~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…

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...


THOUGHTS ON DEFAULT AND FORECLOSURE VOLUME

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...

Prices

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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Revisiting CDS-Land

Submitted by Rich Toscano on February 23, 2007 - 12:44pm

A while back I wrote about the rather sudden increase in the cost of credit insurance for on low-rated subprime MBS tranches. The net effect was that the cost of credit protection for these mortgage-backed securities had increased by 25% in just a week.

The below chart shows the same index of low-ratest subprime CDS tranches we looked at earlier:

ABX-HE-BBB- 06-2

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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.

read more at voiceofsandiego.org

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The San Diego Housing Bubble

Submitted by Rich Toscano on February 21, 2007 - 9:47pm

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.

read more at voiceofsandiego.org

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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 .

read more at voiceofsandiego.org

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Guest Commentary: Ramsey on Foreclosure Impact

Submitted by Rich Toscano on February 14, 2007 - 9:53am

My pal Ramsey is a retired real estate broker and grizzled 1990s housing bust veteran. When he's not dragging me to Chinese restaurants on the Department of Health watchlist, he spends his time thinking about how this particular real estate cycle is going to play out, placing a special emphasis on new age lending practices. A couple weeks back Ramsey sent me an excellent (and very long) treatise on foreclosures, which I reproduce in its entirety below.


Foreclosures, Real Estate Financing, and Their Impact to the Real Estate Market

Starting from 2002, every participant in the broad real estate arena has been trained to ignore financing as an integral part of all real estate transactions.  It is so easy that it seems anyone who wants a loan can get a loan.  No down payment?  No credit?  No problem.

So where do we go from here?  As most of you know, since 1982, my specialty in real estate was foreclosures.  I have never seen a cycle like this before so I have no historical comparison to draw from.  All I can offer is some thoughts and points to ponder over:

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