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.

The United States of Bailouts

Submitted by Rich Toscano on December 3, 2007 - 11:11pm

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.

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Random Housing and Economy Stuff

Submitted by Rich Toscano on November 27, 2007 - 11:14pm

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.

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Real Home Prices

Submitted by Rich Toscano on November 23, 2007 - 5:41pm

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.

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October Employment

Submitted by Rich Toscano on November 20, 2007 - 5:38pm

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.

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Price Changes in Low-, Mid-, and High-Priced Homes

Submitted by Rich Toscano on November 16, 2007 - 3:04pm

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.

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October Housing Data Preview

Submitted by Rich Toscano on November 6, 2007 - 6:21pm

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

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The Fires, the Economy, and Housing

Submitted by Rich Toscano on October 28, 2007 - 9:21pm

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.

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September Employment

Submitted by Rich Toscano on October 19, 2007 - 3:52pm

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).

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Who Could Have Seen It Coming?

Submitted by Rich Toscano on October 17, 2007 - 11:36pm

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

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Housing Data Preview

Submitted by Rich Toscano on October 4, 2007 - 12:50pm

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.

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August Job Data Roundup

Submitted by Rich Toscano on September 24, 2007 - 8:48am

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.

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Housing Data Preview

Submitted by Rich Toscano on September 12, 2007 - 10:40am

The big home sale data rodeo is coming, probably later today. In the meantime, a sneak preview of prices and supply/demand can be found in the latest two entries at the Nerd's Eye View.

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More Motivated Sellers, After All

Submitted by Rich Toscano on September 5, 2007 - 8:32am

Earlier in the year, I discussed the possibility that the excessive use of piggyback loans in recent years might have caused homeowner delinquency to be overstated:

The theory is that some homeowners are doubtless in default on both their primary mortgages and their piggybacks. Every such borrower might be served with two NODs [Notices of Default] -- one for each mortgage. The number of NODs filed could thus be overstating the number of homeowners in trouble as compared to what we saw in the early 1990s, when piggyback mortgages weren't as ubiquitous.

The conclusion at the time was that the piggyback lenders had little reason to undergo the expense of filing a default notice:

By now, in other words, issuers of piggyback mortgages may have realized that there is little chance of recovering any losses and stopped bothering to initiate foreclosure proceedings. If this is the case, then the period of double counting has already come and gone.

This was just a guess, as I stated at the time, but I've recently come across some data that allowed me to put our conclusion to the test.

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Mortgage Tightening Revealed

Submitted by Rich Toscano on September 4, 2007 - 9:54am

Last week's LA Times featured a good overview of how getting a mortgage has become both more difficult and more expensive for many California homebuyers across the creditworthiness spectrum. The article sums up the problem like so:

Because mortgage investors stung by growing defaults in the sub-prime sector are shunning all but the most traditional loans, creditworthy borrowers are getting hammered if they want mortgages with payment options or the "jumbo" loans used routinely in Southern California and other high-priced home markets.

If you get such a loan, you'll pay a higher rate than before. And to add insult to injury, it's taking more time for all mortgages to get approved and funded, market experts say.

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Home Prices Declined Again in June

Submitted by Rich Toscano on August 29, 2007 - 1:19pm

The Case-Shiller Home Price Index, which compares same-home sales and is thus superior to the median sales price as an indicator of pricing power, declined once again in June. The HPI for San Diego was down 7.3 percent since June 2006 and 7.6 percent since it peaked in November 2005.

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