Explaining Southern California's economy

Housing crunch in SoCal could take a while to normalize

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A sign is seen outside of a KB Home sales center in Richmond, California. It could take a while before business is back to normal.

Monthly real estate data has been pointing in one clear direction for the past few months: a lack of supply is driving up prices. 

At this point, everyone from the California Association of Realtors to the National Association of Realtors to economists and firms that track the Southern California real estate market agree: We don’t have enough houses!

But wait — idn’t we just go through a massive housing bust? Yes, but now demand is surging, driven by low prices and low interest rates. Meanwhile, homebuilders are building again, but at about half the rate they did in the early 2000s.

The California Association of Realtors says there’s barely a three-month supply of homes to sell in the state. Twice that would be normal.  But rationalizing the market could take time, with analysts predicting it could take anywhere from a few quarters to a year before the homebuilding business is solid again for firms like L.A.-based KB Home.

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Distressed home sales are declining across Southern California

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Distressed homes sales have been declining in Southern California large counties both year-over-year and month-over-month.

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The supply of homes for sale has been getting tighter and tighter since last year, reducing pending sales but pushing up prices in many cases.


The California Association of Realtors released data on August pending and distressed home sales today — data that shows that the housing market in the Southland and elsewhere in the state is improving to the degree that a lack of housing inventory is becoming a problem. 

This could ultimately be a good problem to have, if its spurs builders, such as L.A.-based KB Home, to start constructing new houses. KB beat earnings expectations last week and now seems to be pretty bullish on a housing recovery.

It's also good for sellers, as a shortage of supply is pushing prices up. It's worth noting that market is now clearing the overhang of distressed properties, a process that we've been waiting for particularly in hard-hit California. As you can see from the charts above, distressed sales — short sales and foreclosed properties, or "REOs" ("real estate owned") — have been falling year-over-year and month-over-month is Los Angeles, Riverside, and San Bernardino counties. 

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How are Los Angeles companies handling the stock-market slide?

U.S. Markets Open Under Uncertain Economic Conditions

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When will it end?

AP doesn't sugarcoat the bad news for investors:

The stock market extended its longest and deepest slump of the year Tuesday, caught between a recurring nightmare of European debt and the beginning of uncertain corporate earnings reports at home.
The Dow Jones industrial average fell almost 220 points and was on pace for its third triple-digit decline in four trading sessions. It hit its lowest point since Feb. 3, during the market's strong and steady climb earlier this year.

Prices for U.S. government debt rose for the fifth day in a row as investors sought a safe place for their money.

So how are public companies located in Los Angeles handling the decline?

The Big Three — Disney, Northrop Grumman, and Occidental Petroleum — are actually doing okay. They're all down, of course, but nobody has fallen off a cliff. Occidental has fared the worst, due to the assumption that weak demand for gas is going to hurt profits, most likely.

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