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

Population Changes

Submitted by Rich Toscano on March 28, 2007 - 3:47pm

The latest census data hit the streets last week, and as our friends at the Union-Tribune noted, the Census Bureau claims that during the year ending July 2006 far more people moved out of San Diego than moved in.

The census folks indicate that domestic migration, which measures movement between the states, weighed in at a loss of 42,034 former San Diegans. More foreigners moved into San Diego than left, however, raising the overall migration figure to a loss of 22,724 people. Enough babies were born on top of that to raise the overall population by a positive 4,845 San Diegans.

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Interest Rate Update

Submitted by Rich Toscano on March 26, 2007 - 11:34am

It's been a while since I updated the mortgage interest rate chart.

As you can see, rates have crept downward since my last update and are now near their lows of late 2006.

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Fewer Motivated Sellers?

Submitted by Rich Toscano on March 26, 2007 - 11:33am

Retired foreclosure expert Ramsey Su has a theory that could render the meteoric rise in notices of default (NODs) to date slightly less alarming.

It all comes down to that local favorite: second-lien mortgages. More commonly known as piggyback loans, these mortgages allowed home purchasers to make smaller (if any) down payments and were thus in fairly widespread use in recent years.

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 -- 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 ubiquitious.

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February Defaults

Submitted by Rich Toscano on March 20, 2007 - 3:11pm

During the month of February, San Diego saw 1,386 new notices of default (NODs), which are filed when homeowners neglect to pay their mortgages. As the first graph shows, this is more NODs than were delivered in any month during the housing downturn of the early 1990s.

Notices of trustee sale (NOTs) are also running high compared to recent years, but they lag NODs and are not yet at their early-90s heights. It is because of this lag that I focus on NODs as a more timely, if still quite approximate, indicator of how much "must-sell" inventory is out on the market.

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January Jobs

Submitted by Rich Toscano on March 16, 2007 - 3:56pm

The housing boom beneficiary sectors are exerting a greater and greater drag on overall job growth, but employment outside of those sectors has been healthy enough to shake it off.

The construction, retail, and finance/real estate sectors, which I believe grew artificially and unsustainably bloated as a result of the region's prolonged housing boom, have collectively shrunk 2.7 percent since January 2006. Over the past year, the construction industry lost 3,800 jobs or 4.2 percent, retail lost 2,500 jobs or 1.7 percent, and finance/real estate lost 2,400 jobs or 2.9 percent. (The sharp drop in retail empoyment, and to a lesser extent in construction employment, is seasonal -- this is why I focus on the year-over-year changes).

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More Lending Regulations

Submitted by Rich Toscano on March 13, 2007 - 10:03pm

Continuing their tradition of issuing regulations three years after they would have done any good, the financial system powers-that-be have recently proposed stricter guidance for subprime lenders. And continuing in its own tradition, the mortgage industry has responded by throwing a hissy fit.

The rule that has lenders most up in arms (so to speak) is described thusly:

An institution’s analysis of a borrower’s repayment capacity should include an evaluation of the borrower’s ability to repay the debt by its final maturity at the fully indexed rate, assuming a fully amortizing repayment schedule.

What this means is that when lenders are figuring out whether to give someone a home loan, they have to determine not just whether that person can afford to pay the initially low "teaser" rate, but also whether he or she will be able to afford the higher payments once the loan resets.

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Lender Bender

Submitted by Rich Toscano on March 7, 2007 - 10:38am

The ongoing trainwreck that is the residential mortgage lending business continued to unfold on Friday:

  • New Century Financial, one of the largest subprime lenders, announced that it was the target of an SEC criminal investigation regarding New Century's financial accounting and stock trading.
  • Fremont General Corp., almost as big a subprime player as New Century, was issued a "cease and desist" order from the FDIC and has since announced that it is shutting down its subprime lending operation entirely.
  • Two more lenders, Impac Mortgage Holdings and San Diego's own Accredited Home Lenders, joined the earnings restatement parade, presumably because they too vastly underestimated the number of exotic loan borrowers who would end up in default once the home price appreciation perpetual motion machine ground to a halt.

Notably, it appears that the surprise default problem has spread from the subprime arena to that of so-called "Alt-A" loans. The nomenclature seems a bit fuzzy, but as near as I can tell, the term "subprime" is really reserved for borrowers with low credit scores. Alt-A loans are mortgages that are granted to borrowers with higher credit scores, but which allow non-traditional features such as low down payments, limited income documentation, or initially low "teaser" rates.

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Everyone Loves Real Estate

Submitted by Rich Toscano on February 27, 2007 - 10:12am

While I'm making friends at our local journalistic counterparts, I thought I'd share a recent hilarious news item from the San Diego Daily Transcript called Forum to explore real estate market.

If you lack the required subscription, the first two paragraphs summarize the article well enough:

George Chamberlin, executive editor of The Daily Transcript, will moderate a session on the economics of the current housing market at 9 a.m., Saturday, Feb. 24 at the Del Sur Ranch House. The “Why Buy 2007” roundtable discussion will also feature analysts Russ Valone and Al Nevin of MarketPointe Realty Advisors.

A number of questions spring to mind.

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Rickety Analysis

Submitted by Rich Toscano on February 27, 2007 - 10:08am

The Union-Tribune's latest housing editorial, Rickety Market, is so misleading that I just can't resist taking a few shots at it. Let's dive right in at the beginning:

We've been hearing from so-called experts for at least five years now that the San Diego County housing market was going to crash any day, perhaps sending the economy into recession. They were wrong, and property owners have enjoyed the greatest, most widely shared expansion of wealth in the region's history.

And we're off to a good start with the classic strawman offered up by stubborn housing optimists, a group that I fondly refer to as “the permabulls.” The claim is an exaggeration, for one thing -- I'd really like to see a five-or-more year old example of an expert predicting that the San Diego market was going to "crash any day."

Timeline aside, this oft-utilized but completely ineffectual argument misses the point of the early warnings on housing. Some experts did start raising alarms a few years ago. The typical message, however, was that prices were reaching unsustainable levels and were likely to eventually adjust back to their fundamentals. The fact that prices went even higher before finally turning down did not render these analysts "wrong," unless they had attached a premature timeline to their predictions.

In fact, the people who were wrong were the "so-called experts" (to use the UT's smug phraseology) who insisted that home prices would never decline. And as I recall, the UT gave the "real estate never goes down" set a lot more airtime than they gave less optimistic analysts.

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There's a Housing Bubble -- A Fact-Filled Opinion

Submitted by Rich Toscano on February 22, 2007 - 5:17pm

By 2001, San Diego had enjoyed a nice housing boom. Since bottoming out in 1996 after a nasty housing downturn, the price of the typical single family home had risen by 74 percent. As of 2001, adjusted for inflation, San Diego homes were more expensive than they'd ever been (at least since the 1970s, which is as far back as the available data goes).

At this point, one might have expected home price growth to slow down or even flatten out. But the show was only getting started. The typical home, already somewhat richly valued, would go on to nearly double in price in just a few years.

Interestingly, this price explosion occurred at a time when rents were growing fairly modestly. This is somewhat strange because the factors that typically drive home prices, such as incomes, employment, and population growth, also affect rents. Yet after 2001, while prices of already richly-valued homes increased 98 percent and the monthly payments on those homes rose 88 percent, rents only increased 31 percent.

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Mini-Rallies Aren't Meaningful

Submitted by Rich Toscano on February 21, 2007 - 11:02am

In my recent January home price data roundup, I included a graph of home prices during the early-1990s bust to illustrate that bouts of price strength were common even during a protracted downturn. A smart reader pointed out that mini-rallies were more than just common -- they were to be expected as part of the seasonal price cycle.

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Motivated Sellers Abound

Submitted by Rich Toscano on February 15, 2007 - 10:34am

I've been doing a lot of yapping about the importance of must-sell inventory (as a catalyst for home price declines) and of mortgage defaults (as an indicator of must-sell inventory). I now offer the inevitable graph, with data kindly provided by local foreclosure guru Ward Hanigan .

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December Jobs

Submitted by Rich Toscano on January 29, 2007 - 4:07pm

The positive job growth to which I alluded in the prior entry just got a little less positive.

Last month, I noted that November losses in the housing boom beneficiary sectors -- construction, retail, and finance/real estate -- were acting as a drag on what would otherwise have been fairly robust overall employment growth. The same pattern presented itself in December even more noticably.

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The Job Loss Myth

Submitted by Rich Toscano on January 26, 2007 - 2:37pm

It's commonly maintained that home price declines could only take place in the face of widespread job loss. There is something to this idea, but it is not precisely correct. In truth, it is forced sellers who put downward pressure on home prices.

These are the owners who need to accept whatever price they can get for their homes. Absent forced sellers, home prices will likely hang tough because sellers won't have any good reason to accept lower bids. But when the number of people who have to sell grows too much in comparison to the number of willing buyers, prices start heading down.

It's certainly true that unemployment can increase the ranks of people who need to sell their homes, which in turn leads to price declines. Where the conventional wisdom goes wrong is assuming that unemployment is the only possible cause of forced selling.

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Angst in the New Era

Submitted by Rich Toscano on January 24, 2007 - 8:59pm

Anyone wondering who funds all the high-risk home loans about which I write incessantly may find a recent Financial Times piece enlightening. The FT article tells us what's on the minds of correspondents from the enigmatic world of structured finance, that seemingingly endless supplier of funding to (among others) ever more questionable home buyers.

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