Explaining Southern California's economy

Are homebuyers too optimistic about rising prices?

Homes

KPCC

Buyers are looking to buy housing again. And according to the California Association of Realtors, they expect prices to rise.

It looks like the pendulum has swung back to the optimistic side for California home buyers. The California Association of Realtors released a study Tuesday showing that buyers are increasingly confident prices will go up in the future.

Which raises an obvious question: Are buyers in the state being too optimistic about rising prices, after being excessively pessimistic about prices falling in the aftermath of the housing bust? When the pendulum swings back, it often swings too far.

About 25 percent of the 800 home buyers surveyed by the trade organization think prices will be higher next year. That’s more than a threefold increase over what buyers said in 2009, in the depths of the housing crisis.

But that pales by comparison with the five-year and 10-year outlook. For those periods, home buyers expect 41 and 73 percent price increases, respectively. Clearly, there's a high probability that prices will be higher a decade from now than they are today. There's a little thing called inflation, after all, which typically runs at about 2-3 percent per year and, absent big upticks in home prices, provides the steady, reliable asset appreciation that homeowners buying for the long term are looking for. They don't call real estate a hedge against inflation for nothing. 

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Why it's risky to buy a house in Southern California right now

Foreclosure

Kevork Djansezian/Getty Images

It might look terrible, but you can't afford it.

The California Association of Realtors has just released data for September pending home sales in the state. The report contains what should now be a familiar refrain to both potential home buyers and sellers in California's market: we just don't have enough houses for sale to meet buyer demand.

One of the real areas of stress is with foreclosed "real estate owned" (REO) properties. According to the CAR, there's barely a two-month supply of REOs in the entire state. Coupled with other inventory shortages — we haven't buily much new housing in California since the bubble burst four years ago — this is driving up prices, particularly at the lower, entry-level end of the market.

There's a whiff of consumer panic in the air. Constrained supply is leading to ferocious competition for sub-$500,000 houses. We're feeling the REO crunch in Southern California generally – and L.A. in particular – as supply has fallen substantially since this time last year. Historically low interest rates — dirt-cheap money — are colliding with surging demand to create a bit of a bubble. Prices look attractive, given how far they've fallen from their highs in the mid-2000s. 

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Why entrepreneurs can't save the U.S. economy

Spencer Platt/Getty Images

Sheila Collins protests with others outside of U.S. Senator Charles Schumer`s office to demand more jobs on April 1, 2011 in New York City.

America loves entrepreneurs. And in the current dreadful economy, we're looking to the risk-takers and idea-guys more than ever to get us out of our unemployment rut. In some respects, you could call the entire Republican economic platform a formula for spurring entrepreneurship, with its combination of tax cuts and reduced regulation. Then again, you could say the same thing of the Democrats, who want the government to spend more money to stimulate demand for the products that entrepreneurs would create.

KPCC's Shereen Marisol Meraji reported from Los Angeles' entrepreneurship central today on the Madeleine Brand Show. She visited a co-working space and investigated the process of business-building at its most grassroots level. I'm energized by stuff like this, but I also have to throw a small amount of cold water in the face of the idea. The fact is that as important as entrepreneurs are to the economy, it's unlikely that they'll be able to create enough jobs to hammer down a 9.1 percent unemployment rate nationally and a 12-plus-percent unemployment rate in LA County.

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A brave new world for getting and spending

New York City Prepares For Direct Hit By Hurricane Irene

Mario Tama/Getty Images

Declining incomes plus frugal shoppers equals a whole new ball game for retailers.

Are we starting to see some kind of paradigm shift in the way people earn and spend? I'm far from sure, but in the last week and a half, I've seen a few signs that's something's afoot. Median household income has evidently declined since the end of the recession, while consumers have reduced their spending — and may not increase it any time soon.

Reuters Felix Salmon offers a quick summary of a some U.S. labor data data now being processed by Sentier Research. You can easily see what the really troubling thing is: "In dollar terms, median household income is now $49,909, down $3,609 — or 6.7% — in the two years since the recession ended. It was as high as $55,309 in December 2007, when the recession began."

This is why the "recovery" feels like anything but. Meanwhile, the Wall Street Journal took a look at the new frontier of frugality:

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