Explaining Southern California's economy

Fresh & Easy's competition problems in California

Tesco Opens First Of Its "Fresh & Easy" Stores In L.A

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This was one of the first 16 stores that Fresh & Easy opened in the U.S., and this was — and still is — in Los Angeles. But now the British-owned chain, after a $1.6 billion investment, will likely leave the U.S. market or see its parent, Tesco, sell it.

The L.A. Times reported last year that Fresh & Easy, a relatively newly arrived grocery chain owned by Britain's Tesco, would be closing stores in the U.S., including seven in California.

At the time, the LAT quoted a Fresh & Easy spokesman who said that it would continue to grow in the U.S.:

Despite the store closings...Fresh & Easy will maintain a brisk pace of expansion, with an average of 50 stores opening per year.

More than two dozen new stores will open their doors through March, including seven smaller-format Express stores in Los Angeles and Orange counties and five stores in Sacramento.

KPCC Business Reporter Wendy Lee filed a story Thursday that suggests those plans have changed. And the Wall Street Journal has a long story about how Fresh & Easy is a $ 1 billion-plus debacle for Tesco and quotes Clarke declaring that it's "likely, but not certain, that our presence in America will come to an end."


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.


Home foreclosures in California among highest in US


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For sale signs are posted on a foreclosed house in Glendale, California.Foreclosures are declining in California, but the state is still one of he hardest hit.

California is still in the top five states nationally for home foreclosure rate, with one in every 379 houses filing, according to real-estate data firm RealtyTrac. But foreclosure activity fell in the U.S. in October and in the Golden State. That sounds good. But maybe it isn't.

Less foreclosure activity in California! How can that possibly be a bad thing?

Well, it does show that the housing market is showing some signs of a true recovery. But in Southern California, we’re currently dealing with a price bubble in some markets, particularly with houses that are selling for over $300,000.

A lack of housing supply is pushing prices higher, with the escalation spurred on by historically low interest rates and investors looking to snap up properties in the area on the cheap. Investors are often all-cash buyers, which makes it difficult for run-of-the-mill homeowners to compete with them. A suitcase of money usually trumps a mortgage, especially if a bidding war gets started on a property.


Runaway porn: What economic difference would it make to LA?


Photo by Robert Elyov via Flickr Creative Commons

Will these innocuous tubes of latex drive the porn business out of L.A.? Does it matter?

The passage of Measure B last week means that the condom will now become, by a law, a fixture in adult movies. Predictably, this has set off a frenzy of speculation about the porn industry picking up and leaving its longtime L.A. boogie-nights home and heading for the prophylactic-free jungle rooms of Las Vegas - or even, the L.A. Times suggests, Budapest, Hungary, the San Fernando Valley of Mitteleuropa. 

The LAT got into the numbers:

Adult entertainment boomed after the advent of home video in the 1980s. A decade ago, local economists estimated that the porn industry in the San Fernando Valley generated 10,000 to 20,000 jobs a year and had $4 billion in annual sales.

But declining DVD sales and the availability of free content on the Internet have hammered the local industry. The number of porn producers in L.A. has fallen to about 300, down from approximately 500 at its peak seven years ago, Helmy said.

Although porn production accounts for fewer than 5% of all film permits in Los Angeles County, the industry is an important player in the region's entertainment economy.

Industry estimates figure that about 5,000 adult films are shot each year in the county's warehouses and private homes.


September home prices: California is still down from the peak

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A construction worker cuts a piece of wood on the top of a home under construction at a new housing development in Petaluma, California. Homebuilding should pick up in California as demand rises and supplies stay low. This should put some downward pressure on prices.

CoreLogic released its September home price index Tuesday. It showed that while prices are up nationally by almost 6 percent from last September, they're still down over 37 percent in California since the peak of the housing market six years ago.

Given that we're experiencing a minor bubble in home prices at the lower end of the market in Southern California, this should provide some solace to buyers who are concerned that they're never going to be able to buy a house this cheaply again. 

Interest rates should remain at historic lows through next year at least, and with prices down almost 40 percent from the peak, it's going to take some time for the market to normalize. Additionally, more foreclosed properties will come to market, homebuilders will begin to build into surging demand, and homeowners who have been waiting out the aftermath of the housing crisis may decide to put their properties on the market.