Explaining Southern California's economy

Short sale boom: Maybe in California, but not in the rest of the U.S.

A short sale home in the Spring Valley a

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A short sale home in Las Vegas. An expected short sale boom in the U.S. hasn't materialized, according to the National Association of Realtors. But in California, short sales have been on the rise.

If you’re underwater on your mortgage, you might want to consider a short sale, asking the bank to take less that what you owe. Some real estate experts thought a boom in short sales might appear at the end of 2012. But the National Association of Realtors says that hasn’t happened.

Why? It all comes down to the fiscal cliff. In addition to tax cuts and stimulus spending, something that might also go away is the Mortgage Forgiveness Debt Relief Act.

It expires at year’s end and if Congress doesn't extend it, short sellers could face an IRS tax bill for the forgiven portion of their mortgage. But on Thursday, the president of the National Association of Realtors, Gary Thomas, pointed out that there’s been no short sale boom. Short-sellers haven't been rushing to beat a possible fall off the cliff.

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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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Lack of homes to sell is making trouble for the market in the West

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A sign is seen outside of a KB Home sales center in Richmond, California. A lack of housing supply in the Western U.S. is spurring homebuilders to start building again.

The National Association of Realtors (NAR) has released its pending home sales index for August. The index fell a bit from July but is up more than 10 percent from last August.

That's the national picture. But in the West, the story is...well, distorted. The July-August decline was more than 7 percent, and the year-over-over year was more than 4 percent. What's to blame? A lack of housing inventory, according to the NAR. 

I've been noting this trend often here at the DeBord Report. It's both good and bad. Good because a lack of supply to meet demand is encouraging homebuilders to...build! And that means unemployed construction workers have a good chance in the future to be not unemployed. But it's bad because the lack of supply, combined with historically low interest rates, is driving up prices. And it's dragging down pending sales — because there just aren't enough homes to be pending a purchase!

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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.

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July pending home sales point to a housing recovery

Existing Homes Sales Jump More Than Forecast

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Tract homes in Santa Clarita, California. Pending homes sales in the U.S. are at levels not seen since 2010.

We've gotten two positive housing data sets in the past two days. First, the Case-Shiller index for June is indicating that the U.S. housing market has formed a bottom. Today, the National Association of Realtors released July pending home sales — those are homes that have been contracted for sale but not yet sold — and the improvement over 2011 is notable. 

This is from the NAR:

"[T]he index is at the highest level since April 2010, which was shortly before the closing deadline for the home buyer tax credit. "While the month-to-month movement has been uneven, more importantly we now have 15 consecutive months of year-over-year gains in contract activity," said [Chief Economist Lawrence Yun].

Bear in mind that Case-Shiller is, to an extent, designed to counteract any excessive frothiness that might percolate in the U.S. housing market due to forward-looking indicators such as pending home sales. Case-Shiller focuses on prices and lags the market by a few months because in the 20 cities the index tracks only homes that have been sold are counted. 

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