ON the surface, a glimmer of confidence is returning to the battered US housing market, after more than three years of gut-wrenching defaults, price slumps and foreclosures. But investors and homeowners in California, the most populous US state and a benchmark for housing across the country, are bracing for another fall as emergency government support measures fall short or expire. “All that has been achieved is to put off the real pain until later on,” said Mark Jacques, a mortgage broker in Corona Del Mar, California. “I'm hunkering down for the storm.” California led the United States when housing prices soared early this decade, spurred by an array of public policy incentives to encourage home ownership. The boom fueled a frenzy of lending and spending that drove the US economy. But California proved to be the epicenter of reckless lending that pushed housing throughout most of the United States over a cliff in 2007, triggering a credit crisis that plunged the world economy into recession. The sobering view now from ground zero of the US property market underscores the problems faced by President Barack Obama as he tries to fix the US economy. Washington is trying to stem rising numbers of homeowners who cannot afford their mortgages as job losses mount. Housing prices have fallen to levels not seen since 2003. But even investors pouring millions of dollars back into real estate say it may take up to four more years for California's housing market to settle. The reasons why – rising foreclosures, joblessness and tight credit – are not unique to the state and may have already slowed a recent recovery in places like Florida. A first test of the US housing rebound could come with the scheduled Nov. 30 expiry of an $8,000 tax credit for first-time buyers. The plan has resulted in 357,000 home sales so far in 2009, out of a total 3.88 million, according to a survey of realtors by research firm Campbell Communications Inc. Ending the credit will likely cause a drop-off in buyers, or a “false peak” of the budding housing recovery, according to John Burns Real Estate Consulting in Irvine, California. In a sign of concern in Washington that the housing market cannot yet stand on its own feet, administration officials say they are considering an extension of the credit. Helped by government measures and a sense that the worst of the price slump is over, US home prices have risen nearly 4 percent from their low point in April. But the bounce was preceded by a 33 percent slide since the peak in July 2006. Bidding wars, weak outlook The nascent housing recovery has combined with stronger data in other sectors to suggest the US recession is over. This has helped thaw credit markets that are the lifeblood of the economy. Bidding wars are breaking out in some areas. Sales are now routinely above asking prices in California, from wealthy Orange County towns like Irvine to harder-hit San Bernardino County in the high desert east of Los Angeles. “The number of people around with cash right now is unbelievable,” said Janice Konkol of FirstTeam Real Estate in Irvine, showing a foreclosed home on the market for nearly $650,000. Business cards littering the kitchen counter told of frequent visits by realtors. The house sold for $890,000 in mid-2007 – and when new in 2002 for $461,000. But the underlying picture remains weak. Efforts by the government and by banks to help struggling homeowners cut payments and stay in their homes are outpaced by mortgages going bad. The mortgage-modification programs risk being swamped by rising unemployment. “Whether we put a dent in it is hard to say,” said JC Ferebee, manager of Wells Fargo & Co.'s team at a mass modification event in Los Angeles. The event drew 50,000 people over five days, hoping for mortgage-reduction deals to help keep them in their homes, according to the organizers, the Neighborhood Assistance Corp. of America. It presses banks to avoid foreclosures. “When you look at the whole culture right now and the economy with the jobs situation ... it's a domino effect,” said Ferebee. The US jobless rate in September hit a 26-year high of 9.8 percent and is likely to head into the double-digit levels already suffered in California. The jobless rate is usually considered to be a lagging economic indicator because employers are slow to hire after a recession as they wait to be sure a recovery is for real. Economists fear that a protracted and high unemployment rate this time will deter Americans from spending more again on houses and goods, raising the prospect of a slow recovery. “If the economy continues to lose jobs, demand by consumers becomes inhibited even if you have very low (interest) rates,” said Mohamed El-Erian, chief executive of Pacific Investment Management Co., the world's largest bond fund manager. Aware of the risks posed by unemployment to the economy, the Obama administration is considering extending unemployment benefits as well as the first-time homebuyer tax credit.
