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Pedestrians are reflected in a window as they walk by a sign displaying mortgage rates inside a Bank of America office on June 7, 2012 in San Francisco. Mortgage rates are at record lows and home prices are rising in Southern California.
In April, Southern California saw a 3.6 percent year-over-year increase in the median house price, to $290,000, according to DataQuick, a company that tracks housing data. In May, that trend — if you can call two consecutive months and trend — improved: the median price moved up 5.4 percent, to $295,000.
The good news here is that we're no longer seeing price deflation. In March, were weren't seeing very much of a year-over-year price decline — it was a barely perceptible 0.2 percent. But it was there. It was worse in February. In fact, the median price didn't increase in Southern California for two years: the April uptick was the first sign of life.
But before we get to excited, it's worth noting that prices are still dauntingly off their 2007 highs. That was a bubble, of course. But what we need to see now is a sustainable trend of year-over-year price increases. This will remove the risk of a return to deflating home prices, which can be reinforcing: buyers expect prices to fall in the future, so they don't buy today, and that creates a disastrous spiral. It doesn't matter how far interest rates fall. Savvy buyers avoid investing in a declining asset. Smart buyers invest in a rising asset while it's still cheap and they can borrow cheaply to buy it.
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Is the dollar bill done for?
So it seems to me and my colleagues...that an alternative currency with roots in peer to peer networks and based on an algorithm that is transparent to everyone is an idea whose time has come. The question remains if the Bitcoin algorithm or some other algorithm (possibly a derivative of the Bitcoin algorithm that deals with some of Bitcoin's weaknesses?) will ultimately win out. That's an important issue that has a lot to do with when this space becomes investable.
But Bitcoin or something else, I'm confident we'll see the emergence of currencies that are not controlled by nation states in my lifetime. Whether that is a good thing or not remains to be seen. I think it is, but there are significant ramifications that will result from the decoupling of currencies from governments. And one of them is an interesting investment opportunity that we hope to participate in.
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A bank foreclosure sale sign is posted in front of townhomes on August 12, 2010 in Los Angeles, California.
Home prices in the California cities are comparatively healthy despite the state's high unemployment rate, because the markets tracked by the index are close to key job centers such as Hollywood and Silicon Valley and are also near the ocean -- where overbuilding was relatively constrained. The index does not track prices in California's Central Valley or the Inland Empire, where housing is still weak.
For background, the unemployment rate in Cali is just south of 12 percent. The latest Case-Shiller index, which tracks housing prices in major cities, showed modest month-over-month declines from August to September 2011, in Los Angeles, San Diego, and San Francisco.
Modest, but still headed down. So price deflation in the California housing market continues. And nobody seems to know where the floor is, at least in the Case-Shiller cities.