Palace Hotel on Friday, the final day of the three-day event.

But Singer said it will be a long time before prices in California rebound, and said he shared concerns about the health of the finance and lending industry. Losses at Fannie Mae and Freddie Mac cast doubt on something borrowers have always taken for granted, he said — the secondary mortgage market and the availability of mortgage loans.

While the Bush administration and Congress have agreed to provide Fannie and Freddie with a capital backstop, other casualties in mortgage lending and the tighter underwriting standards put in place by those who remain may continue to restrict borrowing.

"I’m not sure we could deliver enough mortgages at this point (to) … actually get much above our current level of sales, given the mortgage delivery system," Singer fretted.

There’s also the fear that if inflation gets out of hand, mortgage rates could climb, too, further reducing the buying power of would-be homebuyers.

During a "Bull vs. Bear" discussion panel at the conference on Wednesday, economist John Williams of the blog said government statistics underestimate inflation, and that he expects to see hyperinflation at some point in the future. Another influential blogger, "Bill" — one of the anonymous authors of the blog Calculated Risk — told a Connect audience that while weakness in the dollar has helped U.S. exports, he is "bearish on home prices" in general for the next several years.

"I’ve been forecasting (a bottom) between 2010 and 2012 for most bubble areas," the blogger known as Calculated Risk said. "Bill" said he doubted a sweeping housing bill that’s headed for President Bush’s desk will provide much relief, noting that a $300 billion expansion of FHA loan guarantee programs depends on voluntary participation by lenders who will in effect have to write down properties to 85 percent of their currently appraised value.

Last week, analysts at Fitch Ratings who evaluate mortgage-backed securities announced they’d updated their loss models and now expect national home prices to decline by an additional 25 percent on average during the next five years.

Fitch’s ResiLogic model now has the ability to look at risk in 25 individual metropolitan statistical areas, and predicts prices fall as much as an additional 47 percent in the San Diego area and 33 percent in San Francisco during the next five years while rising in other areas such as San Antonio, Texas.

Alex Perriello, chief executive officer of Realogy Franchise Group, said that consumer confidence has been rattled by press reports that focus on national numbers.

"What we’re telling brokers to do, number one, is that you need to know the numbers for your local market," Perriello said. Even sales associates, as the employees who deal directly with clients, should have very granular knowledge of their local markets.

Brokers and agents need to be providing sellers with fresh comparative market analysis (CMA reports) every 30 days, and talking about adjusting their asking price, if necessary, he said, adding that some agents build requirements to drop sales prices on listings that don’t sell within 30 days right into the listing agreement.

In the New York market, Miller said, pricing a property correctly is like an on-off switch. If you’re off by a little, buyers won’t even bite.

Brokers and agents should mine past clients for seller leads, Perriello said.

"Anybody who bought in 2002 or earlier probably has significant equity, and now is a good time to be a rainmaker," Perriello said. "Show them what house they could move up to, and what it would cost them to make that change."

To boost consumer confidence, Perriello restated a piece of advice he’s been handing out for months. To counteract public perception that the housing market is in decline, he said, agents and brokers should dedicate 20 percent of their advertising to promoting sold listings. When taking out a newspaper ad promoting five properties, one should have a sold banner on it, he said.

Not that brokers should be spending much on newspaper ads, Perriello said. Instead, brokers should be looking to move their offline advertising online as quickly as possible, he said, and shifting expenses from brick-and-mortar branch offices into their online presence.

"I would, in three to five years, have a plan to reduce my occupancy costs by 30 to 50 percent, and take that savings and invest it in my Web site," Perriello said.

Perriello said agents and brokers also need to be communicating with renters, who are waiting to time the market. A new $7,500 tax credit for first-time homebuyers in the new housing bill should get them off the fence, he said.


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