San Diego Home Values … Good News, But Still Declining
San Diego home values seem to have slowed their rate of decline. From December to January San Diego homes saw a 2.6% decline according to Case-Shiller/Standard & Poor's most recent data. Yet, the San Diego home value drop from January to February was only 1%!
Bob Toll stated recently that, other than in the worst four markets in the country (Southern Cal, Las Vegas, Phoenix, and Florida) they are seeing a firming of the housing market and expect an upswing in activity (and prices) sometime over the summer months. He said that inventories have largely been absorbed in most markets. He said the four afore mentioned locals have a ways to go before stabilization due to their large excess inventories of housing stocks.
Keep in mind, if you reduce housing prices 30% and reduce interest rates from 7% to 5%, you have just reduced the payment level on a 30 year fixed rate mortgage by 45% – what wasn't affordable suddenly become quite affordable.
That's the good news, the flip side, is that for the year San Diego home values fell 22.9%
There are still billions of dollars worth of 'liars loan' alt-a mortgages that have yet to reset and will perform even worse than subprime. You cannot even begin to think of a bottom when we have yet to pass the bulk of these alt-a resets.
Not to mention the hundreds of thousands of units of shadow inventory owned by banks but yet to be put up for sale.
What about declining incomes and employment levels.
It's going to be hard for a bottom in housing to come without a bottom in job numbers and an increase in wages.
Anyone who points to the latest Case-Shiller data as an indication of a housing turnaround is really grasping at straws.
We are merely at the normal "Spring" inflection point. As soon as the normal selling season hype wears off (probably by July) housing prices may resume their crushing descent downward. Housing is an incredibly slow-moving asset class, so don't worry that you will miss the bottom (it may well be 1 – 2 years off).
San Diego Real Estate & Future Appreciation
In 2007, Rep. John D. Dingell (D-Mich.) unveiled a draft of his "carbon tax" legislative reform package. Part of this draft legislation was a phase-out of the mortgage interest deduction on large homes. The phase-out schedule for the mortgage interest write-off begins with houses of 3,000 square feet, which would lose 15 percent of their deductions. The proposal ends with houses of 4,200 square feet and larger, which would receive no deductions at all. With the housing market stabilization, it seems likely that some type of "green, carbon tax" legislation will be implemented, not necessarily to help the environment, but as a guise for increasing taxes to pay towards our enormous spending deficits.
Now the Obama administration has proposed cuts in the mortgage interest deduction. Obama wants to limit mortgage interest write-offs for upper-income households.
Under the Obama plan, deductions would be capped at a 28 percent tax rate, even if the taxpayer is paying taxes at a 35 percent marginal rate. Plus, if this goes through, how fast would California and other "tax & spend" states be to revise their state tax codes to align with the federal code?
This will be a real body blow for housing appreciation. Mark my words, if passed, this is just the first step towards total elimination of the mortgage interest deduction.
San Diego Home Sales Soar … San Diego Home Values Dive
According to the California Association of Realtors, home sales jumped 134.1 percent in the San Diego in March, compared to the same period a year ago, while the median San Diego home price fell 27.8 percent.
California Association of Realtors President James Liptak said: "The March sales figure of 522,980 homes indicates that the market continues to be very active, all of the regions in the state experienced increases in month-to-month raw sales, with the smallest gain in the Sacramento region at 9.7 percent and the largest gain in the Riverside/San Bernardino region at 32.2." San Diego real estate MLS listings
Existing Home Sales for March
INFO THAT HITS US WHERE WE LIVE March Existing Home Sales came in last week down slightly, to a 4.57 million annual rate. But the number of homes sold was still 1.8% above January's lows. With the sales level in the same range for the past five months, many say sales have now stabilized and probably bottomed. In addition, the median sale price increased in March for the second month in a row – the biggest monthly jump since June 2005 (not seasonally adjusted). The months' supply edged up to 9.8 from 9.7, but that was all from the slightly slower sales pace for single-family homes. The raw inventory actually declined for all types of homes.
The Federal Housing Finance Agency (FHFA) also reported home purchase prices rose 0.7% in February for houses financed by conforming mortgages. This was the second month in a row prices rose, putting them up 1.7% for the last two months, the biggest gain since 2005.
Friday saw March New Home Sales come in better than expected, at a 356,000 annual rate. This was a small decline from February, but that was all because of the upward revision to February numbers, not any March slowing. Inventories continue falling, to 308,000, down 46.0% from their mid-2006 peak and at the lowest level since 2002.
>> Review of Last Week
MIXED MESSAGES… After six weeks on the rise, the major stock market indexes ended last week mixed, with the Dow and the S&P 500 down a tad but the NASDAQ still on the upswing, to the tune of 1.3%. These mixed performances were due to the mixed messages coming from both corporate and economic data.
Overall, the week's Q1 earnings reports weren't terrific, although many beat estimates – 80 S&P 500 companies came in better than expected, 40 were worse. The good guys included IBM, DuPont, Caterpillar, AT&T, Microsoft, Apple, eBay, Amazon.com and Ford. Investors were happy to see tech hanging in and some life left in the American auto industry. Those missing earnings forecasts included 3M, Boeing , Merck and Morgan Stanley, which had a larger than expected Q1 loss and cut its dividend. Another major bank announced better than expected earnings, but also rising credit loss provisions.
Then we got preliminary reports about the Treasury's stress tests of 19 big banks. It seems most should be considered well-capitalized, but there are no details yet, such as whether any of them failed. The results will be made public next Monday. New unemployment claims came in a little higher for the week, although they're averaging below March levels, which is hopeful. Finally, software giant Oracle said it would buy Sun Microsystems and PepsiCo will buy up some major bottlers. The week ended with a 119-point jump in the Dow on Friday, but that wasn't quite enough to give us a seventh straight week of gains in the index.
The Dow ended the week off just 0.7%, at 8076.29; the S&P 500 slid an even smaller 0.4%, to 866.23; but the NASDAQ actually ended UP 1.3%, to 1694.29.
The bond market saw our closely-watched Treasuries trading lower most of the week, thanks to excess supply and some inflation concerns. The benchmark 10-year Treasury's yield, which runs counter to price, inched up to 3.007%. Let's see if the Fed starts buying to get the price back up and the yield down. Fortunat ely, mortgage rates on average remain at historically low levels.
>> This Week’s Forecast
LISTENING TO THE FED… The Fed meets again this week and, while no one expects any change in their rock-bottom rate, we'll be eager to hear the policy statement on Wednesday. We'll also watch the advanced reading on Q1 GDP, March Personal Spending (PCE) and the Chicago PMI and ISM takes on manufacturing.
Corporate Q1 earnings reports will be energized by Chevron and Exxon Mobil, along with Pfizer, Procter & Gamble and Verizon.
This post information was provided by: Greg Brooks southwest area manager San Diego Mortgage Network (800) 287-8292 x 225 San Diego real estate
San Diego Real Estate – Will Prices Ever Get Back to Their Prior Heights?
I think the number one factor that will keep a cap on home appreciation in San Diego and California is that the severity of our housing bust has clearly broken the myth that San Diego and/or California homes could never really drop. Once San Diego housing does bottom, it may be many years before we see any measurable, sustained housing appreciation. Charles Hugh Smith (www.oftwominds.com) recently wrote: "Bubbles do not re-inflate in the asset class which just popped. It is simply a truism that bubbles never reflate, ever. Tulip bulb valuations did not rise to stratospheric heights after the Tulip Craze popped, and the Nasdaq dot-com bubble did not reinflate, either, for the very good reason that bubbles are never based on rational valuations–they are based on the psychological state of mania which cannot be reinstated once lost."
San Diego and California are now experiencing rising unemployment and huge deficits, which have caused higher taxes, increased fees and cuts in services. This is not a conducive climate for home appreciation. Also once we bottom, there is the very real possibility that the Obama administration will push for a sliding scale of allowed tax and mortgage interest tax write-offs.
In 2005, the latest statistics for this information, it was estimated that:
* The mortgage interest deduction will cost the Treasury $72.6 billion, according to congressional estimates.
* The $250,000 and $500,000 tax-free exclusions of home sale profits for single sellers and joint filers, respectively, will cost $23 billion.
* Property tax write-offs cost $20 billion, and tax subsidies for local and state housing bond programs, account for $1 billion.
When a congressional committee examined the distribution of homeowner benefits for 2004, it found that people earning $200,000 and more a year – just one-half of 1% of all homeowners filing for deductions – pocketed 22% of the $70.2 billion in write-offs in 2004.
In 2007, Rep. John D. Dingell (D-Mich.) unveiled a draft of his "carbon tax" legislative reform package. Part of this draft legislation was a phase-out of the mortgage interest deduction on large homes. The phase-out schedule for the mortgage interest write-off begins with houses of 3,000 square feet, which would lose 15 percent of their deductions. The proposal ends with houses of 4,200 square feet and larger, which would receive no deductions at all. With the housing market stabilization, it seems likely that some type of "green, carbon tax" legislation will be implemented, not necessarily to help the environment, but as a guise for increasing taxes to pay towards our enormous spending deficits.
Now the Obama administration has proposed cuts in the mortgage interest deduction. Obama wants to limit mortgage interest write-offs for upper-income households.
Under the Obama plan, deductions would be capped at a 28 percent tax rate, even if the taxpayer is paying taxes at a 35 percent marginal rate. Plus, if this goes through, how fast would California and other "tax & spend" states be to revise their state tax codes to align with the federal code?
This will be a real body blow for housing appreciation. Mark my words, if passed, this is just the first step towards total elimination of the mortgage interest deduction.
Millions of baby boomers are looking at delayed retirement and pension and savings shortfalls. They are reaching the age where they become net home sellers, not buyers. This is also not an environment in which one would expect housing prices to take off.
Homes do not appreciate automatically. A lower median price in a market does not imply that those homes appreciate. Japan experienced 12 years of declining realty values, and Japanese consumers had higher savings and lower debt levels than our current population.
It seems certain, at least in San Diego and California, that housing density will rise in the future. Fewer people will feel the need for a 3,000+ sq ft McMansion to fill up with junk they don't need.
Once everyone forgets the results of our collective, horrible silliness, there will be another San Diego housing 'bubble' or perhaps more accurately, in light of most recent bubble, a "mini-bubble" eventually…some things never really change. San Diego real estate agents
Commercial Real Estate … The Next to be Bailed Out?
Just like residential real estate, commercial real estate is now experiencing higher foreclosures and exploding delinquency levels. REITs (real estate investments trusts) are already down more than 50% across the board and many are down 80%+.
George Soros says that it is “inevitable” that commercial real estate falls another 30%. Rents are falling, tenant bankruptcies are rising, there is tons of debt to be refinanced for which there is no market, so cap rates are rocketing and “ghost mall” has joined the recessionary lexicon. San Diego California real estate