~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…

Year-Over-Year Medians Have Gone Negative

Submitted by Rich Toscano on July 7, 2006 - 11:46am

I'm on vacation with Mrs. Piggington so I'm going to make this quick. MLS data shows that for the first time, median prices for both condos and single family homes have gone negative year-over-year.

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Ruh-Roh, Raggy!

Submitted by Rich Toscano on July 4, 2006 - 3:41pm

...is how Scooby-Doo might react upon reading about an impending rate hike by the Bank of Japan. Assuming, that is, that Scooby took an interest in global liquidity conditions instead of just constantly getting high.

Rampant E-Z mortgage lending during the first year-and-a-half of Fed tightening posed a seeming puzzle. But the answer to the puzzle lay outside our borders: in this age of globalized capital markets, tightness by one central bank could be offset by looseness of another. And they don't come any looser than that Bank of Japan. The BOJ's ultra-low rate policy made it easy for financiers to borrow in Japan, lend to US homebuyers, and pocket the interest rate differential. It also encouraged yield-starved Japanese to lend their own money in a similar manner.

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Still Panicking

Submitted by Rich Toscano on July 3, 2006 - 1:13pm

I'm breaking radio silence, finally, after having sequestered myself for a week and a half to cram for a securities licensing exam. (The exam manual suggested studying for 4-6 weeks vs. my 1.5 weeks, hence the cramming). Anyway, said exam was successfully passed yesterday, so I can close the door on that particularly onerous 10-day period of my life and get back to writing occasional content for this site.

I did check the forums from time to time during my absence, and now that I have a minute I wanted to revisit a really interesting article someone posted. The USA Today article, entitled "Buyers in more markets find housing out of reach," chronicles the plight of a San Diego postdoc who bought a home with 100% financing, whose PITI eats up 70% of her take home pay, and who has among other things taken to selling her fertile eggs in order to make the mortgage payments.

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Soros: "Gigantic Real Estate Bubble"

Submitted by Rich Toscano on June 24, 2006 - 6:30pm

I just came across this blurb from George Soros' latest book:

I believe we are currently in the midst of a gigantic real estate bubble. It was caused by the determination of the Federal Reserve Bank not to allow a stock market decline in 2001 to turn into a self-reinforcing rout. The federal funds rate was lowered to 1 percent. Mortgage institutions encouraged mortgage holders to refinance their mortgages and withdraw the excess equity. They lowered their lending standards and introduced new products such as adjustable rate mortgages (ARMs), “interest only” mortgages, and promotional “teaser rates.” All this encouraged speculation in residential housing units. House prices started to rise at double-digit rates. This served to reinforce speculation, and the rise in house prices made the owners feel rich; the result was a consumption boom that has sustained the economy in recent years. Again, the bubble can be attributed to a short-circuit between the value of assets and the act of valuation. This short-circuit is called the wealth effect.

Nothing qualitatively new nor surprising to readers of this site; it's just always nice to have one of the world's most successful financial market players land on our side of the debate.

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Rates No Longer an Excuse

Submitted by Rich Toscano on June 22, 2006 - 8:40pm

Low rates have been one of the mainstays of the bullish arsenal. But given that mortgage rates are where they were four years ago, then they shouldn't be a factor in explaining any price difference that has taken place during that time period.

So if we take rates out of the picture, we are left with population, housing stock, inflation, and incomes: all factors that would affect both rents and home prices. Which is to say, if rates are the same now as they were four years ago, why should home prices have risen so much more than rents during that time?

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The Optimism Fades...

Submitted by Rich Toscano on June 13, 2006 - 2:52pm

As if on cue (given the housing market report's discussion of an imminent shift in sentiment), the Union-Tribune has released an article with the gloomy title "San Diego County home prices take a tumble."

I believe we'll be seeing a lot more headlines like this in the future...

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Housing Market Report: May 2006

Submitted by Rich Toscano on June 12, 2006 - 8:23pm

The party is officially over. This is no great surprise, and we've seen it coming for months. But what's different now is that there is no longer any question that the home price downturn has begun.

At the beginning of 2005, we were in a situation where prices had been flat since the summer, inventory had risen substantially, and sales volume was down. Things didn't look terribly promising for the market. But rates remained fairly low, and lenders tried to drive more volume by pushing non-traditional mortgage products that lowered initial monthly payments. The resulting bump in demand fed a little spring rally, and the spring of 2005 actually saw a bit of a rise in median home prices.

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Mortgage Resets + Harvard Hogwash

Submitted by Rich Toscano on June 11, 2006 - 12:51pm

Last week featured a couple of interesting housing articles in the local press.

At voiceofsandiego.org, Will Carless has dug up some really compelling info for an article on mortgage resets. Specifically, an estimated 50% of all San Diego mortgage debt has been borrowed at an adjustable rate that will reset by 2010. If rates don't stay nice and low over the next four years all these resets will make a bad situation worse. (This is another clue that the 2010-2011 timeframe might be a good time to start buying San Diego homes hand over fist).

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Credit Market Report: May 2006

Submitted by Rich Toscano on June 6, 2006 - 10:16am

(Click here for an audio version of this article).

The upward surge in mortgage rates has continued, and as of now both fixed and adjustable mortgage rates are sitting atop their multi-year highs:

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Measuring the Downturn

Submitted by Rich Toscano on May 31, 2006 - 3:36pm

Tomorrow's voiceofsandiego.org column, a link to which will be available on the upper right of the page*, concerns the shortcomings of the median price as a gauge of broad pricing power.

The executive summary is that the median price does a good job of measuring how much people are willing to spend on housing, but there is a margin of error in translating that to changes in the market price of a given property. Depending on the dynamics involved, this error can go either way: the median price overstated price growth until 2003, after which time it began to understate actual price growth. As has been discussed in the forums, we seem to be getting back to a situation where median prices are once again overstating housing market pricing power.

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We Are Back

Submitted by Rich Toscano on May 28, 2006 - 10:17am

Update - May 30 - It looks like the resource usage issues are still occurring. The site may go down from time to time in the near future until I can work with my ISP to figure this out... please bear with me. The original message follows.

Upgrades to the Site

We had to shut down last week because the site was putting tremendous load on my ISP's server. Because there was no concomitant spike in traffic, I believe the excess load was either due to a denial-of-service attack or some sort of memory leak or other bug with the content management software I use. The ISP applied all security patches on their end and it kept happening, so the only thing left to do was to upgrade to the latest and greatest version of the content management software and see if that fixes the problem, be it security- or performance-related.

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Rates Are Low -- So?

Submitted by Rich Toscano on May 23, 2006 - 4:31pm

Check out The Big Picture for a good take on why the "it's ok because interest rates are low" gambit is so ridiculous. In short, it is because it is the directional change in rates from the time you buy the asset, and not the actual level of rates at which you buy the asset, that matters:

To risk assets, the cost of capital is like the wind. It is the change from the start of the race that matters, the more headwind the more trouble, and the more wind one can summon to their back, the faster the ship sails.

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Turn That Frown Upside-Down

Submitted by Rich Toscano on May 15, 2006 - 8:57pm

Who spiked the water cooler at the Union-Tribune office? Or, maybe, who stopped spiking it?

Ah, I kid because I love. But seriously, their latest piece on the sharp rise in mortgage defaults is unusually somber. And it has some cool graphs.

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Is This Really the Best Time to Become a Realtor?

Submitted by Rich Toscano on May 10, 2006 - 8:54am
Señor Risk has published an interesting chart showing that Californians' rush into real estate as a career is still going strong. There is still optimisim aplenty out there.
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Borrower Speculation

Submitted by Rich Toscano on May 9, 2006 - 10:11am

Will Carless at voiceofsandiego.org wrote a piece yesterday on San Diego's rising foreclosure rate. That's certainly an ominous sign, as a surge of "must-sell" inventory is the most likely catalyst to drive prices substantially lower at some point. But foreclosures are rising off their "everyone has a huge equity cushion"-lows and are still fairly contained, from a historical perspective. So while the directional growth trend is bad news, the amount of foreclosures is not as of yet a big problem.

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