The housing boom beneficiary sectors provided their requisite drag, but according to the estimates released today by California's Employment Development Department, job growth outside those sectors was strong enough to drag the region as a whole into positive territory.
The accompanying graph displays the number of jobs added or lost by the three housing boom sectors in addition to jobs gained outside those sectors and overall. Construction was hardest hit with a loss of 7,900 jobs or 9.0 percent, followed by finance and real estate with a loss of 5,300 jobs or 6.5 percent and then by retail with a loss of 1,600 jobs or 1.1 percent.
Things were much brighter in the region's other economic sectors, which grew by a total of 17,500 jobs or 1.8 percent. Overall employment growth was 2,700 jobs or .2 percent -- not great, but at least lacking a minus sign.
Please note that the graph displays the data a bit differently than in the past. Now, each data point represents that month's change from a year prior. This method provides a better picture of the trends at work by automatically accounting for seasonal effects. I have also switched from graphing percent declines to showing the actual number of jobs gained or lost in order to represent each sector's relative influence on the overall employment picture. (Thanks to reader JP for the suggestions on how to better visualize this data.)
The graph shows that while everything but retail bounced last month, job growth in the construction, finance, and retail sectors appear to be in somewhat of a longer-term downtrend. The same could be said for overall job growth. However, employment outside the housing boom sectors appears to have been quite steady, oscillating around the 15,000 jobs-per-year mark as far back as the graph goes. We aren't seeing much in the way of second-order effects from the housing bust.
As I wrote in February and revisited in March, these preliminary estimates involve some pretty heavy guesswork and are subject to substantial revision. Assuming that they are correct, however, it looks like San Diego's comparatively robust non-housing economy prevailed in April.
The month of April saw 3,601 default notices and 1,512 trustee sale notices. The former indicate homeowners who've been put on notice for mortgage delinquency; the latter are sent to owners about to have their homes repossessed. Both are at all-time records.
The graph to the right presents a long-term look at such filings. To account for San Diego's growth over the years, default notices and trustee sales notices (NODs and NOTs) are calculated as a percentage of San Diego's labor force. Even after this adjustment, the graph makes clear that the current pace of foreclosure activity is leaving that of the 1990s housing downturn in the dust.
This record-breaking foreclosure activity is precisely what I was talking about last week when I noted that there is an important distinction between "want-to-sell" and "must-sell" inventory.
Resale housing activity surged last month, with the number of home sales increasing by 25.0 percent between March and April. Volume was still lower than it had been a year prior, but less so than in previous months: the average year-over-year decline for January, February, and March of this year was 30.7 percent versus a year-over-year decline of 13.4 percent in April.
At the same time, resale inventory grew at a modest 1.7 percent pace for the month, ending up 10.9 percent higher than it was a year prior. Once again, while higher than last year this represents an improvement from the year-over-year comparisons in prior months.
The increased demand met with modest supply growth to substantially bring down the months-of-inventory figure. As pictured in the accompanying graph, the number of months of resale inventory has declined to levels not seen since the before the credit crisis abruptly deepened in mid-2007.
The big decline in the number of months' worth of inventory waiting to be sold is certainly a positive development for the market. But there are a couple of footnotes. First, according to local broker Adam Rappoport of G&R Realty, it appears that the volume of closed sales has picked up much more in the areas that have suffered steep price declines than in those that haven't. Adam believes that the prices in the hard-hit areas may finally have gotten low enough to start bringing buyers back into those particular markets even as activity has been flat or even decreased in some of the more price-resilient areas.
Second, the resale inventory numbers detailed here represent the totality both "want-to-sell" and "must-sell" inventory. I have long maintained that the latter category -- which consists mostly of foreclosures but also includes vacant and builder-owned properties -- is the more important one. And if the number of in-process foreclosures is any indication, the must-sell component of inventory is set to keep growing fast. It remains to be seen whether the increased demand will overpower all that must-sell supply that appears to be headed for the market.
Despite the seasonal tendency for home prices to rise in the spring, San Diego resale prices fell again last month. At least, that is, according to the size-adjusted median price, which is the more timely but less accurate price indicator that we cover here at the Nerd's Eye View.
Between March and April, the size-adjusted median resale price fell 3.3 percent for single family homes, .3 percent for condos, and 2.3 percent for a volume-weighted aggregate of the two.
From the peak of the series in September 2005, the size-adjusted median price has fallen 27.6 percent for single family homes, 28.5 percent for condos, and 28.0 percent overall.
Keep in mind that these countywide figures lump together multiple areas that are actually holding up quite differently. Some markets are doing a lot better than the graph to the right would indicate -- and some a lot worse.
The most recent release of the three-tiered Case-Shiller index helps to show this disparity, but there is a lot of variation even within the three price tiers. I discussed the nature of the regional differences in more detail last month.
Earlier this month, we saw that San Diego employment declined on a year-over-year basis in March -- something that hadn't happened during the last recession (nor for 15 years, according to the U-T).
The accompanying graph shows how many jobs were added year-over-year by the top four sectors for employment growth how many were lost by the bottom four sectors. Over each bar, I have noted the average hourly wage within that sector (for some reason, the BLS site does not report government sector wages -- perhaps they consider that a little too personal).
There shouldn't be any surprises here for folks who've seen prior iterations of this graph. The leisure and hospitality sector has been in first place for a while, with government and education/health jockeying for second and professional services bringing up fourth place. Similarly, construction has been the big loser for quite a while, followed by financial activities, retail, and manufacturing -- usualy in about that same order.
What's different now is that the number of jobs being added by the strong sectors has declined, while losses in the weak sectors have for the most part gotten worse. It doesn't help matters that the sector losing the most jobs pays on average twice as much as the sector gaining the most.
February was another bad month for the Case-Shiller index, the best measure of aggregate home prices. The overall San Diego index dropped a hefty 3.6 percent from January, for a total decline of 24.0 percent since the November 2005 peak.
As has become the custom, lower-priced homes were hit a lot worse than higher-priced homes. But as has become a more recent custom, high-priced homes have started to feel some substantial pain as well.
According to the Case-Shiller tiered price indexes, low-priced San Diego homes fell 4.1 percent for the month, mid-priced homes fell 3.9 percent, and high-priced homes fell 2.7 percent. The declines since the three tiers' respective peaks can be seen in the accompanying graph.
The Case-Shiller index, while comparatively accurate, lags a lot. Each month's index figure is based on sales activity from the prior three months. The February index, for example, is based on sales from December, January, and February. So assuming a somewhat constant price trend, the index is more representative of January prices than anything else.
Next week, we will have a look at the size-adjusted median price for homes sold in April. This less accurate but more timely indicator will at least give us an idea as to what's been happening since the early months of 2008.
When I wrote the first installment of BailoutWatch this January, I intended to post occasional updates to keep readers apprised of the ongoing housing bailout efforts. Well, the truth is that I haven't even been able to keep up.
That column wasn't even the first on the subject -- it had followed hot on the heels of this one. Since the January post, the bailout attempts have been coming fast and furious. They've also been getting progressively more irresponsible and transparent in their attempts to reward the very institutions that enabled the housing bubble in the first place.
Let's go through a selection of recent bailout-related developments.
Of course, everyone heard about the Federal Reserve's offer to guarantee $29 billion of investment bank Bear Stearns' debt. "Debt," here, includes the questionable and probably worthless mortgage-backed securities of exactly the type that brought Bear Stearns to the very edge of bankruptcy. This was nothing less than a public bailout of the reckless and overleveraged Wall Street firms that for years had pulled in huge profits by feeding the real estate mania.
This action was deemed necessary by our fearless leaders to prevent a financial market panic that might have occurred if Bear couldn't pay off its creditors or counterparties, the latter being the term for the folks on the other side of a derivatives trade. Now, more established Nerd's Eye Viewers may recall that I wrote a piece back in 2006 describing the risks that buyers of credit default swaps, which are derivatives that insure their buyers against loan defaults, might not get paid back in the event of default because of the flawed models employed by default swap issuers. Many others were warning of this risk as well, but we were pretty much collectively ignored.
Well, the Bear Stearns bankruptcy was it -- a huge derivative counterparty failure. Instead of allowing it to happen, however, the Fed (one of the main parties doing the ignoring back in 2006) bailed out Wall Street by taking on the risk for itself.
"Itself," here, means the taxpayers, who are of course the ultimate source of funding for the Federal Reserve. Enjoy Bear's worthless mortgage-backed securities, because you are now effectively their proud owner.
The Fed also invoked an emergency provision in order to start lending directly to investment banks, many of which are now suffering due to their heavy involvement in the mortgage-backed securitization boom about which I wrote in detail a while back. Go ahead and read that article and then ask yourself whether these companies really deserve to be lent public funds to make things easier for them after they took such huge and obvious risks (and made a killing doing so, at least for a while).
This is all serious stuff. None other than former Federal Reserve chairman Paul Volcker recently expressed concern that the Fed's actions "extended to the very edge of its lawful and implied power, transcending certain long-embedded central banking principles and practices."
Volcker was presumably referring to the Bear deal and the lending to investment banks. His statement didn't even address the fact that the Fed's target rate has been forced down well below the rate of inflation, so that savers across the nation can watch the real purchasing power of their savings disappear for the benefit of the housing bubble participants.
The Fed is certainly breaking out the big artillery, but other members of our government are hard at work on the bailout as well. In addition to raising the limit on conforming mortgages underwritten by Fannie Mae and Freddie Mac, regulators gave those two enormously leveraged operations the green light to go further into debt. (As I explained in the January installment, U.S. taxpayers are the implicit guarantors of this now-increased debt).
Also, the Federal Home Loan Bank system, a somewhat obscure quasi-government agency that was created during the Depression, has been lending billions (and has been cleared to lend a lot more) into the mortgage market. The FHLB, like Fannie and Freddie, isn't explicitly guaranteed by the government. But if said government won't even allow a private enterprise like Bear Stearns to fail, do you really think they will let a huge government-sponsored entity fail? The point being that the taxpayers are almost certainly on the hook for this money as well.
Finally, we have the "Foreclosure Prevention Act," or as I like to call it, the "Keep Homes Unaffordable Act," or possibly the "Give Taxpayer Money Directly to the Exact People That Caused The Problem Act." This legislation was already passed in the Senate. It includes, among others, the following fantastic ideas:
Over $25 billion in tax breaks for home building companies.
$4 billion for communities to buy up foreclosed homes.
A $7,000 tax credit for anyone who buys a foreclosed home.
I hope it's clear that most of these bailouts benefit not struggling homeowners, but the housing and financial industry companies that were big and hugely profitable players in the boom.
In general, trying to keep far-underwater homeowners in their homes is often of little help to them. People who owe significantly more than their homes are worth would in many cases be better off walking away and freeing themselves from a potential lifetime of overindebtedness. Keeping them locked into their unreasonably huge mortgages benefits the lenders more than the homeowners.
But much of the Foreclosure Prevention Act is even more blatant in that it targets taxpayer money directly at the homebuilders and lenders. The first item noted above, the tax break for homebuilders, is pretty self-explanatory. And the second two, the subsidies for buying foreclosures, increase the demand for foreclosed homes and thus help the lending institutions that own those homes get a better price. As an added bonus, this artificial demand also keeps foreclosed homes from returning to price levels that people would be able to afford without government subsidies.
I try to stay off the soapbox but this is getting a bit out of hand. I am astonished at the level of complacency on display as responsible people's earnings and savings are plundered with the express purpose of keeping homes unaffordable and rewarding the institutions that both contributed to and profited enormously from the housing bubble.
If you think this is all as ridiculous as I do, write your Congresscritters and let them know you don't want any part of it. I promise it will be off the soapbox and back to the charts after this.
San Diego employment has just decreased on a year-over-year basis, falling by 1,700 jobs between March 2007 and March 2008.
That is a very small drop in the grand scheme of things, representing a decline of just .1 percent. But it's the first time in a long time that employment has turned negative at all. The data I pulled from the Employment Development Department website goes back to the year 2000, and it shows that even during the recession and slowdown that took place at the beginning of this decade, the weakest month showed a year-over-year increase of 2,300 jobs.
So even though we are not in an officially recognized recession, San Diego's employment situation is worse than it ever got in the aftermath of the 2001 recession.
The culprits, as you might imagine, are the housing boom beneficiary sectors -- the ones that grew like weeds in the midst of the housing frenzy and are now suffering in the bust.
Construction was hit the worst, declining for the year by 9,100 jobs or 10.3 percent. The finance sector, which includes real estate, lost 5,700 jobs or 7.0 percent. The retail sector, which was a more indirect beneficiary of the boom, was down by 1,400 jobs or 1.0 percent.
Outside these industries, employment was quite positive. Excluding the three housing boom sectors, local employment increased by 14,500 jobs or 1.5 percent. But the drag from the formerly high-flying housing boom industries was enough to drag the region into negative territory on the whole.
San Diego's March unemployment rate was 5.3 percent, up from 5.0 percent in February and 4.2 percent a year prior.
Let's start with a review of foreclosure lingo. Notices of default (NODs) are the nastygrams sent to people who have repeatedly failed to make their mortgage payments. Notices of trustee sale (NOTs) are sent to owners who have failed to make things right with the lender after having received an NOD. The NOT informs the owner that the bank will repossess the house in the near future. The official minimum timeline between the NOD and NOT is 90 days, although it often takes longer than that given that the system is so flooded with foreclosures. The minimum time between NOT and actual repossession of the home is 21 days.
In shorthand I sometimes refer to NODs as defaults and NOTs as foreclosures. This isn't entirely correct, as the term "foreclosure" really describes the entire process outlined above. But "trustee sale notice" is a bit too obscure a term for the uninitiated, so I hope I can be forgiven for thinking that "foreclosure" is close enough in certain cases.
Alright, now that I've dragged you through the above explanation, let's have a look at last month's foreclosure data.
3,284 NODs were delivered in March. This is 2 percent higher than in February but ever so slightly lower than in January. Considering the number of business days in March, this is an all-time record on a per-day basis.
NOTs, in contrast, fell rather substantially. The 1,161 NOTs racked up in March represented a 17 percent drop from February.
We've had such one-month divergences between the growth of NODs and NOTs in the recent past. If it continues we will have to speculate as to a cause, but for now the most likely culprit is randomness.
Regardless of the month-to-month gyrations, the accompanying graph shows that the monthly pace of NOD and NOT accrual, even when adjusted for San Diego's population growth, remains near levels that dwarf anything we've seen in the past.
The latest Quarterly County Employment and Wages (QCEW) report came out this week. You may recall from a prior article on the topic that this employment survey is quite a bit more accurate than the monthly employment estimates, but that it is typically ignored because it lags by six months.
You may also recall that I advanced the theory earlier this year that the statistical adjustments employed by the agencies that put out these numbers were causing job growth to be overstated. Shortly after I wrote that article, this thesis was vindicated with the arrival of revised estimates showing that San Diego employment growth had indeed been much weaker than initially reported.
The latest QCEW report provides more evidence still. According to the report, year-over-year employment growth in San Diego had come to a standstill as of September 2007. Private sector employment, which excludes government jobs, had actually shrunk slightly. This is a huge difference from the monthly estimates released at the time, which showed that San Diego had added about 12,000 jobs in the year leading to September 2007.
The question now is whether the agencies are still overestimating job creation for the monthly figures, and whether the current growth is merely stagnant or worse than that. Only the passage of time will tell.
Our favorite housing cheerleader, Chuck Smiar, is back in the news again today with another attempt to scare real estate fence sitters into action. After issuing a warning to hesitating homebuyers that they were "in for a surprise" back in December, Chuck had this to say in a North County Times piece earlier today:
"There's a lot of buyers sitting on the fence waiting for the bottom. And I think if they don't jump in soon, they're going to be sorry."
Well, he did add the phrase "I think" in there. Perhaps he's getting more circumspect as time goes on. Nonetheless, this latest assertion fits right in with his increasingly well-established track record of making statements that, in addition to having little basis in reality, seem pretty clearly intended to frighten people into buying homes.
The accompanying graph displays Chuck's prior suggestions overlaid with San Diego home prices (as measured by the Case-Shiller home price index through January and then approximated using single family size-adjusted median prices for February and March). The timeline pretty much says it all -- I'll just add that I look forward to future installments.
For the record, I'm not purposely singling out Chuck here. He may be a real nice guy, for all I know. He just happens to provide the funniest examples of the brazen and often delusional boosterism that emanates from so many (though definitely not everyone) in the real estate industry. To his credit, at least he sticks to telling people why they should be buying homes instead of concocting implausible conspiracy theories to explain why they aren't.
A lot more resale homes were sold in March than in February, but that's how it happens every year. As a matter of fact, this year's February-to-March rise of 23 percent looks pretty weak compared to last year's 40 percent increase. Between March 2007 and March 2008, sales volume declined by almost 34 percent.
Things looked brighter on the inventory front. Despite a seasonal tendency to rise, resale inventory was pretty much unchanged from February. This compares to an increase of almost 5 percent between February and March of 2007. However, inventory was still 17 percent higher than it had been a year prior.
The steep rise in sales made for an equally steep drop in the number of months' worth of inventory sitting on the market. However, if past seasonal patterns hold, that figure will start creeping up in the months ahead. Even if it doesn't, 10 months' worth of inventory represents a level that is understood to put serious pressure on home prices. The unusually high proportion of "must-sell" inventory -- typically properties that are bank-owned or vacant -- will likely apply more pressure still.
After their worst month ever, San Diego resale home prices were offered a respite in March, at least according to the median-based price indicators.
For the month, the size-adjusted median price was flat for detached homes and down a mere .4 percent for condos. I guess that's what passes for a spring bounce these days.
Since March 2007, the size-adjusted medians were down 19.6 percent for detached homes and 20.6 percent for condos. However, recall that early 2007 saw artificial strength in the median-based indicators as the "subprime mortgage crisis" (eventually to become "the mortgage crisis") skewed median prices upwards. Because the March 2008 number is compared against an artificially strong March 2007 number, the net effect is that year-over-year median price changes are now overstating the annual rate of decline. This will continue to be the case until later this year.
From the peak of the data series in September 2005, the size-adjusted median is down 25.1 percent for detached homes and 28.3 percent for condos. A volume-weighted aggregate of both property types is down 26.3 percent.
The less informative "plain vanilla" median was down 2.3 percent for detached homes and up 4.9 percent for condos. From the combined peak in September 2005, the vanilla median is down 25.9 percent for detached homes, 22.7 percent for condos, and 24.9 percent in aggregate.
As usual, these countywide figures mask some pretty serious disparity among San Diego's different regions. For those interested, a recent column explored why some parts of San Diego haven't declined very much and whether this will always be so.
For years, people claimed that because San Diego was such a desirable place to live, local real estate was immune to price declines. We know how that turned out. Yet these days that same argument is often applied to San Diego's more upscale areas.
It seems, at first blush, to hold up. High-end San Diego homes have certainly weathered the housing bust far better than their lower-priced counterparts. This can be seen in last week's Case-Shiller home price graphs, which show that the high end of the housing market has fallen in price less than half as much as the low end. And the Case-Shiller high tier -- which aggregates price movements of the most expensive one-third of San Diego homes -- understates some notable resilience in swankier sub-markets such as Point Loma, Mission Hills, La Jolla, and much of the North County Coastal region.
The relative strength in these areas has led to the widespread conclusion that the high-end markets are desirable enough to be more or less invulnerable to the housing bust.
I am skeptical of this interpretation. There are better explanations for why the high end has held up so well. And there are some looming threats -- overvaluation, high-end foreclosures, job loss, and pressure from lower-end price declines -- that put San Diego's more desirable areas at serious risk of losing their "invulnerable" status.
Let's start with the idea that there are better explanations for the high end's resilience. As noted at the beginning of this article, saying "prices in Area X will remain high because Area X is so desirable" sounds a lot like a repackaging of the "everyone wants to live here" mantra that pervaded the market during the boom. In this new version, Area X has been narrowed down to include only certain parts of San Diego rather than San Diego as a whole, but the thrust of the argument remains the same.
As such, it suffers from the same flaws. It offers no explanation for why prices increased so vastly within a period of just a few years, nor does it offer any compelling reason why those huge price increases should stick now that the props of speculative enthusiasm and easy lending have been removed. (A more thorough treatment of the "everyone wants to live here" fallacy and other assorted home price rationalizations can be found in a housing bubble overview I wrote last year).
A big part of that resilience has to do with the fact that prices in that part of the market never got so out of whack in the first place. The heavy influence of the subprime mortgage securitization boom led to much larger proportional increases in low-tier home prices than in the high-end markets. This is illustrated in last week's price update, but to put some quick numbers on it: in the five years leading up to the price peak in November 2005, the Case-Shiller low-tier index increased by 144 percent versus a much smaller -- though still enormous in absolute terms -- increase of 88 percent in the high tier. (The middle tier split the difference at 116 percent).
The subprime boom also led to a preponderance of risky mortgages in the low-cost areas. Many of these risky loans have since gone into foreclosure, forcing a glut of must-sell inventory onto those markets and accelerating the price declines. The areas that typically host the higher-priced homes are not subject to nearly as many foreclosures as the lower-cost areas.
In short, the high end's relative resilience throughout the downturn is pretty adequately explained by the disparate boom-era price increases between different property tiers and by the lower incidence of must-sell foreclosure inventory. There is no inherent invulnerability at work.
I can say that last part pretty confidently because the the high end was anything but invulnerable during the last housing downturn. The accompanying chart, which measures the ratio of the Case-Shiller high-tier index to per capita San Diego income, shows that the ratio of high-priced San Diego homes to incomes fell by 33 percent during the last housing bust. Once again, this index is lumping together a lot of different sub-markets and that some nuance is surely being lost. But the graph does clearly illustrate the point that as a whole, the most expensive one-third of San Diego houses can still be subject to price declines despite their obvious desirability.
As for the housing bust now underway, I believe that high-tier homes -- and here I am including even the areas that have been relatively unscathed so far -- are very much vulnerable to further price declines.
To begin with, have another look at that last graph. Even after the decline that's already taken place, the price-to-income ratio for the high tier is still above what it was at the tippy-top of the region's prior real estate bubble. (More detailed thoughts on home valuations are available for those interested).
I realize that this graph only provides a broad-brush approach. As mentioned above, it lumps together multiple sub-markets, and on top of that it is comparing prices of high-end homes with the per capita income across all of San Diego. Still, the level of the price-to-income ratio is so historically high that I have a hard time believing that it could be accounted for by changes in income distributions or by valuation differences between sub-markets. High-end homes in general look very overpriced, and now that the bubble is over, it seems reasonable to believe that they will return to being somewhat closer to fairly priced based on their historical relationship with incomes.
There are some more immediate risks, as well. I've often written here about the fact that reckless lending and borrowing wasn't just a subprime phenomenon. The bulk of foreclosures so far have certainly occurred in the lower priced areas that were more dependent on subprime financing, but that doesn't mean that the high end is out of the woods. Many analysts believe that the payment shock is still to come among the more creditworthy borrowers who took on risky loans.
Foreclosures are the primary source of must-sell inventory these days, but unemployment can play that role as well. Part of the reason that the high end fared worse than the lower tiers in the 1990s was that job loss was a big factor during that downturn. This time around, the bust so far has been driven more by financing getting abruptly tighter, so it makes sense that the lower-end areas that are more dependent on financing would suffer more. However, if job growth continues to stagnate or starts to shrink -- and especially if job losses continue to be concentrated within some of the higher paying sectors -- there could be more forced selling in the expensive markets.
Finally, the serious price downturn taking place in the lower tiers could itself negatively affect the high end. If prices get beaten down enough outside the high-priced areas without an adequate decline within those areas, there could be a substitution effect wherein buyers decide that the more expensive sub-markets aren't worth the price premium. There is so far no evidence that the price relationships that historically prevailed between different areas of San Diego should be thrown out the window.
Price declines in the current market, whatever their cause, tend to be self-reinforcing -- just as price increases were self-reinforcing during the boom. The premium that people pay to live in the high end areas has, ironically, increased because of the widely held belief that those areas will not be subject to price declines. As goes that belief, so goes that increased premium. And falling prices would put more owners underwater, leading to increased likelihood of foreclosure and thus yet more downard price pressure. Any of the risks mentioned in this article could cause San Diego's finest sub-markets to enter the kind of downward spiral that is taking place throughout the county.
San Diego as a whole is a very desirable place to live, but there are nonetheless upper limits to how much people are willing or able to pay to live here. The same reasoning applies to the extra-desirable areas. Every part of San Diego participated in the bubble, to a lesser or greater degree. There's little reason to believe that they won't all participate in the bust.
The Federal Reserve does more than just slash interest rates below the rate of inflation. In the case of the New York branch of the Fed, they also provide the nation's nerds with really cool interactive maps showcasing various tidbits of mortgage data. The server is pretty bogged down right now but you should consider visiting the afore-linked page sometime soon, as it offers loads data on the state of both subprime and Alt-A mortgages (the latter basically being high-risk loans made to borrowers with good credit). The site stopped working before I could verify this, but it looks like you can drill down for data specific to San Diego County and even to each ZIP code within the county. (Thanks to the blog Calculated Risk for the link).
The Case-Shiller home price index for San Diego was down 2.5 percent in January. This is not as poor a showing as we saw in December, but it's still pretty bad for a single month. From its November 2005 peak, the Case-Shiller index -- the most accurate indicator of aggregate home price movements -- has declined by 21.1 percent.
Kelly Bennett has provided a fairly detailed writeup on the movements of the index's three price tiers, so I won't rehash that here. Once you've read through Kelly's piece, come on back and have a look at the following charts.
The first chart shows the three tiers' declines from their respective peaks. The high tier has clearly held up best, although it has started to decline a lot more steeply in recent months.
The second chart shows price changes in the three tiers back through 1989. This puts the high tier's strength into context, as it becomes clear that high-end home prices didn't rise nearly as much as those of their as their lower-cost brethren during the bull market (this disparity is largely an artifact of the explosion in subprime mortgage credit).
While the low tier has taken the brunt of it, all three price tiers are now declining pretty reliably. This is no surpise considering that in spite of the steep price declines so far, San Diego homes remain substantially overvalued.
The California Employment Development Department's employment estimates for February indicate that San Diego job growth has essentially flattened out. The sectors that thrived during the housing boom are now suffering through the bust, and while employment is growing outside of the housing boom industries, it is doing so barely enough to offset the housing-related losses.
Between February 2007 and February 2008, the ailing construction industry lost 8,300 jobs or 9.5 percent, the finance and real estate sector lost 5,500 jobs or 6.7 percent, and the retail industry lost 700 jobs or .5 percent. (For more on the retail sector, see a recent article describing potentially overstated retail employment data and the followup piece describing the EDD's subsequent downward revisions to that data).
Employment in the rest of the economy grew by 14,800 jobs or 1.5 percent, but that increase was almost entirely offset by the housing-related job losses such that the region as a whole gained a mere 300 jobs or .02 percent for the year.
San Diego's unemployment rate weighed in at 5.0 percent in February, down from January's 5.2 percent but up from the 4.3 percent rate in February 2007. To put this figure in perspective, local unemployment got as high as 8.6 percent during the worst of the early-1990s downturn and as high as 5.7 percent in the aftermath of the more recent recession.
February's foreclosure rate was ever so slightly lower than January's record-setting pace. That is to say, there were 3,212 Notices of Default (NODs) in February as compared to 3,299 in January and 1,398 Notices of Trustee Sale (NOTs) last month compared to January's 1,461.
But comparing month-to-month totals is always tricky when the shortened month of February is involved. This particular February contained 21 business days -- 8.6 percent fewer than January. February's NOD and NOT counts were, respectively, 2.6 percent and 4.3 percent less than January's. So the pace of foreclosure activity per business day was actually higher in February than in January or, for that matter, ever.
Regardless, either month's rate is absolutely incredible compared to what we've seen in the past. The accompanying graph, which displays NODs and NOTs adjusted for San Diego's population growth over the years, gives an idea of just how far into uncharted territory we are at this point.
Have a gander at some of the nonsense that flowed from a recent gathering of real estate agents and their friends, as reported by the North County Times.
The last portion of the conference, a question-and-answer session, admonished the media for depressing consumer confidence by focusing on only the negative aspects of housing data...
George Chamberlin, a panelist at the event and columnist for the North County Times, said that some news reporters biased their reports because they are jealous of homeowners.
Most real estate agents who spoke at the conference seemed to agree, with one agent suggesting that agents and builders pull all advertising from newspapers until positive articles are printed.
It appears that the desperate and completely discredited gambit of blaming the media for the housing downturn is still with us.
Let's go over this one more time.
There was an enormous, record-shattering bubble in residential real estate. Prices rose to previously unimaginable heights in comparison to local incomes (which dictate what people can afford to pay for a home) and rents (which represent the "competing product" for having a roof over one's head). Homes got so expensive that it was only possible for many people to afford them by taking on highly risky mortgages that traded lower initial payments for much higher eventual payments.
Once the speculation among home buyers and lenders came to an end, there wasn't a whole lot of question that home prices would begin to make their way back to levels that could be justified by true economic fundamentals. And so they have.
The current housing crash has one single cause: the speculative bubble that preceeded it.
Instead of acknowledging this reality, however, the conference panelists in question offer the implausible idea that everything would be fine if only the media would pretend that there is not a severe housing downturn underway. Our old friend George Chamberlin renders the conspiracy theory even more surreal by offering the indefensible thesis that the journalists who have the unmitigated nerve to report factual data do so because they are jealous of homeowners (as if there were any sort of barrier to becoming a homeowner in the boomtime era of no-doc, nothing-down, neg-am loans).
It's all pretty unbelievable -- as is this next bit, from the same article on the same conference:
"People think the market is down and the market will still go down. That's not the truth. The market is down, but it's not going down anymore," said John Tuccillo, former chief economist for the National Association of Realtors. "I think it's because consumers focus on national news and not enough on local news."
The housing market's not going down anymore? That's a theory even more bizarre than one about the cabal of jealous journalists single-handedly taking down an otherwise robust housing market. Well, equally bizarre, anyway. Perhaps Mr. Tuccillo should focus a little more on local news himself.
San Diego existing home sale volume was fairly weak again last month, as we've all come to expect. Single family home sales were 22 percent slower than in February 2007 and condo sales 30 percent slower.
Inventory, in contrast, was notably higher than it had been a year prior, up 26 percent for single family homes and 15 percent for condos.
As a result, the number of months' worth of resale inventory remained substantially above its year-ago levels. At February's sale rate, it would have taken 12.7 months for all of the available inventory to be purchased. This is a 62 percent increase over last February's 7.7 months of inventory and is well above the levels that typically portend price declines.
I'm traveling, so the editorializing will likely be kept mercifully brief for the next week and a half.
With that said let's have a quick look at the median-based price indicators for last month. They were, in a word, horrifying. (So far so good on the brevity).
Between January and February, the size-adjusted median price declined 5.7 percent for single family homes and 7.7 percent for condos.
I emphasize the first clause of the above sentence. The aforementioned shellacking took place in a single month. From the September 2005 peak of the series, the size-adjusted median price is down 25.1 percent for single family homes and 28.1 percent for condos. The downtrend has accelerated of late, however, and a hefty portion of that decline has taken place in the past several months.
The "plain vanilla" median, beloved by analysts everywhere despite being just about the least accurate of the price indicators, was hit even harder. It was down 7.4 percent for single family homes and 8.1 percent for condos. Again, in a month. From the aggregate peak in November 2005 the vanilla median is down 24.1 percent for detached homes and 26.4 percent for condos.
These numbers measure what the typical home buyer paid, not what was received in return. The size-adjusted median at least measures how much square footage was received in return, but home size is just one aspect of overall quality. These figures are thus subject to distortions based on shifts in the types of properties being purchased. (Please see my lengthy treatise on the topic of home price indicators if you'd like more detail). We can't know how much of the decline was "for real" until the Case-Shiller numbers for February come out in late April.
Nonetheless, there is in all likelihood some serious price damage going on. Many an embittered real estate speculator has accused me of being overly pessimistic, but the fact is that I never thought these indicators would drop as much in a single month as they just did.
Despite the fact that home prices have weathered a significant decline, San Diego homes remain quite expensive in comparison to their historical relationship with rents and incomes.
The following chart shows the ratio of a typical San Diego single family home price (as measured by the Case-Shiller Home Price Index and rebased to the December 2008 median price) in comparison to per capita San Diego income:
The first notable thing about this chart is that, up until the recent bubble, the price-to-income ratio had stayed within a relatively compact range.
The second notable thing is that the ratio got so out of whack during the most recent bubble that, even now, it is still well above its historical range.
A similar pattern can be seen with the ratio of home prices to average monthly rents:
The price-to-income ratio would have to fall 13% from here just to get down to the level of the 1990 bubble peak. The price-to-rent ratio would have to fall 20% from current levels to get to the 1990 peak.
To get to the levels seen during the post-bubble 1996 trough, the price-to-income ratio would have to fall another 40% from here and the price-to-rent ratio another 36%.
People often argue that today's lower interest rates justify higher price-to-income and price-to-rent ratios. But the next charts (the same as above but with 30-year fixed mortgage rates overlaid) show that up until the recent bubble, the ratios have generally tended to peak and trough at very similar levels despite substantially different interest rate climates over time:
The fact that interest rate levels didn't seem to exert a big effect on home valuations in prior cycles suggests that something else was responsible for blowing these ratios out of the water during the last bubble. The prime suspect, in my opinion, is not a low interest rate but a multi-year period of incredibly reckless mortgage underwriting enabled by the great securitization boom.
Now that EZ-credit is no longer with us, home valuations may eventually return to normalcy after all. But we certainly aren't there yet.
Last month I noted that despite local data points and expert opinions pointing to a slowdown in the retail industry, the California Employment Development Department reported that retail industry employment was growing at a fairly healthy pace. To explain this disparity, I offered the hypothesis that the "birth-death model," a statistical adjustment applied by the EDD in order to model the number of new businesses coming into existence, was overestimating the number of jobs being created by new businesses. (The prior article goes into vastly more detail, for those interested).
Today, the EDD released the January job data as well as revisions to the 2007 numbers. The revised numbers indicate that job growth in the retail sector -- and overall, for that matter -- was indeed quite a bit lower than the EDD had previously estimated.
You may recall the following chart from the earlier article. It denotes year-over-year retail job growth for each month in 2007 and is reproduced here exactly as it was, the only change being the subtle bright-red letters stating that the chart uses the initial 2007 job numbers provided by the EDD:
Now have a look at the exact same chart using the revised 2007 numbers that came out today:
There are some pretty big differences here. First, it appears that the EDD was underestimating actual retail job growth earlier in 2007. The revised numbers are higher than those initially reported. Near the end of the year, however, the EDD apparently began overestimating retail employment by greater and greater amounts. By December, the initial data showed an annual increase of 2,600 retail jobs whereas the revised December data now shows that the retail industry had lost 1,800 jobs for the year.
Here are two more charts, these indicating year-over-year changes in total nonfarm employment for San Diego:
Here, the initial data overestimated employment growth in the second half of the year by quite a margin. By December, the initial data had shown an annual growth of 14,600 jobs. The new data shows that San Diego added just 300 jobs for the year.
Those are some serious revisions, and job growth has clearly not been anywhere near as strong in recent months as had been previously reported.
January 2008 was looking better, though not by a whole lot. From January 2007 to January 2008, growth outside the housing boom beneficiary sectors was pretty decent at 17,300 jobs or 1.8 percent. But the ghost of the housing bubble still haunts the job market, as the construction industry was down by 6,400 jobs or 7.4 percent, the retail industry by 1,600 jobs or 1.1 percent, and the financial industry (including real estate) by 4,400 jobs or 5.4 percent. In total, San Diego employment was up year-over-year by 4,900 jobs or .4 percent.
These January numbers, it should be clear by now, are estimates.
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The accompanying graph displays the number of jobs added or lost by the three housing boom sectors in addition to jobs gained outside those sectors and overall. Construction was hardest hit with a loss of 7,900 jobs or 9.0 percent, followed by finance and real estate with a loss of 5,300 jobs or 6.5 percent and then by retail with a loss of 1,600 jobs or 1.1 percent.
The month of April saw 3,601 default notices and 1,512 trustee sale notices. The former indicate homeowners who've been put on notice for mortgage delinquency; the latter are sent to owners about to have their homes repossessed. Both are at all-time records.
At the same time, resale inventory grew at a modest 1.7 percent pace for the month, ending up 10.9 percent higher than it was a year prior. Once again, while higher than last year this represents an improvement from the year-over-year comparisons in prior months.
Between March and April, the size-adjusted median resale price fell 3.3 percent for single family homes, .3 percent for condos, and 2.3 percent for a volume-weighted aggregate of the two.
The accompanying graph shows how many jobs were added year-over-year by the top four sectors for employment growth how many were lost by the bottom four sectors. Over each bar, I have noted the average hourly wage within that sector (for some reason, the BLS site does not report government sector wages -- perhaps they consider that a little too personal).
According to the Case-Shiller tiered price indexes, low-priced San Diego homes fell 4.1 percent for the month, mid-priced homes fell 3.9 percent, and high-priced homes fell 2.7 percent. The declines since the three tiers' respective peaks can be seen in the accompanying graph.
The culprits, as you might imagine, are the housing boom beneficiary sectors -- the ones that 
3,284 NODs were delivered in March. This is 2 percent higher than in February but ever so slightly lower than in January. Considering the number of business days in March, this is an all-time record on a per-day basis.
Well, he did add the phrase "I think" in there. Perhaps he's getting more circumspect as time goes on. Nonetheless, this latest assertion fits right in with his increasingly well-established track record of making statements that, in addition to having little basis in reality, seem pretty clearly intended to frighten people into buying homes.
A lot more resale homes were sold in March than in February, but that's how it happens every year. As a matter of fact, this year's February-to-March rise of 23 percent looks pretty weak compared to last year's 40 percent increase. Between March 2007 and March 2008, sales volume declined by almost 34 percent.
Since March 2007, the size-adjusted medians were down 19.6 percent for detached homes and 20.6 percent for condos. However, recall that early 2007 saw artificial strength in the median-based indicators as the "subprime mortgage crisis" (eventually to become "the mortgage crisis") skewed median prices upwards. Because the March 2008 number is compared against an artificially strong March 2007 number, the net effect is that year-over-year median price changes are now overstating the annual rate of decline. This will continue to be the case until later this year.
I can say that last part pretty confidently because the the high end was anything but invulnerable during the last housing downturn. The accompanying chart, which measures the ratio of the Case-Shiller high-tier index to per capita San Diego income, shows that the ratio of high-priced San Diego homes to incomes fell by 33 percent during the last housing bust. Once again, this index is lumping together a lot of different sub-markets and that some nuance is surely being lost. But the graph does clearly illustrate the point that as a whole, the most expensive one-third of San Diego houses can still be subject to price declines despite their obvious desirability.
Between February 2007 and February 2008, the ailing construction industry lost 8,300 jobs or 9.5 percent, the finance and real estate sector lost 5,500 jobs or 6.7 percent, and the retail industry lost 700 jobs or .5 percent. (For more on the retail sector, see a recent article describing 
February's foreclosure rate was ever so slightly lower than January's record-setting pace. That is to say, there were 3,212 Notices of Default (NODs) in February as compared to 3,299 in January and 1,398 Notices of Trustee Sale (NOTs) last month compared to January's 1,461.
San Diego existing home sale volume was fairly weak again last month, as we've all come to expect. Single family home sales were 22 percent slower than in February 2007 and condo sales 30 percent slower.
Between January and February, the size-adjusted median price declined 5.7 percent for single family homes and 7.7 percent for condos.
