L.A. Times: Relative strength in California housing

The California housing market rationalizations continue to flow, as reported by Annette Haddad in this November 21 story. (Annette Haddad is not saying that, she's just reporting them.) We continue to hear great news about the economy and lack of overbuilding as reasons why prices have held up.

Yet we see upheaval in the lives of inhabitants of the low-income rungs of the economic ladder as these inhabitants must endure the major inconveniences of being displaced and having to cram into ever fewer and tinier rental dwellings. At the higher end of the economic spectrum, firms are leaving the state, and it has become virtually impossible for some industries to attract recruits into the area due to the high costs of housing. Some California residents are choosing to leave the state, citing how the finanial burdens of living here now outweigh the benefits. We can't continue to have it both ways.

In addition, many don't understand how underbuilding can morph into overbuilding practically overnight. It's about how social mood can change and compel us to reconsider what we formerly thought was valuable, thus affecting supply, demand, and price. The homes that the public was clamoring for yesterday are now suddenly overpriced, and demand has withered. What the public perceives as good value in housing can change very quickly. We can then experience conditions where the homes that everybody yearned for yesterday are now overbuilt today, because the public mood has changed.

The California Association of Realtors (CAR) chief economist Leslie Appleton-Young keeps chirping about how healthy the state economy is and how most people are keeping up with their mortgage payments. Of course, CAR is in a very credible position for making such claims, having reengineered their housing affordability index, because if they hadn't done so, than almost nobody in California could afford to buy a home by the old conservative standards. And being the good myopic economists that they are, they focus only on the low absolute numbers of notices of default and foreclosures, neglecting to mention the jump in default and foreclosure activity year over year and the implications of such a trend change.

One point mentioned is the fact that sales in California have not fallen "as much" as in other areas. Here, sales have fallen a mere 28% in Q3, compared with poor unfortunate Arizona, where sales fell 36%. Huh? That's supposed to be good? Is your D grade good because I got an F? It sounds to me like Arizona drove its car over the cliff sooner, that's all.

The other point mentioned in the article is the relative strength of the very high-end ($2 million plus) home market. Hmmm, at the time I write this, Melissa Data is not reporting any sales in Beverly Hills 90210, whereas all the other zip codes I have checked have reported some sales for the month of November. And Malibu 90265 is looking even slumpier than Manhattan Beach 90266 right now. How high end are we talking about? OK, I'll be impressed if Britney Spears gets her $13.5 million asking price on her Malibu digs, which is almost double what she paid for the place in October 2004.