~Welcome to the Econo-Almanac~

I started this website in mid-2004 to chronicle San Diego’s spectacular housing bubble.  The purpose of the site remains, as ever, to provide objective and evidence-based analysis of the San Diego housing market. A quick guide to the site follows:

  • New visitors are advised to begin with the Bubble Primer or (if wondering about the site name) the FAQ list.
  • Housing articles I’ve written are found in the main section below.
  • Discussion topics posted by site users are found in the “Active Forum Topics” box to the lower right.
  • This website is an avocation; by day I help people with their investments as a financial advisor*.  Market commentary, an overview of our investment approach, and more can be found on my firm's website.

Thanks for stopping by…

Sales and Must-Sell Inventory

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

I speculated in an earlier entry that measuring monthly home sales against monthly notices of default would provide a fairly good read on the health of the housing market.

This idea is borne of the observation that excessive inventory does not by itself put much downward pressure on home prices. As long as sellers can hold out for higher prices, they can be depended upon to sit tight and do just that. Prices don't fall substantially until too many motivated sellers -- those who are forced for one reason or another to sell at whatever prices they can get -- enter the market.

But how many motivated sellers is "too many?" That's where the sales volume comes in. If must-sell properties account for just a small number of the homes being sold, the must-sellers are unlikely to have much effect on aggregate prices. But if enough transactions involve highly motivated sellers, prices could suffer.

read more at voiceofsandiego.org

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February Jobs

Submitted by Rich Toscano on April 1, 2007 - 11:53am

Last month, San Diego once again enjoyed a robust rate of employment growth outside of the housing boom beneficiary industries . Excluding the construction, retail, and finance/real estate sectors, the Bureau of Labor Statistics indicates that San Diego added 19,900 jobs between February 2006 and February 2007. The non-housing boom sectors grew by a healthy 2.1 percent.

However, the housing boom sectors continue to drag down overall employment growth at an increasing pace.

read more at voiceofsandiego.org

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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.

read more at voiceofsandiego.org

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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.

read more at voiceofsandiego.org

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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.

read more at voiceofsandiego.org

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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.

read more at voiceofsandiego.org

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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).

read more at voiceofsandiego.org

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February Inventory Detail

Submitted by Rich Toscano on March 14, 2007 - 10:23pm

In the latest housing report, I neglected to break out the months of inventory data for condos and detached homes. Without further ado:

Interestingly, while the condo supply is still below the glut-tastic levels of late 2006, the single family home supply is as high as it was at any time last year.

Supply and demand figures are squirrelly at this time of year due to holiday disruptions. Next month will give us a better read.

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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.

read more at voiceofsandiego.org

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Guest Commentary: Ramsey on Default and Foreclosure Volume

Submitted by Rich Toscano on March 13, 2007 - 9:16am

The prior guest piece by Ramsey (San Diego foreclosure guru and orderer of Chinese restaurant meats with questionable provenance) was a big hit, and Ramsey has kindly agreed to let me publish more of his thoughts...


For those who have been receiving my weekly SD foreclosure updates, you know I have been somewhat puzzled by the week to week bumpiness.

I finally figured out a number of factors that are most like responsible for what I consider erratic foreclosure data.

Be forewarned that this email is almost entirely MY OPINION or hearsay with no data to substantiate my theories.

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February Housing Data

Submitted by Rich Toscano on March 9, 2007 - 9:52am

Administrative note: The new "Finance and Investing" section to your upper right will feature articles from my financial advisory firm's website. Wait a minute, is this marketing? Well, maybe just a little... but the articles cover topics that are oft discussed in the forums and that could be of interest to many an Econo-Almanac reader.

OK, back to your regularly scheduled programming...


Nothing exciting happened in the pricing department. The size-adjusted median price was pretty much flat for the month, and was down 6.4% for both single family homes and condos since February 2006.

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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.

read more at voiceofsandiego.org

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Subprime Soup

Submitted by Rich Toscano on March 6, 2007 - 9:53am

Confused by the alphabet soup of mortgage- and credit derivative-related acronyms? Seek comfort in this concise and simple explanation of the securitization process, courtsey of The Economist:

First, mortgage loans are pooled and used as security for bonds known as residential mortgage-backed securities, or RMBS. In one sense, this is good news; it takes the loans off the balance sheets of the banks that made them and thus disperses risk.

Most investors, however, want to buy the safest portions of the RMBS; those awarded the top AAA rating. These account for some 90% of the RMBS by value.

But someone has to buy the risky bit of the mortgage pool. And those buyers are the issuers of collateralised debt obligations, or CDOs. Such issuers buy portfolios of bonds and loans, and then divide them into tranches, according to risk. They sell those tranches to customers eager to own a diversified bond portfolio.

Nice work, Brits. How about another paragraph for good measure:

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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.

read more at voiceofsandiego.org

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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.

read more at voiceofsandiego.org
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