Explaining Southern California's economy

Is the bottom history? Southern California home prices continue to move up

Long Term Mortgage Rates Fall To Historic Lows

Justin Sullivan/Getty Images

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. 

Read More...

Eurozone crisis: It's baaaccckkk!

Men look at the IBEX-35 index curve on A

DOMINIQUE FAGET/AFP/Getty Images

Men look at the IBEX-35 index curve on April 23, 2012 at Madrid's stock exchange. Top shares on the Madrid stock exchange slumped 3.24 percent in early trade, hammered by concerns over Spanish sovereign debt and the French presidential elections.

Well, it was only a matter of time before the zombie plague that is the European debt crisis once again lurched toward global markets, hungry for brains....brains...brains... I mean bailouts...bailouts...bailouts.... That's what Spain is now telegraphing, as the yield on the country's 10-year bond edged closer to the critical 7-percent mark, the point at which a bailout by European banking authorities would be necessary. 

Spain's woes are very different from Greece's. Spain has a banking crisis that was brought on by a property boom. Greece borrowed to build a welfare state. For this reason, it's critically important that Spain's crisis be contained, because other banks have exposure to Spanish banks. Banks outside Spain. 

Here's some insight from (of all places) Bermuda's Royal Gazette:

Read More...

Southern California house prices: It's deflation, folks

Foreclosures Spike As Banks Accelerate Loan Default Notices

Kevork Djansezian/Getty Images

A for sale sign is posted in front of house on September 15, 2011 in Glendale, California. Sales in California are on the upswing, but prices are unstable.

DataQuick has crunched the numbers on March housing sales and prices in Southern California. There's good news and bad news. From my perspective, the bad news is much more bad than the good news good. 

This is from DataQuick:

March sales of newly built homes rose almost 9 percent from a year earlier, marking the second consecutive month with a year-over-year gain. But March’s new-home tally was still the second-lowest for that month in DataQuick’s records back to 1988. Last month’s sales of existing (not new) single-family detached houses were the highest for a March since 2010, while resale condo sales were the lowest for that month since 2009.

BUT:

The median price paid for a Southland home last month was $280,000, up 5.8 percent from $264,750 in February but down 0.2 percent from $280,500 in March 2011. The March median was the highest since the median was also $280,000 last September. The year-over-year decline in the March median was the smallest since February 2011, when the $275,000 median was unchanged compared with a year earlier.

Last month’s median was 13.4 percent above the low point for the current real estate cycle – $247,000 in April 2009 – and 44.6 percent below the $505,000 peak in mid 2007.

Read More...

Recovery might be slow, but it isn't uneven

Scott Olson/Getty Images

Workers build a Jeep Compass at the Chrysler assembly plant in Belvidere, Ill. Manufacturing has been a high point for the recovering U.S. economy, reflecting the rebirth of the U.S. auto industry.

Strange assertion from the L.A. Times today, as some new construction and manufacturing data comes out:

The economic recovery is happening at a very slow and not especially steady pace, according to new indicators that include construction spending sliding to a 7-month low and ever-so-slight improvement in the manufacturing sector.

Construction, given its exposure to the cratered housing market, should really be viewed off to the side of the rest of the data. The real meat of the matter is in manufacturing:

The factory outlook was more optimistic, though not by much. An index on the manufacturing sector from the Institute for Supply Management was up to 53.4 in March from 52.4 in February.

Any level above 50 – which production facilities have managed to maintain for more than two and a half years – represents growth. Fifteen of the 18 industries in the survey, including apparel, machinery and transportation equipment, reported overall expansion.

Read More...

California economy: When is a recovery not a recovery?

The UCLA Anderson Forecast, covering the fourth quarter of 2011 and looking forward through the fourth quarter of 2013, came out yesterday. KPCC's Brian Watt provided a report on air, and now I've had a chance to dig into at least some of the forecast. I'll start with the California section, presented by Anderson Forecast economist Jerry Nickelsburg. 

You'll remember that in the previous Anderson Forecast, Nickelsburg explained that California has broken into two distinctive economic regions: a recovering coast and a stagnating inland zone. Here's how I put it in the post I wrote back in September:

Since the financial crisis, two California economies have emerged. On the coast, there's growth. Inland, there's near-stagnation. You can easily see this expressed in the Los Angeles region's unemployment numbers. LA is bad, at at 12.7 percent. But Riverside and San Bernadino counties are far worse, at 15.1 and 14.3, respectively.

The industries that are creating jobs in California are also disproportionately located on the coast. Inland, the blast wave of the the housing bust is still being felt, with industries like construction shedding jobs.

Read More...