2008 September 18 Thursday
California Housing Prices Keep Becoming More Affordable

Happy days. Housing prices are down in California. This means the financial institutions holding all those mortgages and derivatives have bigger losses in store. Their loss is your gain if you want to buy a house.

The figures released Thursday by MDA DataQuick showed 37,988 new and preowned homes were sold statewide last month, up 13.6 percent from August 2007 but down 3.8 percent from July.

The firm said 46.9 percent of all homes sold last month were foreclosed properties.

That helped send the statewide median home price plunging 35.3 percent to $301,000 during the year ended in August.

Now if you have a mere $447k you can afford to live in the Bay Area.

Other data released by MDA DataQuick showed a 31.8 percent plunge in the median home price in the San Francisco Bay Area last month to $447,000, from $655,000 in August 2007.

Who says this collapse is bad? I see better lower prices. Lower prices are good. Don't forget that - no matter what the bankers say.

San Diego is an even better deal - only $350k per house. Nice weather too.

Weighted down by ever more low-priced foreclosure sales, San Diego County's median home price fell to $350,000 last month, the lowest level in 5 years, MDA DataQuick Information Systems reported yesterday.

The 3.8 percent drop from July marked the 13th time in 14 months prices have fallen locally, with the median off 26.3 percent from a year earlier.

Around LA the rate of new foreclosures is running faster than the rate of foreclosure sales. So the percentage of houses sold that are foreclosures looks set to exceed 50%.

In August, about 8,800 of the 19,366 homes sold in Los Angeles, Orange, Riverside, San Bernardino, Ventura and San Diego counties were in foreclosure, according to San Diego-based MDA DataQuick.

But as those homes were selling, even more were being repossessed, building up an inventory of foreclosed properties that will take months to move.

Banks and other financial institutions took back about 12,900 homes last month in the region, O'Toole said, thousands more than they managed to sell.

More supplies are building up and so better deals are coming. Obama should be celebrating how these price drops are making housing more affordable for poor and working class people. McCain should celebrate how the free market is making housing cheaper. Okay, so the market has been distorted by the Chinese central bank with lots of help from the SEC, Fannie Mae, Freddie Mac, and other instruments of US federal government policy. Still, this is a market at work and it is making housing cheaper. Hurray!

In Ventura County, just north of LA County, housing prices have fallen to a mere $400k. Hey, if this keeps up Ventura housing might become affordable.

The median price, the point where half the homes sold for more and half for less, is still being tugged down by distressed sales. In August, the median fell to $400,000, a 30.4 percent decline from $575,000 a year ago, according to DataQuick.

The last time the median was below the $400,000 level was in June 2003, when it was $396,000. The county's median peaked at $634,000 in July 2006, according to the San Diego-based real estate information service.

You can see why all the mortgage-granting banks are tanking. More mortgages are going underwater and people are walking from mortgages for amounts larger than their houses are worth. Meanwhile, rumour has it that the Bush Administration is going to resurrect the Resolution Trust Corporation concept to hold all the bad debts.

The Bush administration is urgently preparing a massive intervention to revive the U.S. financial system, including a plan to sweep away the unpaid loans that are choking banks and blocking the flow of money to borrowers.

The financial crisis continues to unfold very quickly. An electronic equivalent of a bank run appears to be starting with certificates of deposit.

Regulators and the banking industry are increasingly concerned about customer withdrawals from money-market funds. Crane Data, which tracks the industry, said total deposits in money-market funds fell Wednesday by at least $79 billion, or about 2.6 percent. Financial executives have told government officials in recent conversations that the rising pace of withdrawals is the equivalent of a bank run and that if it continues, it will drain a massive and critical source of funding.

NYU gloomster economist Nouriel Roubini lists the various ways the US government is trying to stop the panic and concludes things are going to get worse.

There is the beginning of a silent bank run as depositors are nervous about their assets. The panic is mounting in the financial markets, and the credit default swap market is frozen because of the Lehman collapse and the state of affairs at AIG, WaMu and other financial institutions. Many hedge funds are now teetering as their losses mount. Investors in fixed income--including preferred stocks--have experienced massive losses and the financial turmoil is becoming global as stock markets all over the world plunge. Worst of all, policymakers are running out of bullets. Think Spaghetti Westerns and a parched desperado in a dry gulch.

The Lehman collapse is leading to the risk of a generalized run on the shadow banking system. The policy reaction is to try to build a new set of levees after the financial perfect storm of the century destroyed the first set.

The TED Spread was at 3.13% on Sept 18. 2008. That means the banks are afraid to loan to each other overnight and indicates parts of the capital markets are freezing up.

So RTC The Sequel is coming. Calculated Risk says RTC Part 2 will be different. Sounds like the US government will buy massive amounts of financial assets. Just that buying will drive up their value - at least until the underlying assets fail due to foreclosures and the like.

However this new entity would be very different from the RTC in a number of ways. The RTC was created to dispose of assets accumulated from failed Savings & Loans.

The new entity, according to the WSJ, would purchase illiquid assets "at a steep discount from solvent financial institutions and then eventually sell them back into the market".

With the RTC, the government already had direct responsibility for the assets since they acquired them from insured S&Ls that had failed. The role of the RTC was to liquidate certain of these assets.

In the current situation, the government has no financial responsibility for the assets, except for a few exceptions like the assets of Fannie and Freddie, and the NY Fed's assets acquired in the JPMorgan / Bear Stearns deal. The new entity will both buy assets "at a steep discount" and eventually sell the assets. So unlike the RTC, this new entity puts the taxpayers at risk.

Share |      By Randall Parker at 2008 September 18 10:28 PM  Economics Housing


Comments
Dragon Horse said at September 19, 2008 12:22 PM:

Haha..I don't know about Cali, but in the DC area, my wife and I just got a bigger house. Our interest rate is freaking 6%!!! Can you believe that. 6%!! At first it was like 6.37, but they dropped it and we locked on that. We did put more than 20% down though. Our old place was in a good location so it actually sold, we did the math and found that although our property decreased in value in the end we were buying the new place 20% under market at a lower interest rate, so we still made good.

This housing market is great for those who spent and saved responsible. Our new place is a bank forclosure (not a short sell though) poor sucker lost it. For those in the area, they are basically giving away house in Annadale, VA if you want to live out there you can get a nice bit of land for a family.

Bunkered said at September 19, 2008 12:28 PM:

Sounds like a great deal. if you want to live in Aztlan.

Even better news here:

http://isteve.blogspot.com/2008/09/non-specific-immune-response-due-to.html

Get a place in the sticks and start buying guns and supplies. GC is right, this movie will end badly. Keep your heads down, Brothers.

kimberlyknits said at September 20, 2008 6:24 PM:

I'm a job-hunting DC-er who's been hesitating to look for jobs in CA because of the housing costs. Maybe soon that won't be as much of a concern.

Although, if you're a DC-er living in Maryland, the housing bust hasn't quite caught up here. We've still got houses in our area (southern Howard County) in the $500K range. Thank {insert deity} that I refi'd my $240K house (that we originally paid $103K for) at $120K instead of the full value; I won't get killed on the resale.


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