San Diego Housing Bubble News and Analysis

Continuing with this week's attempt to be light on words and heavy on pictures, here is a look at year-over-year job growth for each month over the past two years, ending with the most recent estimates as of December:

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I've thrown a lot of words at Nerd's Eye View readers over the past week; this week I'll try to stick mostly to pictures. Mostly.

What follows is a roundup of charts depicting the latest (that would be November) Case-Shiller home price data for San Diego.

First, the decline from the November 2005 peak:

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Over at VoiceofSanDiego.org I've put up a two-parter explaining why I believe a protracted period of deflation is an exceedingly unlikely outcome.

No Deflationary Spiral Forthcoming, Part 1
No Deflationary Spiral Forthcoming, Part 2: Counterpoints

(These articles comprise a very slight retooling of the "US Government Won't Choose Deflation" piece linked to at the upper right of this page -- so if you've already read the original one, there's no need to slog through these too).

As discussed in previous installments, a recent change to California state law inserted an extra 30-day waiting period at the beginning of the foreclosure process. Sure enough, mortgage defaults plummeted when the law went into effect. But a couple of months came and went without a commensurate rise -- was something else at work?

Apparently not...

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I will get a data rodeo going in the next couple of days, but in the meantime here's a chart of size-adjusted median resale prices for December, with accompanying writeup to be found at voiceofsandiego.org:

As I noted a couple weeks back, the Federal Reserve will be conjuring money out of thin air to buy "large quantities" (their words) of mortgage-backed securities. The mere anticipation of this flood of freshly-printed cash into the mortgage market has been enough to increase the demand for mortgages and thus lower rates.

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The Case-Shiller index data for October was released today. Kelly Bennett has written it up here and here, for those who want the full rundown.

The thing that jumped out at me was that for the first time during this bust, the highest-priced of the three Case Shiller price tiers experienced a greater monthly decline than either of the other two.

The high-priced tier fell 2.9 percent between September and October, easily beating the 1.8 percent drop in the middle tier and just edging out the 2.8 percent drop in the low-priced tier. Until this month, the low tier had almost always declined the most of the three with the middle tier falling the second hardest. The accompanying graph shows that the high tier has been the most resilient of the three.

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The California Department of Finance recently released a new estimate of San Diego County's population growth. According to the DOF, San Diego's population grew by 46,634 people in the year to July 2008. This 1.5 percent increase represents the fastest annual percent growth since 2003.

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According to the latest EDD estimates, San Diego's employment situation deteriorated noticeably in November. The retail industry took the worst of it, turning in a year-over-year decline of 6,400 jobs or or 4.2 percent.

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On Tuesday, Fed Chairman Bernanke announced that the Fed was for the first time in history cutting its target funds rate to 0 percent (a range of 0 to .25 percent, to be exact, but it's close enough). Additionally, the Fed will shunt "large quantities" of money directly into the mortgage market. They will also consider directly buying long-term U.S. Treasury bonds, thus funding the government's activities and putting downward pressure on long-term rates. Finally, they are creating a new lending program to "facilitate the extension of credit to households and small businesses." I'm not sure what that means but I'm pretty certain that it entails the Fed handing out yet more money.

They certainly are spreading it around. One might wonder where all this money is going to come from. Chairman Bernanke left that part out of his statement, but the answer is that the money will largely be created out of thin air.

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Readers may recall that the number of San Diego homes entering the foreclosure process plummeted in September. This drop was coincident with a new state law mandating an extra 30 days before foreclosure could be initiated.

Yet 30 days have come and gone a couple times over and foreclosures have not started back up again. It seems that there is something else causing a downshift in in foreclosure activity. The manifold bailout attempts would be my guess.

The question is whether the assorted bailouts have merely caused a temporary slowdown in foreclosure processing or whether they are actually inducing troubled mortgages to be worked out in a sustainable manner. I don't know the answer to that question, but I suspect that it's a little bit of both for the time being.

(written for voiceofsandiego.org)

The National Bureau of Economic Research, the official arbiters of whether or not the United States is in a recession, finally called it yesterday. That's not terribly newsworthy considering that everyone knew we were in a recession already.

What's interesting is that they designated the official recession start date as December 2007, a full year ago. This means that (assuming that the recession didn't end months ago, which seems pretty safe) this is the longest recession since the 16-month long downturn beginning in July 1981.

Now that we have a start date, we can compare unemployment trends during the current recession to those of recessions past.

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Kelly Bennett has written extensively on the latest release of the Case-Shiller home price index, so I'm just going to throw a couple extra charts into the mix. OK, and one comment (I just can't help myself).

I'll begin with the charts. First, here is a table showing the last time the Case-Shiller index value for each price tier was lower than September's level. The right-hand column is the same thing but with prices adjusted to remove the effects of inflation.

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Home sales have increased dramatically in recent months, but that brisk activity is far from uniform. While cheap homes are positively flying off the shelves, sales have actually slowed in many of the more expensive markets.

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Credit default swaps have been a major element in the ongoing financial crisis. That doesn't mean it's necessarily easy to understand just what the problem is with them. I've taken a crack at it in the past, but more recently I heard an analogy that makes the entire situation a lot easier to visualize.

I heard the analogy during a radio interview with Doug Noland, a mutual fund manager who's been writing dire weekly analyses of the credit market for years. It went something like the following.

Imagine a city near a river that is prone to the occasional flood. At some point, an enterprising citizen gets into the business of writing flood insurance, collecting premiums from insurees in exchange for a promise to pay back the insurees should a flood do any damage to their properties.

Now, imagine that there is an unusually long drought and the river goes a long time without experiencing a flood. Other enterprising types begin to notice that the flood insurer has for years been collecting all this money for doing absolutely nothing. A flood hasn't taken place for ages -- maybe climate patterns have changed so that the river doesn't flood any more. And even if it does flood at some point, they will probably be retired by then. They want in to the easy money flood insurance game too.

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