Prices up but sales down 25% from 2009 levels

October median up 1.2% from September, 2.9 percent from 2009

BY ROGER SHOWLEY

MONDAY, NOVEMBER 15, 2010 AT 10:50 A.M.

San Diego County home prices rose slightly in October after a two-month decline, but sales were off substantially, MDA DataQuick reported Monday.

The overall median was $334,500, up $4,000 or 1.2 percent from September and up $9,500 or 2.9 percent from October 2009 levels. The figure was still below the $340,000 most recent peak reached in May and the record high of $517,500 set in November 2005.

The sales count probably was the most dramatic statistic to come out of the DataQuick report.

The total for October was 2,750 transactions, down 10.4 percent from September, mirroring a typical seasonal downturn as buyers slacken off of their purchases once their children return to school.

But on a year-over-year basis, the total was off 25.1 percent from 3,671 logged in October last year -- the third biggest such drop, after 1990's 35.7 percent decline in the last big recession, and 2007's 32.5 percent fall in the aftermath of the subprime mortgage meltdown.

"It's a combination of a lousy economy and low consumer confidence, and we're still paying the price for the tax credits," said DataQuick analyst Andrew LePage.

The federal homebuyer tax credits, worth $8,000 to first-time buyers and $6,500 to move-up buyers, expired in April, but buyers had until September to close escrow to claim the credits.

That means October was the first month in which the credits did not figure into any sales. Economists have been saying for months that the credits likely sped up buyers' plans to purchase a home but did not necessarily bring new buyers into the market. Consequently, they believe there was a time shift that piled more transactions into the first of the year and robbed sales from the second half, thus leading to the current slowdown on top of the usual seasonal dropoff.

"Fundamentally, the market is in the doldrums," LePage said. "October had the second slowest sales since 2007."

The median price was up from the low of $280,000 set in January 2009 as foreclosures and defaults were multiplying and distressed properties dominated the market.

The increase took place in resale condos and new housing but not in single-family resales, whose $369,000 median was down $3,000 or .8 percent from September. The house price still was up 2.5 percent from October 2009's $360,000.

"You saw prices and sales perk up in late-spring and early-summer, thanks to the rush to get homebuyer tax credits, and the overall improvement in the economy," LePage said. "Now, the tax credits are gone, job growth is anemic, and people are worried about losing their jobs. It's worse than normal, because of all the drags out there on home sales."

He added, "If prices drift lower over the winter and in the meantime the economy improves and consumer confidence rises, then we could see much improved sales in the spring, especially if there is ample inventory and rates are still super-low."

Drilling deeper into the figures, LePage said the percentage of sales involving foreclosures going back 12 months rose to 30.3 percent from 28.8 percent in September but were down from 34.5 percent in October 2009.

Sales of homes costing $500,000 or more represented 25.1 percent of total sales in October, compared with 22.3 percent a year earlier. The overall median may have been down because those sold at the high end were fewer than what sold last year.

Similarly, the North County coastal market without lower-cost Oceanside turned in a market share of 9.7 percent, up from 8.8 percent in October 2009. Low-cost South County, the center of the housing meltdown locally, saw a smaller market share, 12.4 percent, compared with 15.5 percent a year earlier.

Finally, new homes turned in their slowest October on record, going back to 1988. There were only 269 new homes sold in October, including both new construction and condo conversions. That compares with the high of 1,829 in April 2004.

"Most builders can't afford to build cheap enough to beat foreclosures," LePage said. "It's a pitiful state of the new-home industry. But San Diego isn't alone. The numbers are extraordinarily low statewide."

Looking ahead, LePage said it is clear that many would-be homebuyers are holding back, uncertain about their own economic future and general economic conditions.

"There's a pentup demand mounting," he said, "and at some point that will be unleashed and probably show up in a big way in the statistics."

Mark Marquez, president of the San Diego Association of Realtors, said that upswing is likely to take three or four years to develop because of the overhang of distressed properties -- both foreclosures and short-sales, those sold for less than their mortgage balance.

"In San Diego there is a tremendous appetite for distressed properties," he said. "We're still seeing investors trying to buy properties for cash."

But he said he doubts banks will accelerate the pace of foreclosure beyond what is already occurring. They are approving short-sales, he agreed, but it takes much longer to close a deal than a foreclosure.

"Even on a good day, it can take 90 days to get it done," he said. "That will drag out our sales cycle, which will prolong market conditions. That has to aggravate what I think is an improving condition."

His association said inventories dropped to 12,202 active listings from 13,000 at this time in October. Contingency sales were down to 3,522 from 3,798 and pending sales were off to 4,562 from 4,810.

One new twist in the housing market is the proposal from the chairmen of President Obama's deficit reduction commission that the mortgage interest deduction be eliminated or scaled back to cover mortgages below $500,000 and no second homes.

Marquez said the mortgage deduction means more to San Diego buyers than in other metro areas because of the relatively high prices here. He said elimination or scaling back the tax benefit would play "havoc" with local buying preferences.

"The tax deduction is one of the biggest benefits of homeownership," he added.

However, the proposal has yet to be approved by the full deficit commission, much less meet the blessings of Congress or the president

The chairmen's recommendation was tied to a provision lowering overall tax rates, which have the net effect of lessening the loss of the deduction.

Marquez said the National Association of Realtors is already denouncing such a change in deductibility, a stance it has taken in past efforts to chip away at the popular deduction, said to be worth more than $100 billion in federal tax revenue losses.

Roger Showley, (619) 293-1286, roger.showley@uniontrib.com, Twitter: @rmshowley

Foreclosures: Why is California's housing market recovering and Florida's still struggling? - latimes.com

Foreclosures: Why is California's housing market recovering and Florida's still struggling? - latimes.com

Federal Reserve to Pump Out an Extra $600 Billion to Boost Economy

By Jim Tankersley

The Federal Reserve, in a much-anticipated attempt to rev up the economy and fend off deflation, launched a new program this afternoon to inject $600 billion into the economy.

In its second round of “quantitative easing,” the policy-setting Federal Open Market Committee said it will create $75 billion in new dollars per month through next June and use them to buy long-term Treasury bonds. The goal is to push down the cost of borrowing for both businesses and consumers, and in turn to increase investment and spending.

In addition, the committee said it would continue to reinvest the proceeds from maturing mortgage-backed securities into Treasury bonds, effectively pumping what is expected to be an additional $250 billion to $300 billion into the economy at large.

The Fed’s move was in line with what many investors had been expecting, though analysts predicted that it would provide only a modest boost to the economy because interest rates are already at historic lows. But with Congress unwilling to pass any additional fiscal stimulus, whether in the form of tax cuts or extra spending, the Federal Reserve was the only other game in town.

Early signs from the bond markets - where long-term yields actually rose slightly - suggested investors may have been hoping for an even larger commitment from the Fed.

Announcing the quantitative easing, Fed officials pointedly left themselves room to change course, saying they would "regularly review" the program and adjust it "as needed to best foster maximum employment and price stability."

In a statement after the Fed meeting, the central bank expressed concern that "the unemployment rate is elevated, and measures of underlying inflation are somewhat low" relative to the Fed's unofficial targets. It also acknowledged that economic progress has been "disappointingly slow."

Analysts generally praised the scope of the move. Some said it would pack more economic punch if Congress were to follow up with a fresh round of fiscal stimulus to boost demand - a payroll tax cut, for example, or a new round of infrastructure spending. But such fiscal stimulus appears all-but-impossible in light of the midterm election results, which Republican leaders quickly hailed today as a victory for limited government and balancing the federal budget.

“It’s a good move," said Paul Sheard, chief global economist at Nomura Securities International. "We certainly think this is the appropriate thing for the Fed to do with its monetary policy. It’s quite impressive the way that the Fed has been able to steer the ship of monetary policy around in the last three months or so” - after appearing set to tighten the money supply this summer.

Later, Sheard added: “The conundrum is, from a macro point of view, in this kind of environment, you’d probably want to have more fiscal policy to put a little sting in the tail (if the Fed action), but that’s very hard to do politically.”

The Fed is charged by Congress with maintaining price stability and pursuing full employment, but both inflation and employment are below what Fed officials consider acceptable. “Quantitative easing” is an attempt to spur the economy at a time when the Fed’s traditional tool -- the overnight federal funds rate -- has at been at virtually zero for almost two years. By creating money and using it to buy long-term Treasury bonds, the Fed effectively pushes down long-term interest rates not only for Treasury bonds but for corporate borrowing, home mortgages, and other consumer lending.

The move could eventually boost inflation, but inflation is now running at barely 1 percent a year and is actually lower than the Fed’s unofficial target of 1.5 percent to 2 percent. Indeed, some Fed officials are openly worried about the possibility of a Japan-style deflation in which consumer prices fall across the board.

As recently as a few months ago, Fed officials had thought they wouldn’t need to embark on a second round of quantitative easing, or “QE 2,” as analysts have nicknamed it. In the first round of easing, which ended in March, the Fed bought about $1.7 trillion worth of Treasury bonds and mortgage-backed securities. But as the recovery flagged this summer and Congress balked at additional fiscal stimulus, Fed Chairman Ben Bernanke and other policymakers began to signal plans for a new round of printing money.

Few analysts expect the move to ignite runaway inflation. But the decision is not without its risks, particularly for Bernanke and the Fed's credibility.

Most economists consider quantitative easing a relatively weak tool to boost economic growth at the moment. The economy’s biggest problem is a lack of demand, not a lack of credit. Interest rates are low even for high-risk junk bonds, and corporations are sitting cautiously on large stockpiles of cash. Even if the Fed makes vast amounts of cheap money available, banks could end up parking much of it back at the Federal Reserve as dormant “excess reserves.”

Morgan Stanley analysts wrote last month that “the economic impact associated with this type of monetary stimulus is likely to be quite modest.”

Economists at High Frequency Economics were more blunt, writing before the announcement that “it’s hard to imagine a policy event being more discounted by the markets, and we are therefore a bit nervous about the scope for disappointment at the size of the QE program.”

The company's chief U.S. economist, Ian Shepherdson, was more upbeat after the announcement. He said the Fed decision was "a bit lower than some expected but will be enough, in our view, markedly to boost (money supply) growth, hold down (Treasury bond) yields and support further gains in the stock market. This is key because higher stock prices boost business and consumer confidence, hopefully triggering a virtuous circle of sentiment and spending. The dollar will likely suffer further declines; no bad thing."

Other analysts have worried that, if the easing fails to accelerate growth, investors could lose confidence in the Fed's abilities, potentially setting back recovery.

-NationalJournal