Explaining Southern California's economy

Tight housing market in the West continues to push home prices up

New Home Sales Hit A Record High

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It's becoming obvious that due to rising prices and limited housing stock in the West, more construction is going to be necessary in the future.

Hot on the heels of the government release of August existing home sales data this morning, the National Association of Realtors put out its own report on August sales — and prices.

The news on prices is good and providing further evidence that the U.S. housing market has formed a bottom. In fact, it appears now that a small bubble in prices may be developing in the West, with sales moving up moderately from July but flat since last August at the same time that prices are rising more substantially year-over-year.

Here are the two critical paragraphs from the NAR's press release:

The national median existing-home price for all housing types was $187,400 in August, up 9.5 percent from a year ago. The last time there were six back-to-back monthly price increases from a year earlier was from December 2005 to May 2006. The August increase was the strongest since January 2006 when the median price rose 10.2 percent from a year earlier.


Existing-home sales in the West increased 8.3 percent to an annual level of 1.17 million in August but are unchanged from a year ago. With ongoing inventory shortages, the median price in the West was $242,000, which is 16.3 percent higher than August 2011.


Housing goes flat? August starts remain at July levels

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A construction worker installs a window in a new home at the Arbor Rose housing development in San Mateo, California. Housing starts were relatively flat from July to August, according to the the government.

The government has released data on housing starts for August, and while positive, it isn't a significant increase over July. We got an annual rate of 750,000 nationally, against a downwardly revised July figure of 733,000, an increase of just over 2 percent. 

A consensus of economists surveyed by Bloomberg expected better: a rate of 767,000. The good news, however, is that August 2012 saw a big jump over August of last year — 29 percent — when starts managed a rate of only 581,000.

Regionally, the West saw a big chunk of that activity, with a rate of 176,000 starts, but came in second overall to the South, which contributed a rate 364,000.

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Visual Aid: Is declining financial stress helping the housing market to recover?


Federal Reserve Bank of Kansas City

The Kansas City Financial Stress Index is trending back down to levels where investors have been historically comfortable taking on more risk.

The U.S. housing market seems to be improving, after completely collapsing in 2007-08. The Case-Shiller index, which tracks prices in 20 cities, is indicating that we've finally found a bottom for prices and could conceivably look forward to sustained price increases in the future. The foreclosure crisis is gradually working itself out — although it's still got a long way to go — and in the process benefitting the rental market, as people who've lost their homes take to renting as a transitional strategy. 

The stage is now set for consumers who've spent the past four or five years in a state of fear to begin buying houses again. Prices are low and interest rates are, too — as low as they've ever been. So why have people been so afraid? They haven't wanted to tie up their money. Cash is king in a crisis. If you're worried that you might lose your job, you don't want to be cash-poor and potentially confronting a stack of unpaid bills. 


A Labor Day story about one Southern Californian's career change


Matt DeBord/KPCC

Eric Arimoto left the Army in the the mid-1980s. He started his own business in the mid-1990s. Now in midlife, he's becoming a therapist.


Matt DeBord/KPCC

Tools of the trade.


Matt DeBord/KPCC

Eric and his partner own a warehouse in Los Angeles. And it's full!


Matt DeBord/KPCC

Eric's company specializes in intricate, high-end molded designs.


Matt DeBord/KPCC

More complex moldings.


Matt DeBord/KPCC

Eric plans to keep his business going while he trains as a therapist, after getting his Master's in clinical psychology.

The housing boom was good to Southern California — while it lasted. But when the bubble popped, our unemployment rate skyrocketed. In a state with a jobless rate near 11 percent, a number of our cities are above that. And as most everyone knows, the downturn hit the building trades hard.

What do you do when you’ve been exposed to real estate’s ups and downs for much of a career? What you hear all the time when talking to economists who follow the job market in Southern California is: If only we could take all those unemployed construction workers and turn them into healthcare workers.

But of course you can’t turn carpenters into nurses overnight. I decided to try to find someone who'd transitioned out of the building trades toward "the helping professions," however, using our Public Insight Network. While I didn’t find a guy who had been hammering houses together before the financial crisis, I did find someone who was connected to the real estate market when the bottom fell out. And who decided to explore explore a new career in healing.


Case-Shiller: Los Angeles loses a bit of ground in June

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A "for sale" sign stands outside a home in Pasadena. The Case-Shiller index for June showed prices moving up slightly in L.A. for June, but not as much as in May.

June Case-Shiller numbers have just been released. The news for Los Angeles — one of the 20 U.S. cities whose home prices the index tracks — is mixed. Prices in L.A. didn't mount gains that were as strong as May, when they ticked up 2.2 percent from April. For June, the rise was only 1.7 percent, just slightly better than the 1.5 percent the city's housing market turned in for the March-April period.

Year-over-year, prices in Los Angeles were down 0.6 percent. Yes, that's a tiny drop, but it was significant enough for Standard & Poor's, the company that owns the Case-Shiller index, to call it out, in the context of a national trend of price increases since last June: "There were only six cities – Atlanta, Chicago, Las Vegas, Los Angeles, New York and San Diego – where the annual rates of change were still negative."