Tuesday, June 28, 2005

FDIC State-By-State Update

As expected, the FDIC released it's state-by-state profiles today.
The report for the State of California, however, failed to support the FDIC's contention that job growth is fueling the housing market, at least as far as Southern California is concerned.

FDIC has dismissed the notion of a housing bubble, as was noted in a post earlier today.

The FDIC California profile released today says:
"Job gains were unevenly distributed across the state as areas outside of Southern California and the Bay Area reported the fastest year-over-year growth"
So, what gives? Prices are at their highest in Southern California, perhaps the hottest real estate market in the country, and yet, it's the areas outside Southern California that are gaining jobs.

It gets curiouser and curiouser from there. The same report says:
"After moderating at year-end 2004, annual home price growth in California accelerated to 25 percent in first quarter 2005, outpacing income growth"

How can job growth be fueling the housing bubble if the cost of the homes is rising faster than salaries?

The profile gets plain sad from there:
Adjustable-rate mortgages increased as a share of both originations and commercial bank portfolios. Some of these borrowers may be vulnerable to rising debt service requirements should interest rates increase.
Adjusted-rate mortgages, or ARMs, are what's going to put a lot of homebuyers in foreclosure if prices dont' appreciate to the point where they can refinanance their way out before the interest rates rise.

Nothing here has persuaded me to believe that this is anything but a bubble inflated, in part, by a number of second-home buyers who are sitting on those houses, condominiums and townhouses as investments that they intend to turn when the price is right. They are speculators feeding off the needs of people who want to live in those homes. A shortage of newly constructed homes is exacerbating the situation.