SoCal housing market improves in December

Owing to a combination of low interest rates and a tax credit that was extended until April, housing sales in Southern California showed additional strength in December. But is this the sign of a genuine rebound based on market fundamentals or a temporary blip riding on the training wheels of federal stimulus? From an L.A. Times story:

Rock-bottom interest rates and stronger sales in higher-priced neighborhoods helped Southern California's housing market post robust gains in the typically sleepy month of December, new data show, and experts say the momentum is continuing -- ushering in an early start to the spring home-buying season.

The median price paid for a Southland home rose 4% to $289,000 last month from December 2008, the first time the closely watched figure has posted a year-over-year gain since the region's real estate market took a nose dive 2 1/2 years ago, according to data released Tuesday by MDA DataQuick, a San Diego real estate research firm.

Rebounding home prices could help the Southern California economy recover from its slump, as a stronger housing market could lead to hiring on construction sites and in real estate sales, title and escrow offices, said Esmael Adibi, director of Chapman University's A. Gary Anderson Center for Economic Research.

"The worst is behind us for sure," he said. "For the economy, the implication is, at least on the residential side, we don't expect more layoffs, and you might actually see some pickup in employment."...

One thing driving sales is the April 30 expiration of tax credits for home buyers. First-time home buyers can get up to $8,000 in credit on their federal income taxes, and current homeowners can qualify for up to $6,500.

Low mortgage rates are also a factor. Thirty-year fixed-rate loans were below 5% through most of December and haven't risen much.

The role of the federal government in the housing market remains key. Some experts worry that once certain policies and programs wind down -- among them low interest rates, tax incentives for buyers and an increased accessibility of mortgages backed by the Federal Housing Administration -- the housing market could falter.

Christopher Thornberg, principal of Beacon Economics, predicts home prices will drop once those policies and programs expire.

"The bounce in the housing market is due to government policy, not due to fundamentals," he said. "None of these programs fix the underlying problem. They only delay the solution -- they only delay the healing process."...

Richard Green, director of the USC Lusk Center for Real Estate, said buyers have sensed more security in Southern California's real estate market in recent months and have begun to get off the fence.

"We are getting a little bit of what we had six or seven years ago, where people are worried if they don't get in now they are going to miss out on an opportunity," Green said. "In a decent neighborhood, in the half-a-million-dollar range, we are back to lots of offers."

Obama's mortgage plan: is it fair to taxpayers?

Feeling embittered that your tax dollars are going to be used to help people avoid foreclosure who made bad decisions? A 'dust-up' in the L.A. Times ponders the question.

First, from Richard Green at the USC Marshall School of Business and a director at the Lusk Center for Real Estate:

First, many borrowers who were responsible now find themselves in trouble because rapidly falling home prices in some areas have left them with mortgage balances that exceed their house value, because they have lost their job in the midst of a rapidly deteriorating employment market, or both.

The idea of allowing people to refinance into new loans backed by Fannie Mae and Freddie Mac at the current low interest rates -- even if the borrowers now have little or no equity -- makes a lot of sense to me. Second, the costs of having even irresponsible borrowers default are large.

Recent work by a number of scholars has convinced me that foreclosed houses, once they reach some critical mass within a neighborhood, do substantial damage to the value of nearby houses. Foreclosed houses, moreover, are not well maintained and therefore harm neighborhood aesthetics. I think we must hold are noses and pursue policies that reduce foreclosures, which I believe the Obama plan will do...

On the opposing side, Christopher Thornberg, principal of Beacon Economics and formerly of the UCLA Anderson Forecast:

Taxpayers should resent the idea that their hard-earned money is going to bail out those who took on loans they clearly couldn't afford. They should also resent taxpayer money going to banks whose egomaniacal CEOs take on excessive risk to drive up their annual bonuses to absurdly high levels even as they buy $1,000 garbage pails and walk away rich from the ruin they leave behind.

But there is a large difference between the two situations from a public policy perspective.

When banks fail, the potential impact on the credit markets and money supply is enormous. This is a lesson well learned after centuries of banking crises. It is the reason we have a Federal Reserve bank system...

In short, if we are going to spend taxpayer money, I would suggest that we use it not to help people who spent beyond their means to keep homes they don't deserve, but to help those prudent families take advantage of falling prices by buying empty units. This prevents blight and rewards good behavior, not bad.

And if we really wish to not harm those who may have made a bad choice, how about another basic change: If they allow themselves to be foreclosed on quickly and efficiently, let's not allow any black marks on their credit records. Then they can start fresh and perhaps go buy one of those foreclosed units themselves.

In any case, policy debate aside, taxpayers have little to fear. Most folks out there that used subprime or Alt-A mortgages bought so far outside their means and are so far underwater that there is little that can be done for them within the limited means provided under Obama's bailout plan.

They don't qualify for Freddie or Fannie refinancing, and there is simply no way their loans can be modified to keep them in their houses. As such, I expect that little taxpayer money will actually be spent on the worst of the borrowers.

You can read the entire article here.

With whom do you agree?