Explaining Southern California's economy

Bad investors v. good investors in the California housing market

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Justin Sullivan/Getty Images

A foreclosure sign sits in front of a home for sale.

This is from AP (via the Washington Post):

A new federal report shows that speculative real estate investors played a larger role than originally thought in driving the housing bubble that led to record foreclosures and sent economies plummeting in Nevada, California, Arizona, Florida and other states.

Researchers with the Federal Reserve Bank of New York found that investors who used low-down-payment, subprime credit to purchase multiple residential properties helped inflate home prices and are largely to blame for the recession. The researchers said their findings focused on an “undocumented” dimension of the housing market crisis that had been previously overlooked as officials focused on how to contain the financial crisis, not what caused it.

The story goes on to point out that less swashbuckling investors in Nevada are now buying foreclosed, abandoned homes, "fixing them up" and selling them.

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The Housing Crisis: Can prices fall even farther?

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Justin Sullivan/Getty Images

A foreclosure sign sits in front of a home for sale.

Another month, another Case-Shiller index on housing prices — and more bad news for the housing economy. This is from the Wall Street Journal:

The Case-Shiller data come on the heels of the White House's revamp of a mortgage-refinance program for "underwater" borrowers—those who owe more than their homes are worth. But economists say there are few quick fixes for the housing crisis, and easier refinancing rules will do little to address weak demand for homes.

"It was a very bad spring-to-summer-market season," said Nancy Wallace, a finance professor at the University of California at Berkeley. She said a turnaround in the housing market remains largely dependent on loosening credit and a surge in hiring. "People are almost afraid to apply for mortgages and lots of people have little scratches and dents on their credit right now."

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California v. Nevada: two ways of looking at unemployment

The unemployment rate in California is far higher than the national level — 12 percent versus 9.1 percent — and that's depressing for residents of the state. But there's one other state that's doing worse: Nevada, at 12.9 percent. The temptation is to put the two states in the same boat, because there are some similarities. Both California and Nevada have been hit hard by the housing crisis, which has created a kind of vast corridor of jobless construction workers between Los Angeles and Las Vegas. But California has the eighth largest economy in the world (if states could be compared with countries, which they can't), at $1.9 trillion. Nevada, by contrast, is around $130 billion. 

So the idea that California and Nevada can be subjected to an apples-to-apples comparison just because they sit atop the high-unemployment tally is sort of ridiculous. Nevada may have Vegas and gold mining, but California has Hollywood and Silicon Valley. Besides have a much larger economy, California has a much more diverse and innovative economy. The housing collapse is something that Nevada may never recover from. In California's case, it could just take a while. 

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