Explaining Southern California's economy

Case-Shiller: November Los Angeles home prices rise 7.7 percent for the year

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A for sale sign is seen in front of a home in Los Angeles. The Case-Shiller index of home prices for November reported that prices in L.A. rose by a decent margin in November.

Standard & Poor's Case-Shiller Home Price index for November released Tuesday and the news for Los Angeles is...about what it's been for the past year of reports from the closely monitored composites of housing prices in major U.S. metropolitan areas.

Los Angeles is included in both the 10- and 20-city Case-Shiller composites, which lag the market by two months and represent a three-month moving average of prices. That's why we're just getting November, even though it's now almost February.

L.A. home-price gains were modest from October to November – 0.4 percent, down slightly from the September-October gain of 0.6 percent. In terms of the overall index, however, Los Angeles beat the year-over-year average for November, with a 7.7 percent increase versus 5.5 percent for the full 20-city composite.

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DoubleLine Capital's Jeff Gundlach says housing recovery has a ways to go (Chart)

DoubleLine Capital's CEO, Jeff Gundlach, doesn't see a robust housing recovery in 2013, the "Year of the Snake."

DoubleLine Capital's Jeff Gundlach presented his 2013 market outlook on Tuesday. DoubleLine, based in Los Angeles, is a fast-growing financial start-up. It has amassed more than $50 billion in assets under management (AUM) since CEO Gundlach left rival TCW — also L.A. based — in 2009, under controversial and eventually litigious circumstances. 

With Newport Beach based PIMCO, DoubleLine and TCW form what I call a Southern California "bond triangle" — together the trio manages more than $2 trillion, dealing mostly with fixed-income investments (although PIMCO and DoubleLine have been edging toward equities as a greater portion of their portfolios).

Add in Pasadena-based WAMCO, with $450 billion under management, and you have a constellation of bond funds with portfolios that surpass the annual economic output of the entire state of California, which is about $2 trillion.

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Case-Shiller: Los Angeles holds steady with home price gains in August

Existing Homes Sales Jump More Than Forecast

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Homes in Santa Clarita, California. The August Case-Shiller index shows prices moving back to 2003 levels.

It might be safe to call a housing bottom at this point. The monthly Case-Shiller home prices index has just come out for August, and it shows prices increasing in 19 of the 20 cities the index tracks. 

This is from the release:

The 10- and 20-City Composites recorded annual returns of +1.3% and +2.0% in August 2012 – an improvement over the +0.6% and +1.2% respective annual rates posted for July 2012.

For Los Angeles, the story is much the same as it has been for the entire year so far: slow and steady progress. The August increase exactly matched the July increase, at 1.3 percent. April, May, and June were all higher, but only in May did the city exceed a 2-percent gain.

Although compared with last August (the Case-Shiller data lags by two months, which is why we're getting August numbers in late October), the situation is markedly improved over July. Los Angeles saw a 2.1 percent increase year-over-year for August; in July, prices only increased by 0.4 percent.

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Economist Richard Easterlin, defender of happiness — and possible Nobel Prize winner?

Students

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Could an economist from the University of Southern California win the Nobel Prize in Economics? Not last year, but maybe this. Maybe.

The Nobel Prize in Economics will be announced on Monday. Some predictions can be found here — and they include Robert Shiller, who will be well known to readers of the DeBord report for developing, with fellow economist Karl Case, the Case-Shiller home price index, which comes out every month and tracks home prices in 20 U.S. cities. Shiller would be a commendable winner, but...

Last year, I posted on the lead-up to the Economics prize, suggesting that maybe, perhaps, a worthy winner would be Southern California's own Richard Easterlin. Easterlin has since cropped up several more times in this blog (he's always gracious with his time and generous with his insights), and it would be false of me to suggest that, in good hometown fashion, I'm not rooting for the father of happiness economics, still working away at USC, to nab some of that Swedish hardware.

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3 reasons why you don't want to buy a house in Southern California right now

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A construction worker on the top of a home under construction at a new housing development in Petaluma, California. Sales of new homes have been rising, as have prices. Meanwhile, interest rates are low. But that doesn't mean it's a good time to buy.

The Commerce Department released data on August new homes sales today. Bottom line: sales were flat from July to August, but well up over last year: 18 percent. That sounds great, but there are several other factors to take into account. First, the latest Case-Shiller index provides strong evidence that housing prices in the U.S. are forming a bottom (don't get too excited — we're only back to 2003 levels, even with hard-hit regions like Phoenix posting double-digit price gains). 

Second, housing inventory in Southern California is tight. The supply of foreclosures coming to market is being reduced, and during the downturn, homebuilders didn't do much building.

Third, that lack of supply is colliding with a surge in demand, as buyers decide to take advantage of low prices and historically low interest rates. The interest rates are the Federal Reserve's doing; the central bank wants people to buy houses and bid up prices to get the housing market back on its feet and restore equity appreciation to borrowers who now owe more on their mortgages than their homes are (for the time being) worth.

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