Housing market

Analysis of the (primarily) San Diego housing market.

We Are the Champions

Submitted by Rich Toscano on January 18, 2006 - 10:28am

The latest PMI Risk Index is out. I think these reports are hopelessly optimistic—for instance, after an unbroken winning streak in which prices more than tripled despite the lack of any demographic reason to have done so, San Diego is designated as having only a 59% chance of seeing even a tiny price decline. The reports do have some utility, however, in that we can at least get a sense of what the mortgage insurers think are the relative risks between different areas. We Southern Californians should be unsurprised to see that, as with China's Olympic swimmers, our artificially pumped-up home team has dominated the winner's list. For your convenience I have assembled a table below that shows both the PMI Risk Index results for local areas along with a column indicating each area's level of housing valuation relative to historical average (see these valuation charts for more background).

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The U-T's 2005 San Diego Housing Wrap-Up

Submitted by Rich Toscano on January 17, 2006 - 10:24am
The Union-Tribune is running a great article on the state of the San Diego housing market. The article includes two sidebars that I found extremely interesting: a graphic showing appreciation by area, and a PDF file rounding up home prices for the entire county. Fellow data-nerds should find hours of amusement combing through these two files.
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Visions of the Future

Submitted by Rich Toscano on January 16, 2006 - 12:22am

This Voice of San Diego housing prediction roundup, along with a commenter's question on the topic, has motivated me to write about forecasting, vis-à-vis whether it is is a complete waste of time. And the answer is: yes. Or no. Or, it depends, I guess.

Alright, let me start from the start, using a familiar graph as a jumping point:

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When Bubbles Burst

Submitted by Rich Toscano on January 8, 2006 - 7:02pm
Housing bubbles typically take years to deflate completely. In today's LA Times, however, an article on the burst of the Shanghai housing bubble demonstrates that even real estate is not immune to dramatic turns to the downside. After a period of rampant speculation and overbuilding that drove Shanghai home prices to double in three years (not terribly far, I would note, from the 5 years it took Southern California real estate to do the same), the market has rapidly taken a turn for the worse, with some condo prices having dropped 50% since March. That's not a mistake—prices have dropped 50%. Don't the Chinese realize that real estate only goes up? Perhaps we should send someone from NAR over to let them know.
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Housing Slowdown Starting to Cause Real Pain

Submitted by Rich Toscano on January 7, 2006 - 12:45pm

A good friend of mine named Ramsey enjoyed a multi-decade career in the San Diego real estate industry before more recently becoming a full-time stock trader. Between his knowledge of the local housing scene and of economics and financial markets he is able to routinely come up with some very interesting analysis. He usually shares his insights with me over beef tendons, pig ears, jellyfish, and other frightening "delicacies" during our weekly meetings at local Chinese restaurants with questionable ratings from the Department of Health.

Today, however, he spared me the entrail-eating experience and sent me an interesting email in which he posits that the local real estate industry is already experiencing "layoffs" of a sort due to the housing slowdown. Ramsey's email is reprinted below in its entirety:

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Piggington Goes North

Submitted by Rich Toscano on January 3, 2006 - 8:43pm

Southern California is our beat here at the Econo-Almanac. But when an enterprising reader sent me a table full of data on the San Francisco Bay Area, I couldn't help but throw it into a graph. I figured that with the effects of the dot-com boom and subsequent bust, the Bay Area would be an altogether different animal than SoCal. But that wasn't really the case at all. While Bay Area home prices took off sooner and have proved a little more volatile, the end result is very similar: home sale prices rose much faster than rents.

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Appraisal Reform Efforts: Too Little, Too Late

Submitted by Rich Toscano on January 3, 2006 - 9:00am

The Voice of San Diego has run a followup story on appraisal fraud, this time discussing the middling reform efforts currently underway. As an example, the state senate is considering a bill "that would require any person who initiates a mortgage to have a certified broking license."

While it's encouraging that the appraisal fraud issue is being recognized, I don't think that a few grasping attempts at further oversight will solve this problem. It is the nature of end-stage speculative bubbles: there is too much to be gained by continuing fraudulent behavior, and too much to be lost be halting it. Once the bubble is deflating in earnest, the appraisal fraud problem will fix itself. By then, however, the damage will have been done. I can only hope that the powers that be use the opportunity to put in place a regulatory system that will prevent fraud from getting out of control during the next housing boom.

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The Dangers of Exotic Loans in San Diego

Submitted by Rich Toscano on January 1, 2006 - 9:56pm

The San Diego Union-Tribune has run a really good article on the risks of creative mortgages. As a matter of fact, my eyes nearly welled up with tears as they beheld the following paragraph (emphasis mine):

One product that concerns federal regulators is the pay-option ARM. It is "one of the most aggressive loan products out there to countermand the prices of homes," Smith [president of the local chapter of the California Mortgage Brokers Association] said. It gives borrowers the flexibility to choose how they make monthly payments. They can make a low payment that allows the principal to grow, increasing the amount owed. The theory behind that choice is that home appreciation will outpace rising debt. "That is a calculated gamble a lot of people have taken."

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Housing Market Report: December 2005

Submitted by Rich Toscano on December 31, 2005 - 6:10pm

The housing market gave us some mixed signals this month. Below I will attempt to interpret the various—and sometimes conflicting—messages provided by price levels, price breadth, sales volume, and inventories.

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Fraud and the Home Appraisal Business

Submitted by Rich Toscano on December 30, 2005 - 11:16am

The Voice of San Diego is at it again, this time with an article about appraisal fraud.

In the past, appraisers would estimate the fair market value of a house based on comparable sales, construction costs, and various other methods. If the appraised value came in too low, the mortgage would not be approved because the bank would want to ensure that the collateral on the loan (i.e. the house itself) was worth a certain amount in comparison to the loan amount.

Now, though, many appraisers claim that there is enormous pressure from some mortgage brokers to appraise homes based not on their actual value, but on the figure necessary to close the loan. The mortgage brokers, after all, are not the ones lending the money, so their main incentive is to close the deal. And since they are often the ones who hire the appraisers, it's possible to see how there would be a conflict of interest.

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The Real Estate Agent Bubble

Submitted by Rich Toscano on December 28, 2005 - 5:43pm

Much ink has lately been spilled on San Diego's burgeoning glut of housing inventory. Today, the Voice of San Diego spills some ink on our glut of real estate agents. We learn that the number of California real estate agents has grown by 55% since 1999. More frightening, 15% of Q2 2005 GDP growth nationwide was due to real estate commissions—and as usual, you can bet that the percentage is a lot higher in real-estate happy Southern CA.

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The Ghost of Housing Bubbles Past

Submitted by Rich Toscano on December 26, 2005 - 6:13pm

Adherents of the ever-popular "They're Not Making Any More Land" school of real estate valuation would be well advised to read this New York Times piece on the Japanese housing bubble and its aftermath. Unless it becomes more cost-effective to build waterborne cities in the Sea of Japan than it is to build housing developments in Temecula, Japan will remain considerably more land-constrained than Southern California. Yet neither this limited land supply nor Japan's extremely high population density (one might say that "everyone wants to live in Japan") managed to deliver the nation from a massive, 15-year housing bust that has seen home price declines of up to 50%.

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On Supply and Demand in San Diego

Submitted by Rich Toscano on December 22, 2005 - 5:58pm

Well now they've gone and done it. The Voice of San Diego has printed the words many thought would never be spoken in this town again:

Some sellers -- albeit a small minority -- have even begun to sustain losses on their property.

The article concerns San Diego's colliding trends of fewer home sales and greater home inventory. This is nothing new to readers of Premium Content, where I cover local housing stats in depth, but the long and short of it is that supply is increasing, demand is decreasing, and some folks are starting to do the math on what that means for prices.

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As Goes Housing, So Goes the Economy

Submitted by Rich Toscano on December 17, 2005 - 12:57pm
The UT publishes another article on the economy's unhealthy dependence on housing activity. If this topic gets enough press people may finally start to question the "diverse economy" meme (though I doubt it will be widely questioned until we start losing jobs).
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Church of the Soft Landing

Submitted by Rich Toscano on December 15, 2005 - 10:53pm

It is often argued, usually by real estate permabulls, that there is widespread concern about a decline in home prices. This pessimism is routinely blamed for the slowdown we've seen in sales and price growth. "Ask a real estate agent today," sputters George Chamberlin in a recent North County Times rant, "and they will tell you clients want to wait until prices drop 20 percent before they buy a new house."

This is, of course, entirely untrue. The typical San Diegan thinks things may flatten out for a while, but very few people are expecting prices to decline in a significant manner. And as Mr. Chamberlin himself points out, home sales haven't slowed down all that much in the grand scheme of things. If everyone were expecting a 20% price drop, why would anyone be buying at all?

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