92606 Median Selling Price:

• Ju;u 2010: $584,000 (up 9.5% y-o-y)
• June 2010: $457,000 (down 25.4% y-o-y)
• May 2010: $408,000 (down 16.7% y-o-y)
  For comparison: Redfn’s May median numbers are $457,000 (down 30% y-o-y) or $347/SF (up 1.5% y-o-y)
• April 2010: $498,000 (down 20.3% y-o-y)
• March 2010: $613,000 (up 12.07% y-o-y)

92606 Number of Sales:

• July 2010: 14 (down 22.2% y-o-y)
• June 2010: 17 (up 6.3% y-o-y)
• May 2010: 21 (up 40.0% y-o-y)
• April 2010: 12 (up 33.3% y-o-y)
• March 2010: 15 (up 25.00% y-o-y)

Source unless otherwise noted: DQNews

Here are some quotes from a post in a recent John Burns Consulting newsletter. They provide some food for thought when deciding if housing prices are going up, down, or sideways:

When forced to answer the question, we [John Burns Consulting] say that most home prices are reverting to 2003 prices - some areas have overcorrected and some have not fully corrected. While that covers our butt nationally, we know the truth is much different depending on what submarket or pool of homes you are talking about.

…

If you read the newspapers, you would think prices are appreciating, whether it is the Case Shiller price index or median resale prices - the two price measures that used to be the most reliable measures…

According to CS, prices are up 6% in LA (includes Orange Co.) and 11% in San Diego since March of 2009. According to the median price, prices are up 12% in LA, 17% in Orange County, 12% in Riverside and 18% in San Diego since April of 2009. Neither is correct if you are talking about most homes in those markets.

…

According to a [Realtor Survey of Existing Home Prices] survey, prices only recently started appreciating in Orange County, and they are still trending down very slightly in the rest of Southern California.

…

To understand home prices (and all else housing-related for that matter), you need to look at everything. If you are making a decision based on headline data or a regression to the mean, you are taking a lot of risk.

Click on the link to see the rest of this John Burns Consulting newsletter.

Downs [of the Brookings Institute] expects big changes because of the recession, such as homes being built smaller and being less affordable. He also expects a switch from the more conservative spending and fewer government restrictions of the Reagan and Bush eras to the more liberal government spending and tighter government regulations that the Obama administration has already started to enforce.–”Brookings fellow: Recession is not over yet,” Jacksonville Business Journal

We are about to have new legislation that is aimed at preventing the housing and financial market crashes that we recently experienced from occurring again. Opinions differ on where or not this new legislation adequately addresses these problems while at the same time not unnecessarily stifling financial institutions ability to lend.

Back in February at an Urban Land Institute event, Anthony Downs of the Brookings Institute identified the following as issues that the new financial legislation should address but probably would not due to “political backlash.” When reviewing this new legislation, keeping this points in mind can help you decide how successful lawmakers were in their attempt at reform.

Here are the points that Downs thought were necessary for successful reform of the financial institutions:

• Break up the largest U.S. banks that control much of the nation’s money
• Require that financial institutions have adequate reserves
• Reorganizing securities
• Require that mortgage bankers conform to stricter rules
• Ensure international cooperation on financial regulations

What do you think? Does the new legislation go too far or not far enough in addressing the problems that lead to our current financial difficulties?

Note: For one analysis with some pros and cons, see “The Dodd-Frank Financial Reform Bill is a Valuable Step Forward” Douglas J. Elliott, Brookings Institute.

Photo Courtesy Brookings Institute

Since its debut in 2005, more than 175,000 people have used the “California Budget Challenge,” the online simulation that lets users try their hand at managing the Golden State’s finances by creating a budget reflecting their values.

The new June 2010 California Budget Challenge includes the most up-to-date figures from Governor Schwarzenegger’s May Revise. You’ll be confronted with many of the current proposals under consideration by the legislature. In addition to choices about education spending and income tax, you now have the opportunity to weigh in on topical proposals such as further cuts to human service programs, imposing an oil severance or marijuana tax, or increasing the current cigarette tax.

“The rate [of home ownership] only began to climb above 64 percent in the 1990s and the first decade of the current century when Administrations of both parties adopted national policies designed to encourage home ownership; the result was to drive both home prices and the home ownership rates to unsustainable levels”.–”Housing in America: The Next Decade,” Urban Land Institute

The percentage of those in the U.S. that are homeowners has fluctuated throughout U.S. history. As mentioned in the quote, the home ownership rate peaked in 2004 at 69%.

Here is the U.S. homeownership breakdown as provided by the Urban Land Institute (ULI):

• 1900-1930: 45% to 48%
• 1940: 43% (The reduced amount was due to the Depression and World War II.)
• 1945-1960: 62% (This was the period of “the great suburbanization of the U.S.” The factors leading to this suburbanization was “a booming economy, rising real incomes, favorable tax laws, a rejuvenated home building industry, and easier financing.“)
• 1960-1990: 62% to 64%
• 2004: 69%
• First quarter 2009: 67.2%
• Likely near-term stabilization rate: 62% to 64%

ULI provides the following analysis on the effects that a change in the number of homeowners will have in the U.S.:

“Government policies are in the process of being rebalanced today. A homeownership rate of 62 to 64 percent will have only a modest impact on local communities….

There have been many studies which extol the virtues of homeownership for community stability and educational and health benefits for children. These are being questioned by new studies, however, and new evidence suggests that housing stability is more important than whether a home is owned or rented in producing positive outcomes.

If, on the other hand, a confluence of circumstances conspires to produce a rate in the 50s, this will be a “game changer.” The most likely cause for such a low homeownership rate would be a prolonged or double dip recession, with a slow recovery”.–Urban Land Institute

To see a ULI video presentation of the report, click here. To read the ULI report, click here. To read a related report from ULI, see “2010 Emerging Trends in Real Estate“

As Friedman sees it, the root of this problem isn’t solely with current government policies:

We don’t just need better government, we need better citizens….We need to make leaders understand you can ask me to something hard.

Friedman see much of the anger at our current predicament as “unfocused” and an unwillingness to make a shift away from the familiar but unsustainable practices that have lead to the current difficulties. Friedman says we are following situational values instead of sustainable values.

Goldman has been the poster boy for banks behaving by “situational values” - exploiting whatever the situation, or rules that it helped to write, allowed.–NY Times News Service

Now brace yourself, because here is an example of the type of immediate change that he thinks we should be willing to make for the long-term benefit: A dollar gas tax.

Forty cents would go to deficit reduction, 40 cents to health care (which would also help to reduce the deficit), 10 cents to subsidize those who can’t afford health care, and 10 cents to those who have to drive long distances.

As Friedman sees it, these measures would help to reduce the deficit, improve the health of the dollar because we won’t be sending $250 billion overseas, and correct an energy policy that is currently empowering some of the most corrupt leaders in the world.

OK, I know that a gas tax is a third rail in politics, and I imagine some of you are muttering some unpleasant words just at the mention of a gas tax. But as Friedman sees it, we cannot continue with an economy based on the expectation of continuous withdrawals without deposits.

Here are some other solutions that Friedman thinks will help our economy:

• Health care reform will allow us to compete globally.
• Investment in energy technology will allow us to compete in the predominant job markets of the not-to-distance future.
• Education in energy technology will allow us to build a better economy.

Sources:

• http://www.nytimes.com/2009/11/22/opinion/22friedman.html?_r=1&em
• http://www.charlierose.com/ (under Web Exclusives)

Here are the numbers from DQNews:

Notice of Defaults (This is the first step in the foreclosure process; however, this does not necessarily end in the home being taken back by the lender.)

• 2008Q3—5,692
• 2009Q3–7,436
• This is a 30.60% increase.

Trustee Sales Recorded (This is the last step in the foreclosure process. The home is taken back by the lender in this stage of foreclosure.)

• 2008Q3–3,997
• 2009Q3–2,238
• This is a 44.00% decrease.

Here is what John Walsh, DataQuick president, makes of these numbers:

It may well be that lenders have intentionally slowed down the pace of formal foreclosure proceedings. If so, it’s not out of the goodness of their hearts. It’s because they’ve concluded that flooding the market with cheap foreclosures in this economic environment may not be in their best financial interest. Trying to keep motivated, employed homeowners in their homes might be the most cost-efficient way to stem losses.

He goes on to say:

There’s a batch of truly nasty loans that were made in mid 2006. There’s another batch made in late 2006. These are worse than the mortgages before and after, and it’s taking a long time to process them.

The 2009 fourth quarter number from DataQuick should be out soon. We will see if the Q3 and Q4 numbers tell the same story. I expect that they will.

Update: New numbers from DataQuick have just been released. sw 1-30-10

Recently

Here is a quote from the Padilla’s article that states this different perspective:

Mortgage strategists at Credit Suisse say the slowdown in Fed purchases will not affect MBS spreads to any large degree. “The Fed’s exit from the MBS purchase program will likely be well absorbed by the market,” according to a weekly Credit Suisse “Market Watch” publication. After March 31, the “Fed will likely assume a backstop role for the MBS market to prevent a double dip in housing,” Credit Suisse strategists say.–Matt Padilla, “Treasury mum on halting mortgage-security purchases“

The Fed started this buy-back program in January 2009, and by the end of the program the Fed will have bought $1.25 trillion dollars worth of these securities. The result is that mortgage rates have been kept low, but when the program ends, some, such as Johnson and Gumbinger,  believe that mortgage rates are likely to increase.

As Anna Prior points out in a Wall Street Journal article, rate might not increase that much, but

A one-percentage point rise could add more than $150 to a monthly mortgage payment for a $250,000 30-year fixed-rate loan.

In addition, mortgage industry exec Johnson advised a homeowner whose mortgage rate is about to reset that the end of the buy-back program will

…increase the likelihood that rates will climb. If I were you, I would initiate a refinance right now. (Randy Johnson, “Is it time to refinance?” The Orange County Register, December 13, 2009)

As a mortgage industry exec, Johnson has an interest in advising for refinancing. But the end of the buy-back program and the effect this will have on interest rates is something to put into the mix when considering refinancing.

Note: An upcoming post will provide another viewpoint.

Thomas Friedman at Davos Economic Forum

According to Pulitzer Prize winning columnist Thomas Friedman, our problems in California are just a preview of the problems that the rest of the country will face. Friedman sees U.S. problems as stemming from the following:

• too much money in politics
• gerrymandering of political districts
• Internet use which “at its worst provides a home for every extreme view and spawns digital lynch mobs from across the political spectrum that attack anyone who departs from their specific orthodoxy.” He also states that “at its best, [Internet use] provides a check on elites and establishments and opens the way for new voices.”
• a permanent presidential campaign
• U.S. business community that has become so global that the business community does not feel  a commitment to local areas or even the U.S. as a whole

Friedman has also stated that much of our problems come from the failure of our leaders–and the public–to think and act for the long term. He calls this our “I’ll be gone, you’ll be gone” attitude toward the economy and the environment. According to Friedman, we have been using accounting practices for both our financial system and the environment that under price risk, privatize gain, and socialize losses.

For video interviews with Thomas Friedman, see Friedman’s New York Times webpage.

Sources: Thomas Friedman, “Advice from Grandma“; The New York Times; Charlie Rose