San Diego Housing Bubble News and Analysis

Here's a graph I haven't updated for a while. It shows how many jobs were gained or lost, according to the latest monthly employment estimates, by varying San Diego employment sectors in the year leading up to September 2008. (Sectors that changed by fewer than 300 jobs have been excluded to keep the graph a little more readable).

Here's how this chart looked a little over a year ago. Back then, the leisure and hospitality sector was providing a huge boost. That sector is still growing, but not nearly so fast. Meanwhile the housing bubble beneficiary sectors (construction, finance, and retail) have deteriorated significantly. One bright spot: the manufacturing sector, while still shrinking slightly, is doing so at a notably slower pace than it was last year.

(written for VoiceofSanDiego.org)

San Diego County employment declined in September, according to the monthly estimates provided by the state's Employment Development Department.

continue reading at voiceofsandiego.org

Based on the latest month's closed home sales, my simplistic but thus far pretty effective Case-Shiller HPI model forecasts a September decline of 3.0% for the HPI:

The number of homes entering the foreclosure process declined steeply in September -- but the drop is likely temporary.

The blue line on the accompanying graph represents how many Notices of Default, which are the nastygrams sent to delinquent borrowers, were delivered in September. The orange line tracks Notices of Trustee Sale, which inform said delinquent borrowers that their homes are about to be repossessed.

The graph makes it pretty clear that NODs dropped like a rock last month. We haven't seen a number of default notices this low since February 2007 -- a breezier time, when it would have seemed laughable to suggest that mainstream media outlets would be publishing stock photos of Depression-era breadlines a year and a half down the road.

continue reading at voiceofsandiego.org

In response to the prior column on the latest bailout, some people asked for more specific thoughts on the Paulson Plan and what would have happened if it hadn’t been passed.

In truth, I don’t actually know what would have happened had the plan not gone through. Most of the people offering predictions on the topic don’t know either; I’m just admitting it.

I do know this. Our economy has become far too dependent on finance and debt-fueled consumption. We need to return to our economic roots of production and saving. This shift will be painful, and one could make a case for some sort of government intervention to ease the transition.

But the Paulson Plan, the central focus of which is to prop up the prices of financial assets that no private buyer wants to touch, is not intended to ease the transition. It is intended to prevent it.

The plan is thus a giant step in the wrong direction. But this is exactly what you’d expect given that it was developed by the same group of people, using the same flawed analytical framework, that has misdiagnosed the problems all along.

(written for VoiceofSanDiego.org)

Every pundit on Earth is playing the game of picking the various bailouts apart and proposing their own improved bailout schemes. But I think that most of the conversations going on out there miss a critical point: that this bailout and the ones that will in all likelihood follow it fail to address the root cause of the problems.

That root cause, in my opinion, is that the vast majority of political leaders, regulators, and pundits zealously cling to a deeply flawed analytical framework.

To put it more simply: the people and principles that blithely led us into this mess are absolutely the wrong people and principles to lead us out of it.

continue reading at voiceofsandiego.org

Watching Paulson and Bernanke flail around has been a bit time consuming this month. While it's still September, let's get to the rodeo.

I'll start with the Case-Shiller HPI model based on the size-adjusted median:

This month's employment estimates show a deterioration in the retail sector but a slight improvement in the construction sector. Other than that the region's job growth, or lack thereof, has been on a path similar to recent months. So I will simply note that overall employment fell by 5,700 jobs or .4 percent from last year and then move on to the graphs.

The first graph is the usual one displaying the number of jobs gained or lost by the housing beneficiary sectors (construction, finance/real estate, and retail), the rest of the economy, and all sectors combined on a year-over-year basis. Each month's data point represents the year-over-year change for that month (I use this technique to smooth out seasonal effects).

continue reading at voiceofsandiego.org

Well, I called my assorted leaders to register my abject displeasure with the bailout. To keep things short I just noted two opinions:

1. It's ridiculous that we are using taxpayer money to pay above market prices for possibly worthless assets and that the proceeds are going to highly paid people who knowingly took huge risks.
2. I hope there is going to be some sort of accountability among all the regulators who first denied the risks and are now throwing our money at fixing their aftermath. If all the same people stay in charge, this kind of stuff will just keep happening.

I don't know how much good it does to make these calls but since a lot of people are apparently up in arms about the bailout it's worth a shot.

Here are the numbers I called:

White House: (202) 456-1111
Senator Feinstein: (202) 224-3841
Senator Boxer: (202) 224-3553
Congresswoman Davis (I'm in 92103): (202) 225-2040

Earlier in the week I jokingly suggested that the federal government was limiting itself to one financial industry bailout per day. Well, that was sure wrong.

Let's review the week so far:

• The Fed announced it will lend even more to financial institutions (many of them not under the Fed's regulatory authority) in exchange for even more dubious collateral than before. This allows everyone to continue to pretend that the collateral, such as some subprime mortgage backed securities, is worth more than it actually is, which in turn allows everyone to pretend that financial institutions have more money than they actually do.
• Because the Fed has run low on funds due to all of that lending, the Treasury announced it will borrow more money to give to the Fed so that they can keep up their lending and continue the charade described above.
• The Fed nationalized insurance giant AIG (also not under its regulatory authority).
• The Fed pumped a hundreds of billions of dollars into the system both domestically and globally via loans to foreign central banks.

continue reading at voiceofsandiego.org

I spoke too soon yesterday. After Treasury Secretary Paulson apparently refused to bail out AIG, the Federal Reserve stepped in and cut the mortgage giant a check for $85 billion in exchange for 80 percent of AIG shares. That $85 billion of taxpayer money is just a loan, we are told, but I don't quite understand the distinction between and loan and a handout when the whole trigger for this loan was that AIG is unable to pay back its other loans.

Once again, this is being covered everywhere in the MSM. Here's a good overview.

Although a cut in the Fed funds rate had become widely expected by yesterday, the Fed ended up holding rates steady. Perhaps they are trying to limit themselves to one Wall Street bailout per day.

Today is a new day, however.

continue reading at voiceofsandiego.org

A quick update to the last post. This morning I read in Housing Wire that ailing insurance company AIG poses an even bigger threat to the CDS market than Lehman:

AIG sold banks and other investors CDS protection on $441 billion of fixed-income assets, including $57.8 billion in subprime-mortgage related securities. There are likely very few firms with this much exposure into the CDS market

My snarky comment in the prior post notwithstanding, the folks at the Treasury have to their credit not directly bailed out either Lehman or AIG.  (They have stepped up the indirect bailouts, however: the Fed will now be lending more money to more people with more questionable collateral, and word is that they may also cut rates again today.)

But while they are finally turning some pigs away from the trough, the government's frantic interventions to date suggest that they will not sit idly by as things get really out of hand. We shall see.

I haven't gone into much detail on this week's drama because for the most part I'd be rehashing what's already been, uhm, hashed many times over. All the mainstream outlets are covering the issue, but for good up-to-the-minute updates and commentary I've been enjoying the coverage at the blog Naked Capitalism.

(written for voiceofsandiego.org)

Back in early 2007 I wrote about the risks in the market for credit default swaps, a type of financial instrument that basically serves as insurance against bond default. The crux of the article was that some of the insurers in question might not be able to pay when the time came, and that would be trouble.

Almost exactly a year later, in January of this year, I wrote that the Fed's bailout of investment bank Bear Stearns may have been intended to prevent exactly that type of situation (though I noted that I'd expected the trouble to come from hedge funds, not from full-fledged investment banks).

Today, the bankruptcy of investment bank Lehman Brothers may have set some CDS market trouble into motion. As this Bloomberg article dryly notes:

Bond-default risk soared worldwide as the collapse of Lehman Brothers Holdings Inc. sparked concern that the $62 trillion credit-derivatives market will unravel.

It turns out that Lehman was one of the ten largest "counterparties" (credit insurers) in the default swap market, so their failure is obviously a big deal.

On the other hand, things probably won't be allowed to get too bad before the next bailout is put into place.

(written for voiceofsandiego.org)

Longtime piggs will recognize the name of one Ramsey Su, a former REO broker who enjoys lengthy excursions into the data rathole. Ramsey has kindly agreed to let me post his latest analysis here (this includes the original piece followed by a clarification/update).

If you like this one, click here for Ramsey's previous postings. This one in particular, written back in February 2007, was particularly prescient and remains one of the most widely visited articles in Piggington history.

PS -- Yes, it's supposed to be "illusive" as in "illusory," as opposed to "elusive." And yes, I had to look up "illusive."

Soon I will be putting up some thoughts from longtime FOP (Friend of Piggington) Ramsey Su, to be followed by the monthly data rodeo.

In the meantime, get your Friday data fix over at voiceofsandiego.org.