San Diego Housing Bubble News and Analysis

Here's a real quick look at last month's job data. Due to issues with today's schedule vis-à-vis familial holiday events, you will be spared all but a minimum of exposition.

read more at voiceofsandiego.org

The Union-Tribune today ran a very gloomy article on the latest DataQuick housing numbers, a centerpiece of which was the fact that San Diego's median home price has already fallen farther than it did during the entirety of the early-1990s housing bust.

The news is not quite so grim just yet, however. Kelly Bennet performed the same comparison using the Case-Shiller Home Price Index and found that according to that measure, prices have not yet fallen as much as they did in the 1990s. The median has fallen 15 percent so far, compared to 12 percent during the 1990s downturn.The HPI, on the other hand, has fallen just 11 percent during this bust compared to over 17 percent in the last one.

As Kelly points out, the one problem with this comparison is that the latest median figure describes November's prices, whereas the HPI is only current through September.

North County realtor and regular Nerd's Eye View quotee Chuck Smiar is back with some words of wisdom in a recent North County Times article:

"There's buyers out there, but they're just not buying. They're sitting on the fence, waiting for (prices) to drop more. They're going to see it drop and then they'll wait for it to drop some more," said Chuck Smiar, a Prudential Realtor in Escondido. "They all think it's going to go to zero, and they're going to be in for a surprise."

Well, I'm not quite sure what to make of this one...

read more at voiceofsandiego.org

A few followup points on the bailout thing.

First, I hope this was clear, but the efforts I mentioned were not by any stretch intended to be comprehensive list of interventions either proposed or already underway. It was just a smattering off the top of my head. I even forgot to include the most appalling one of all: the allegation that Treasury Secretary Paulson was pushing to give taxpayer money to subprime lenders to compensate them for losses they would incur in working out delinquent mortgages. (I was unable to confirm that tidbit anywhere else, so I'm not sure if it's accurate -- hopefully not!)

Second, a reader wrote in to say that this (by which I mean the assorted monetary and legislative interventions underway) is about helping financial markets, not about helping individual homeowners. Now, if you're really going to follow the chain of intent to its end, I would argue that this is about buying votes or re-appointments by trading short-term problems for long-term ones. But that said, I do agree with my correspondent's general theme. By virtue of the ability to turn home equity into money (for a fee, of course), the housing market has come to play a crucial role in both the financial markets and the economy itself. Given that politicians and Federal Reserve members seem to have decided that it's their collective duty to prevent a recession from ever happening again, the bulk of these policies are probably less about helping kindly old ladies stay in their homes than they are about keeping the economy and financial markets afloat.

Third, I don't really want to dig into the guts of the new federal rate freeze because everyone else is doing it and, let's face it, it's kind of boring. But one line in this Bloomberg article jumped out at me:

To be eligible, borrowers must not be more than 60 days behind in their payments or have less than 3 percent equity in their property.

read more at voiceofsandiego.org

Back in May I wrote a column about potential circumstances that could stem the housing market's decline. The bulk of the article dealt with the many and varied ways that the federal government could attempt to keep home prices propped up. My opinion hasn't changed much since then, so to avoid rehashing the entire thing here I recommend that those with hazy memories check out the original piece. (I know I had to -- I can't remember what happened a week ago, let alone seven months ago, as all my memory cells are apparenty filled to capacity with a knowledge of early-1980s television that is as vast as it is useless. I don't think I've been able to form a long-term memory since Manimal was cancelled).

Well, not even a year has passed and the government has jumped with both feet onto the bailout bandwagon. The Federal Reserve, those guys and gals who are ostensibly charged with maintaining the soundness of our currency, have slashed interest rates despite serious weakness in the dollar. In so doing they've demonstrated that preserving price stability is lower on the priority list than giving a boost to the housing market. How well it will work is another question, considering that higher inflation would bring a new set of challenges, but they're going for it nonetheless.

Fed head Ben Bernanke then proposed that government-sponsored mortgage securitization giants Fannie Mae and Freddie Mac should have their debt explicitly guaranteed by the taxpayers and that they should be able to make loans up to $1,000,000 instead of the current limit of $417,000. Many other people have proposed raising Fannie's and Freddie's loan size limit, in fairness, though few have been bold enough to suggest that someone buying a $1,000,000 house should be entitled to what is effectively a government subsidy.

The big news of late, however, is that Treasury Secretary Hank Paulson is putting together a plan in which some borrowers who took out adjustable-rate loans will have their rates frozen at the initial "teaser rate" so that they can continue to stay in the homes that, strictly speaking, they could never actually afford in the first place.

read more at voiceofsandiego.org

Just a few quick bits today.

First, the New York Times informed us last week that "It's not just subprime anymore." It's nice that the mainstream media is coming around, but as I've been ranting about for the better part of this year, it was never just subprime.

Second, Señor SLOP pointed me to a U-T article about a recent study contending that the housing bust will "erase" $1.5 billion from San Diego's economy next year, resulting in a local economic growth rate of 2.1 percent instead of the 3.0 percent it should have been. The article is an interesting read but I'm skeptical of the ability to forecast the housing downturn's effect on economic growth with such precision. There are a lot of factors here -- not just home equity extraction and housing employment, but second-order effects like a potentially more widespread credit tightening, the housing bust's impact on stock prices and consumer confidence, the inflationary impact of the Fed's attempts to ease the downturn, and who knows what else. It seems like a long shot to quantify the impact of all these moving parts to within a tenth of a percent, but maybe that's just me.

Finally, just to make this an apparently continuing series on the Case-Shiller Home Price Indexes, I wanted to address some questions I've gotten about how the indexes are created.

read more at voiceofsandiego.org

As discussed last week, the new three-tiered Case-Shiller Home Price Indexes have clearly demonstrated the degree to which the late, great era of easy mortgage lending had wildly different effects on properties within the various price segments.

Let's now look at the three indexes again from a slightly different angle by adjusting them for inflation as measured by the Bureau of Labor Statistics' Consumer Price Index. This will allow us to observe the degree to which home prices within all three categories have changed compared to everything else, or at least compared to the subset of "everything else" that is represented by the CPI.

read more at voiceofsandiego.org

As of last month, according to California's Employment Development Department, the number of people employed in San Diego was up 1 percent from a year prior. This may not sound like much, but it's actually quite a showing considering the drag that the housing downturn has inflicted upon the job market for most of this year.

read more at voiceofsandiego.org

The Case-Shiller Home Price Index, which I've routinely touted (sometimes in excruciating detail) as the best measure of aggregate home price changes, has just become even more useful. Whereas Professors Case and Shiller used to provide a single value that combined the price movement of all homes in San Diego county, they now offer three additional indexes that track changes in the prices of San Diego's low-, medium-, and high-priced homes.

The new indexes still lump together homes from diverse geographies througout the county, so to the extent that markets with similar pricing but different locations are behaving differently, those differences will not be represented. But three categories are better than one, and segmenting homes in this manner can at least illuminate how changing mortgage standards have had an effect on different property types.

read more at voiceofsandiego.org

The big chartfest will be up very soon; in the meantime, here is a brief piece on pricing over at voiceofsandiego.org.

The fires that have swept the region, and that still burn in some places, have been incredibly dramatic in their impact on the day-to-day functioning of our city and have been absolutely devastating to those families who lost their homes. But when people have asked me in recent days how I thought the fires would impact home prices, my answer has been that it wouldn't have much effect at all.

It's simply a matter of scale. San Diego is a huge city and -- without minimizing the catastrophic impact to those involved -- the number of homes destroyed represents an extremely small portion of our housing stock.

The latest estimate I've gotten from the U-T's fire blog as I write this is that 1,470 homes have been destroyed. According to SANDAG, 1,470 homes represents just .13 percent of San Diego's total housing supply. I imagine most of the homes burned were single family homes, but even still, the number of homes destroyed accounts for just .22 percent of all single family homes in San Diego.

Of course, pricing impact would result more from changes in for-sale inventory than in the overall housing stock. Here too, though, the fire's impact is minimal. If immediately replaced from resale inventory, the homes destroyed would in their entirety use up just 11.1 percent of single family homes currently listed for sale. This would just get the amount of inventory back to where it was in May -- not a signifcant change and not anything that would change the market's prevailing trend.

It's instructive to look at how the loss of these houses would change the relationship between supply and demand. In September, there were 12.2 months worth of single family homes listed for resale. This means that at last month's pace of sales, it would have taken 12.2 months for every home to be purchased. An immediate removal of 1,470 homes from the inventory would reduce the amount of inventory to 10.8 months -- still quite a bit worse than anything we've seen in years. The difference between 12.2 months worth of inventory and 10.8 months simply doesn't amount to much. Both figures are ominous for pricing; one is just slightly less so.

read more at voiceofsandiego.org

San Diego employment growth bounced back last month, according to California's Employment Development Department. As usual, however, the housing boom beneficiary sectors put a damper on things. Employment in the construction and financial sectors were down again down from last year, as the accompanying charts show. But the previously beaten-down retail sales industry actually went positive for the first time in a while, growing by 100 jobs since September 2006 (hey, it's something).

read more at voiceofsandiego.org

Over at SLOP, Scott Lewis wonders what I think of developer Sherm Harmer's assertion that nobody anticipated the troubles in the subprime mortgage market. Scott quotes Harmer as saying, "We did not anticipate the subprime financing issues," and then, referring to those issues, "It was not on anybody's radar screen. It surprised the best banks, the best investors. No economist predicted that."

Here's what I think. The subprime financing "issue," in a nutshell, was this: lenders had been making loans that were very unlikely ever to be paid back. Then they stopped.

Anticipating that second part just doesn't seem like such a stretch to me.

read more at voiceofsandiego.org

Some September housing data and commentary is up at voiceofsandiego.org. The most interesting action last month took place in the single family home median price, which dropped precipitously as round 2 of the credit crunch hit the creditworthy buyers, thus removing (or beginning to remove) the statistical fluke that many observers confused for a sign of stable prices.

Many more charts to come in the next couple of days.

San Diego's job market grew in August, according to the California Employment Development Department, but once again employment was dragged down by a languishing housing industry.

read more at voiceofsandiego.org