Over the weekend my phone rang a little more than usual and I eventually figured out it was because I had been quoted in the LA Times in an article about the solar land market.  I almost didn’t even remember talking to the reporter, it happened so long ago.  I think I talked to her in August (or about then).  Anyway, it’s an interesting study in journalism.

When the reporter called, I got the sense that somebody had told her that there were companies who were controlling cheap land options on federal land and that these companies stood to make a lot of money essentially on the backs of the tax payers.  I let her know that I didn’t really deal with that part of the market and then I think we had about a 30 minute conversation on solar development on private land that focused mainly on the challenges that solar companies have to deal with.  These challenges are very near and dear to my heart because they are currently standing between me and a sizeable amount in commission income.  So when I talk to people, the challenges are typically what I talk about most.  It’s also worth noting that speculation on federal land wasn’t a key part of the story so I’m assuming that the other people the reporter talked to also disabused her of her original idea for the story.

The reason I mention this is because the gist of the article is solar land prices.  Solar land prices were a story from 2008-2011, but really aren’t any more.  So basically this story is reporting a trend from two or three years ago and presenting it as if it’s news today, which it isn’t.  Most of the land acquisition has already happened.  Most companies have moved past land acquisition into permitting and power marketing. 

If there is a story to report as far as land prices, it’s that prices are falling.  The prices that utilities are willing to pay for energy are falling, and solar panel prices are falling, so land can’t keep going up in value forever.  In fact, much of the land has been so over-speculated that when a company cancels an option contract, there often aren’t any remaining companies willing to take a new shot at the land.

I often deal with landowners whose primary source of information is the newspaper.  They read that Obama is bullish on alternative energy, they read stories like the one in the LA Times, and they think they understand the forces that shape the market.  But I am somewhere between an outsider and an insider when it comes to the solar land market and my outlook is generally 180 degrees different from most of the land owners who get their information from the newspaper.  I think that’s something of a comment on the relative value of journalism in today’s world.  This is the only article I’ve read recently where I was both something of an expert on the topic, and was also involved in the collection of the information, and I didn’t feel like the actual article really touched on the important themes.  When that happens, you start to wonder about the relative value of everything else you’re reading.

And it now appears we can look for the bottom in prices. My guess is that nominal house prices, using the national repeat sales indexes and not seasonally adjusted, will bottom in March 2012.

The problem with using the house price indexes to look for a bottom is that they are reported with a significant lag. As an example, the recently released Case-Shiller index was for November and the index is an average of September, October and November – so it is a report for several months ago. The CoreLogic index is a little more current – the recent release was for December, and CoreLogic uses a weighted average for prices December weighted the most – but that is still quite a lag.

Both of those indexes will bottom seasonally around March, and then start increasing again.

There are several reasons I think that house prices are close to a bottom. First prices are close to normal looking at the price-to-rent ratio and real prices especially if prices fall another 4% to 5% NSA between the November Case-Shiller report and the March report. Second the large decline in listed inventory means less downward pressure on house prices, and third, I think that several policy initiatives will lessen the pressure from distressed sales the probable mortgage settlement, the HARP refinance program, and more.

via Calculated Risk: The Housing Bottom is Here.

In our local market we’re running up against the very real problem of declining (to gone) REO inventory for residential development sites.  The interesting thing is that the housing market has been flat to down for the past three years that it’s taken for that inventory to burn off.  This has created a dynamic where vulture buyers continued to buy into a market whose fundamentals appeared to worsening.  Housing prices were actually declining for much of that period, even if they were declining slowly, or the declines weren’t dramatic.

Potential investors over that time who might have asked themselves the question “Has the market bottomed?” could have realistically answered themselves with a “not yet”, and yet the time to buy might have passed them by had they decided to wait for the rock bottom.

It’s impossible to know right now whether the vulture investors of the past three years were right to buy when they did.  Only time will sort that out.  There’s always the possibility that their money could have been better deployed elsewhere.  But what we do know is that if better deals are to be had going forward, the volume of those deals will be extremely low.  There just isn’t really a lot more that can be transacted.  If you’re an investor and you wanted to get great deals on distressed residential sites, you better already have the bulk of the portfolio you wanted to put together.

We’ve done some work in-house to verify our anecdotal assessment that REO inventory is burning off.  One of the things we did was to check the property tax status of every development site.  If taxes were paid, that was a sign that the deal wasn’t distressed.  We came up with less than a handful of remaining development sites that we think could be distressed.

Investment isn’t always, or really ever, easy.  The stars don’t always align.  Only hindsight creates the illusion of certainty.  Sometimes you have to make deals when the market is giving you conflicting signals.  Sometimes the window to buy distressed development sites closes before the market’s fundamentals have shown any recovery signs.