“Painfully Slow Growth”: Week in Review, February 18-24

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Thoughts to consider about homeownership:
• Teenage students raised by home-owning parents are less likely to drop out of school than teens raised by renters, according to the “Journal of Urban Economics.”
• Homeowners are less likely to be crime victims than renters because neighborhoods where owners have a stake in the community are more stable, according to “Social Forces.”
• Equity—the value of a property after all debts have been paid—is an important component of wealth building because it can be a safety net for emergencies or hard times. It also can be used to launch a business or pay for college tuition, both of which have the potential to create future earnings. (CAR, 2/21)

Painfully Slow Growth for California and Southern California in 2008-2009, with “Spot” Recessions – While the economies of California and Southern California overall are not expected to fall into recession in 2008-2009, it will be a painful period for several industries and metro areas, according to the Los Angeles County Economic Development Corporation. (LAEDC, 2/20)

California Home Sales January 2008 - A total of 19,145 new and resale houses and condos were sold statewide last month. That's the lowest number for any month in DataQuick's records, which go back to 1988. It was 25.2 percent lower than December's 25,585 and 41.0 percent lower than 32,425 for January last year. (DataQuick, 2/18)

Commercial real estate market activity - expected to decline moderately with fewer business opportunities for commercial practitioners in the months ahead. (CAR, 2/20)

Fed Hints at More Rate Cuts - Minutes from the Federal Reserve meeting in January that were released Thursday suggest that more rate cuts could be in the offing. The minutes show that at the Jan. 29-30 meeting, the most recent, Fed officials decided that keeping interest rates low “appeared appropriate for a time to counter the factors that were restraining economic growth." (Wall Street Journal, 2/22)

Entry-Level Housing Affordability at 33% - The percentage of households that could afford to buy an entry-level home in California stood at 33 percent in the fourth quarter of 2007, compared with 25 percent for the same period a year ago, according C.A.R.'s First-time buyer Housing Affordability Index. CAR calculates affordability based on the minimum household income required to make a 10 percent down payment and secure an adjustable interest rate loan at 6.21 percent. Average monthly payment including taxes and insurance was $2740 for the 4th quarter of 2007. (CAR, 2/20)

New Home Sales Decline 30% in 2007 - The pace of new-home sales across California fell more than 30 percent in 2007 compared with 2006, according to recent data from the California Building Industry Association (CBIA). (via CAR, 2/20)

Consumer Price Index Rises 0.5% in January – This index is often related to inflation, so with this rise, economists are getting wary about inflation pressures. The index for housing climbed 0.2 percent in January, and the index for shelter remained unchanged from December at 0.3 percent. (CAR, 2/20)

Perspectives: More buyers moving in to first homes – Fresno Bee
Declining prices and interest rates and a large number of homes for sale are enticing potential first-time home buyers off the sidelines, experts say.
• Although this story is specific to the San Joaquin Valley, it applies to many regions around the state where prices have declined. Now may be an ideal time to buy an entry-level home.
• If enough first-time home buyers gain entry to the housing market, middle- and upper-tier homeowners will be able to sell and upgrade, and that can only help the economy. (CAR, 2/21)

Perspectives: Group says more Californians can afford to buy their first home – San Francisco Chronicle
As mentioned above, some 33% of households in the state were able to afford their first home in the last three months of the year.
• As the median home price declines, many potential home buyers who had previously believed an entry-level home was out of reach may now find themselves in a position to buy.
• The median price of an existing, single-family detached home in California during December 2007 was $475,460, a 16.5 percent decrease from the revised $569,350 median for December 2006.
• Prospective buyers for the most part need not worry about the bidding wars that drove up home prices during the housing boom.
• First-time home buyers needed to earn an annual income of $82,200 to buy an entry-level home in California in the fourth quarter of 2007, down 15 percent from the $96,600 annual income needed to buy during the last three months of 2006. (CAR, 2/21)

Mortgage rates inch above 6% - Fueled primarily by inflation concerns, interest on long-term mortgage rates moved higher for the week. Freddie Mac reported a rise to 6.04 percent from 5.72 percent last week on 30-year fixed loans, which broke the 6-percent threshold for the first time in seven weeks. Rates on 15-year loans, which are popular in refinance deals, bumped up to 5.64 percent from 5.25 percent; while five-year adjustable-rate mortgages settled at 5.37 percent, up from 5.19 percent. One-year ARMs, however, resisted the downward trend and slipped to 4.98 percent from 5.03 percent in the week-to-week survey. (Freddie Mac 2/21; Baltimore Sun, 2/22; CNNMoney 2/21)

Mortgage Applications Tumble - Volume of applications dropped more than 22% as most interest rates increased sharply. (AP, CNNMoney, 2/20)

Southland Rents Rise Despite Falling Home Prices - Apartment rents across Southern California have increased 4.5 percent over the last three months compared to where they were a year ago, despite falling home prices. (LA Times, 2/22)

Foreclosure Prevention Plan Under Attack - Lenders trying to derail legislation that would allow bankruptcy judges to reduce mortgage balances for home owners. (CNNMoney, 2/21)

Subprime Loans Defaulting Even Before Resets - It turns out that massive interest rate spikes aren't the problem; many borrowers couldn't afford these mortgages even at the low, introductory interest rates. (CNNMoney, 2/20)

Fast Facts
* Calif. median home price - December 07: $475,460(Source: C.A.R.)
* Calif. highest median home price by C.A.R. region December 07: Santa Barbara So. Coast $925,000 (Source: C.A.R.)
* Calif. lowest median home price by C.A.R. region December 07: High Desert $244,330 (Source: C.A.R.)
* Calif. First-time Buyer Affordability Index - Fourth Quarter 07: 33 percent (Source: C.A.R.)

Sources: Los Angeles Economic Development Corporation, DataQuick, California Association of REALTORS, Wall Street Journal, Freddie Mac, Baltimore Sun, CNNMoney, Los Angeles Times, San Francisco Chronicle, Fresno Bee, Associated Press.

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