Tuesday, September 26, 2006

L.A. Times: Data on Homes Causes Jitters

Well, there isn't too much additional hot air I can blow about this September 26, 2006 L.A. Times story by Tom Petruno, since it is more national in scope. However I will point out a few items from the article on California and So Cal in particular.

On a national level, median home prices declined 1.7% in August YOY, the first such drop since April 1995. Number of homes sold fell for a fifth consecutive month and inventory is reaching record levels. The price picture is holding up better here in Southern California. The August median price for a Southern California (all homes) was $489,000, up 2.7% YOY. The statewide median price of a resale SFR was up 1.6% YOY to $576,360. However, statewide home sales plunged 30%, and our local area builders, realtors, and mortgage lenders are really starting to feel the effects of a slowdown.

We know from recent news stories that CountryWide Financial, for instance, is laying 5 to 10% of its general and administrative staff. Builder Ryland Group of Calabasas says it cut its workforce by 3000, about 10%. A San Diego branch manager for a construction supply company believes that the "job losses were just beginning." For the three months ending in August, some builders are reporting a plunge in orders at the rate of 58%. "Things are clearly turning down pretty hard." However other analysts still believe the impact of the declining housing market on employment will be modest. Really? Let's see - trade contractors, construction workers, realtors, mortgage lenders, property managers, furniture suppliers, car dealers that sell trucks to contractors - and all the clerical, administrative, and IT tech people who love and support them - are all potentially affected by the fallout. And my guess is that most of those jobs beat pizza delivery and sign twirling in terms of income. Let's see how modest the impact on employment this downturn will be.

And then of course there is the wealth effect. The theory is that consumers spend more lavishly when they feel wealthy. How will they feel when the values of their homes drop and how will that affect their spending? Unfortunately, analysts such as the USC Lusk Center for Real Estate and Pacific Investment Management of Newport Beach practically equate "untapped equity" with sure-thing, monetized, cash in the hand, claiming that people have "a ton of money" in their homes that could be spent. And I say, oh yeah? We have real estate experts and economists at a top-rated university in the country who don't understand the difference between money and credit. And even a child can understand that a bird in the hand is worth two in the bush.

Well, David Lareah, chief economist of the NAR, has one thing right. "Prices are going to get worse before they get better." If he limited his comments only to that, he'd sound like a genius.


Anonymous Anonymous said...

Another blog noted that housing related jobs are 7% to 10% of the total jobs (construction, realtors, mortgage brokers, apraisers, retailers selling the new washer/drier, etc.). If Orders are off 58%...

That's roughly a 6% drop in GNP pretty quickly, say within 18 months... That will just bring economic growth into negative territory.

And I haven't even begun to discuss the impact of reduced spending due these job losses nor reduced access to credit... Hmmm... Yikes!

Yep. Bad recession heading this way.


5:06 PM, September 26, 2006  

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