VoiceofSanDiego.org

Articles that I have written for VoiceofSanDiego.org, a local news publication that provides continuing coverage of San Diego housing and economic issues.

Rates On the Decline

Submitted by Rich Toscano on October 5, 2006 - 5:17pm

After what seemed like an unstoppable rise since the beginning of the year, long-term mortgage rates have since plummeted in an equally relentless manner.

Here in San Diego, though, the majority of buyers do not use 30-year fixed rate mortgages like those depicted by the blue line in the chart. The local housing market is influenced less by fixed rates than by adjustable mortgage rates, the the decline in which has been less dramatic.

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A Year or Two?

Submitted by Rich Toscano on September 27, 2006 - 1:49pm

People now widely acknowledge the once-blasphemous: that the housing market can slow, that home prices can decline, and that both of the above are happening here and now. But we are a cheerful people, apparently, and such admissions are often quickly followed with the disclaimer that the housing market should be back in action soon enough.

Take, for instance, the following quote from El Cajon Councilman Gary Kendrick, as appearing in a recent U-T article on El Cajon's stalled condo conversion market. Mr. Kendrick is singled out only because this is a very typical example of the many similar proclamations I've heard expressed by assorted authority figures in recent times. Says Gary:

“It's simply the market cycle that happens every few years, and right now we are in a cooling-off period and that may last a year or two,” he said. “Three years from now, people will be saying, 'I wish I bought one of those condo conversions in 2006.' ”

Well, maybe I'm singling him out a little bit because that last line is so priceless. You may wish to record it for future generations to enjoy.

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Expanding Homeownership?

Submitted by Rich Toscano on September 20, 2006 - 11:25am

Yesterday, Scott Lewis wrote a great piece on the logical inconsistencies of some of the the city's affordable housing efforts.

One such policy, while having escaped Scott's truculent attentions, nonetheless deserves to be highlighted as especially irrational. It is described in a recent Daily Transcript piece called "Sanders seeks action on affordable housing" (subscription required):

...the [San Diego Housing Commission] is continuing its efforts to expand homeownership through the creation of two new, first-time homebuyer programs...

Giving people money to buy houses artificially stimulates housing demand (sorry, "expands homeownership"), the effect of which is to render housing less, not more, affordable. It's effectively a government subsidy for the housing bubble and entirely the wrong way to approach the problem.

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Median Problems

Submitted by Rich Toscano on September 13, 2006 - 8:44pm

Now that this month's housing data has arrived, I thought it would be a good time to briefly review the trouble with the "median price" as a measure of real estate pricing power.

Many observers, noting that the median home sale price was 2.2 percent lower in August 2006 than in August 2005, would assume that the typical home is now worth 2.2 percent less than it was a year ago. But this assumption is not necessarily correct. Because while the median price is a decent measure of how much the typical buyer paid, it does not tell us what that typical buyer got for the money.

When it comes to measuring actual changes in home market values, the median price can be thrown off by the following:

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Mystery Solved... Kind Of

Submitted by Rich Toscano on September 7, 2006 - 7:22pm

The plot thickens. Or maybe it... thinnens. I don't know. The point is that the folks at the San Diego Chamber of Commerce have gotten to the bottom of our recent mystery about why their population data differed so much from that of the Census Bureau. Yet their answer has only raised another question.

The Chamber's Rachel Laing elaborates:

The mystery of the difference in the migration data on the Chamber's Web site and the U.S. Census bureau appears to have been solved. Kelly Cunningham, who headed the ERB for years before leaving in early 2005, helped us sort all of this out.

To sum it up, the Chamber uses California Department of Finance data, because the state agency is assumed to have better ability to track and estimate the state's population changes. They also release their estimates in a more timely fashion -- months ahead of the Census Bureau. SANDAG also uses DoF data over the Census Bureau data in its planning.

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More Job Dissection

Submitted by Rich Toscano on September 6, 2006 - 9:27am

As a follow-up to the prior post ("Job Dissection"), I wanted to zoom in on the past year and have a look at how the various industries have fared more recently. The results are found in the accompanying chart.

Construction is up 3 percent from last year. This makes sense--as housing demand erodes, developers are scrambling to finish their construction projects sooner rather than later.

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Dissecting the Job Market

Submitted by Rich Toscano on September 4, 2006 - 11:44am

A longstanding premise of mine has gone as follows: to argue that housing will continue to flourish because of San Diego's strong economy is circular reasoning, because in reality the economy owes much of its purported strength to the housing boom.

I thought it would be fun (that's right, fun) to chart out some of the characteristics of San Diego's job market during the big housing boom. I have designated as my starting point the year 2000, chosen primarily and somewhat arbitrarily as a "neutral" year for residential real estate. The depths of the mid-90s housing bust were well behind us, housing mania was still a couple of years away, and home valuations were in the middle of their historic range. San Diego's housing market was, in other words, neither too hot nor too cold. It was just right.

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Migration Mystery

Submitted by Rich Toscano on August 25, 2006 - 3:45pm

As I recently tooled around the San Diego Chamber of Commerce website, I came across a document called the "San Diego Economic Bulletin: Forecast 2005 & 2006." This document is a gold mine of the kind of local data that causes a nerd like me to mewl with delight.

But my delighted mewling turned to confused mewling as I read the section on population growth.

The first accompanying chart indicates the U.S. Census Bureau's take on who's coming and going in San Diego. (Readers who are particularly interested or lonely can find the gigantic Census Bureau spreadsheet here.)

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Liar Loans

Submitted by Rich Toscano on August 24, 2006 - 5:25pm

Over the two-plus years I've been publicly rambling about the San Diego housing market, I've spilled very little ink on the topic of stated income mortgages--the so-called "liar loans" that require no proof of borrower income.

It's not that I find this particular spawn of the housing bubble uninteresting. Far from it. But the fact is that I try to concentrate my efforts in the realm of the measurable and verifiable, whereas most information about stated income loan abuse is of the more anecdotal variety. There ever plenty of anecdotes, to be sure--I think we've probably all heard a version of the story wherein the landscaper or Starbucks barista is mysteriously pulling down six figures. But there has really been no way to measure how serious the problem really is.

It seems now that some more reliable information is beginning to surface.

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Affordability Wars

Submitted by Rich Toscano on August 22, 2006 - 10:54pm

The California Association of Realtors (CAR) recently announced a new index to measure home price affordability for first time buyers. The distinguishing feature of this new affordability index appears to lie in its looser definition of what exactly is affordable: whereas the prior index assumed a 20 percent down payment and a maximum of 30 percent of household income spent on housing costs, this new index allows for a 10 percent down payment and up to 40 percent of income devoted to house payments.

This is entirely ridiculous. Buyers now shell out a record portion of their earnings for home payments, as well as taking on previously unthinkable levels of debt in order to purchase their homes. The fact that people are so commonly forced to stretch their fiscal limits does not, as CAR would seem to imply, indicate that it is now more affordable to do so. It means precisely the opposite.

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ARM Wrestling with Bernanke

Submitted by Rich Toscano on August 11, 2006 - 1:26pm

San Diego homeowners with adjustable rate mortgages can breathe a sigh of relief. After 17 consecutive -- albeit modest -- rate increases, the Federal Reserve has decided to stand pat and keep its federal funds target rate at 5.25 percent.

The accompanying chart shows the seemingly unstoppable rise in the 1-Year Constant Maturity Treasury, an index often used to adjust monthly mortgage payments, during the Fed's tightening campaign.

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Housing Will Fall 25%, Assuming...

Submitted by Rich Toscano on June 7, 2006 - 10:05pm

So let’s just say, for the sake of argument, that San Diego is going to experience a housing downturn.

If you don’t want to grant that assumption right off the bat, you could read part one and part two of the series dedicated entirely to the idea that a soft landing is unlikely. Another alternative would be to skip all that reading and start crafting a vitriolic letter to the editor right now.

Either way, in order to get on with this article, we need to allow the assumption that there will be a housing bust. Because our task today is to try to figure out what past housing downturns say about how our hypothetical bust might play out.

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The Meaning of the Median

Submitted by Rich Toscano on May 31, 2006 - 9:13pm

When real estate analysts want to quantify price movements in the housing market, the metric they invariably use is the median home price. It’s certainly true that the median conveys some useful information about the housing market, but its accuracy as a gauge of pricing power is often overstated.

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Renting Money vs. Renting Homes

Submitted by Rich Toscano on May 27, 2006 - 5:02pm
San Diego renters often express frustration at having missed the housing boom of a lifetime and fear that they will now never be able to purchase a home.

Well, I think they ought to buck up. Relatively speaking, they are getting an amazing deal.

Even as San Diego home prices headed to the stratosphere these last few years, local rents grew at a fairly subdued pace. (This fact should, but apparently does not, cause people to doubt the fundamental underpinnings of the housing boom -- but I digress!) The end result is that it costs quite a bit more to buy a given home than to rent that same home.

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Soft Landing Re-Revisited

Submitted by Rich Toscano on May 18, 2006 - 11:28am

Last week, I began to discuss why the San Diego housing market's oft-foretold soft landing is something less than the shoo-in that everyone thinks.

The definition of "soft landing" is a bit of a moving target. At best, the soft landing will be a period of 5-percent-or-so appreciation before home prices really start to take off again. At worst, it is to consist of several years in which home prices remain flat until incomes grow enough to render housing affordable once more.

The entire spectrum of soft-landing predictions are predicated on the idea that past housing booms have been followed by price flatness -- unless, that is, economic times got so hard that many people were forced to sell their homes.

The essence of the problem with this analysis is that it completely fails to account for the fact that we've just been through the mother of all housing booms.

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