In the August 28th edition of Barron's, Andrew Bary reports that "the investment community seems to be buying the argument of housing bears that the slump will be long and deep." This sentiment can be seen in the share prices of housing related stocks. The thrust of the article is than housing related stocks have a lot of upward potential if the housing market does not continue in its downward trends.

Although this blog focuses on residential real estate, the line of thought Mr. Bary expresses is interesting. If the investment community is coming to believe in a long and deep housing downturn. then I take note. However, the market's logic still seems weak. As I have written here previously, without a loss of employment, housing prices, in the aggregate, are not likely to fall. Thus, the market seems to be signaling that an economic slowdown and its associated job loss will occur. There is no major broad based stock indices that concurs. This "bears" close watching.

Yesterday, the national employment report was released. The widely report percentage of unemployed rose to 4.8% up .2% since June. While it is almost always better to have less unemployment, 4.8% is not bad. This will be a closely watched number in the months ahead.

Not so widely reported are two components of the report having to do with the length of the work week and hourly wages paid. Both of these two components increased. This suggests that those with jobs are working longer and getting paid more for that work. Employers seem to be reluctant to add jobs in this environment. This is good for stable housing prices because employed people typically don't default on the loans or go into foreclosure.

Questions remain: How long will this stagnating environment last? Is this the beginning of an even steeper decline?

The Los Angeles city council will place a $1 billion bond measure on the ballot November 7th, 2006. If passed the monies from the sale of the bonds will be used to issue loans and grants for the development of affordable housing and grants to first time home buyers. Real estate taxes are expected to increase by about $14 per 100,000 of accessed value if the measure passes.

Affordable housing is a critical need in Los Angeles County. It is unlikely that the development and sale of these homes and the grants to homeowners would have any material affect on price of housing overall in Los Angeles County or Los Angeles City, in the short term. In the longer term it may enable families to become moved up buyers. Also, homeowners tend to have a vested interest in keeping their neighborhoods safe and clean. (If they don't the value of their home decreases). Business also follow homeowners as the number of homes near business affect the viability of many business.

The measure does have the support of the business community, as this article from the Los Angeles Chamber of Commerce and this article about the Los Angeles Business Council shows. Although, not all are convinced, as shown by a July 30, 2006 LA times article by Joseph Mailander and comments in LAVoice.org.

The larger question of whether government can effective do what the private market place has not done remains to be seen.

As reported by RIS Media on July 31, Realtytrac has released its 2006 second quarter Foreclosure Market Report. Nationally, the report showed during the second quarter foreclosures fell 16% when compared to the first quarter of 2006 and increased 25% when compared with the second quarter of 2005. In California, the report showed that during the second quarter foreclosures fell 7% from the first quarter of 2006 and increased 100% from the second quarter of 2005.

It is worth noting that presently foreclosures are not above their historic mean and employment remains high.

Does this mean that we have returned to a normal foreclosure market? Or does it mean that as adjustable rate mortgages are reset in the current market of higher rates foreclosures are increasing?

As long as employment stays high then the statistic to watch is the ratio of foreclosures in adjustable rate mortgages versus the foreclosures in fixed rate mortgages. If this ratio increases foreclosures may increase above the normal trend due to excessive and possible undisciplined use of adjustable rate mortgages.

On Monday, July 24, 2006, the Pasadena City Counsel approved $165 million to pay for the expansion of the Pasadena Convention Center. In general, business expansion brings employment opportunities during all phases. Low unemployment and solid job growth bodes well for stable home prices in the local area. Detials can be found here.