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It's getting much worse, much faster here in California

Thursday, March 20, 2008

If I had it to do over again today, this blog might be called "Boom to Bust" as that phrase certainly describes what's happening out here in the Golden State of California.

[Don't worry, having had one very bad experience with an attempted name change last summer, that's not going to happen. Besides, that moniker has been ably taken by Boom2Bust anyway.]

The media is now full of stories about the rapidly deteriorating situation here in the West. About 30 teachers are set to receive pink slips near here and reports came last week that 20,000 teacher layoffs are expected statewide.

All of this stems from the housing boom that has now gone decidedly bust.

You may have heard about that.

Yesterday, a report in the Modesto Bee (a town now in fierce competition with nearby Stockton for the title, "Foreclosure Capital of the World") had some comments by local realtors about the situation improving ... kind of.

Northern San Joaquin Valley home sale prices plunged again in February, dropping to levels not seen since early 2004.

But for the first time in many months, Modesto real estate brokers are practically giddy with enthusiasm over jumps in pending sales and prospective buyers.
...
"We're selling homes priced below $200,000 on a daily basis now," Melo said. "First-time buyers and investors are entering the market, and they're getting steal-of-a-deals."

Melo said 70 percent of pending sales are for bank-owned houses that had been foreclosed on. He said banks are willing to slash prices dramatically just to get those houses off their books.
It's important to note that an improving situation for realtors - selling more properties now that banks are slashing prices on their growing inventory of foreclosures - is very different from an improving situation for the rest of the state.

If you haven't yet heard about the dire predicament Governor Arnold Schwarzenegger now faces, maybe this report at Bloomberg today will help:
Sacramento may eliminate up to 600 jobs in the city's first staff reductions in half a century, and the police and fire departments in the California capital may have their budgets cut by 20 percent. The culprit is the collapse of the U.S. housing market.

California, the birthplace of the subprime mortgage industry, is paying the highest price of any state as the housing meltdown persists. Its gross domestic product will drop 1.5 percent in the first half of 2008, the most in the U.S., analysts at Lexington, Massachusetts-based Global Insight Inc. estimate.

The state had the most foreclosure filings in the U.S. last year and the biggest fourth-quarter decline in prices, according to RealtyTrac Inc., an Irvine, California-based seller of data on defaults, and the Office of Federal Housing Enterprise Oversight in Washington.

"The depth and magnitude of what's happening in the real estate market is really, really grim," said Russell Fehr, Sacramento's finance director, in an interview.

California, the most populous U.S. state and accounting for almost one-seventh of gross domestic product, will lose $25 billion in personal income by the end of 2008 and property values will fall by $630.7 billion, according to forecasts from economist Jerry Nickelsburg at the University of California, Los Angeles, and the U.S. Conference of Mayors.
This is a very comprehensive piece and, to be honest, I couldn't get through the whole thing because it was thoroughly depressing.

A 59-year old retired engineer, Harry Subers, put it best when reflecting on buying real estate near the peak a few years ago. "Everything would have been fine if the bubble didn't pop," Subers said. "We're resigned to the fact that we're going to lose the house."

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9 comments:

Mathlete said...

The problem isn't the loss of revenue, it's the spending. And of course, the politicians always target the most popular spending first to get the voters to approve tax hikes.

Pool Shark said...

Not to worry; Lawrence Yun says this is a good time to buy!

Just around the corner,
There's a rainbow in the sky,
So let's have another cup of coffee,
And let's have another piece of pie.

Rob Dawg said...

All of this stems from the housing boom that has now gone decidedly bust.

No, and Mathlete beat me to it. RE revenues State and local continue to rise this FY. There were likely to be teacher layoffs even in a robust economy as 1990 was the peak year public school birth enrollment. Nearly all classes are smaller than the preceding class 12th down to Kindergarten.

Tim said...

RD - any links for that? I've heard numerous stories about tax revenues declining due to housing at both the state and local levels.

D said...

I wouldn't blame the situation on the real estate bust. This was a long time coming.

The 2001 dotcom bust, California Budget cut backs, energy crisis etc. already showed the fundamental weaknesses that exist today.

Pool Shark said...

With regard to tax receipts; California is in a somewhat unique situation. While the population continues to grow rapidly, the tax base is decreasing.
For the first time in history, beginning in 2001, more people moved out of California to other states, than moved into California from other states.
Many boomers (higher tax-paying) are leaving California and retiring in lower tax environments, while the newer residents to the state (lower tax-paying) are requiring ever greater public services.

This demographic setup has set California on a path to lower tax receipts, yet increasing costs of public services.

The housing bust will only make a bad situation worse. I submit the full tax receipt effect of the bust won;t be felt until the next fiscal year, and of course will continue to get worse through the ultimate bottom of the housing market in 2013.

One thing is certain about Californians going forward: we will either get much higher taxes or major cuts in services (or both!)

Tim said...

I knew I read it late last year: Schwarzenegger Will 'Declare Fiscal Emergency' In Weeks

California is struggling with shrinking state tax revenue from the meltdown of the subprime housing market and the credit crunch on Wall Street.

One of many sources of the current problem I suppose.

donna said...

K-12 enrollment peaked in 2004-2005. Declining slightly now.

I do know stats on 1989 (year my youngest was born) - 4.25 million nationwide, 1990 was 4.5 million nation wide. I only know that since I kept telling the schools they needed to add teachers, and they said they couldn't add teachers til they knew enrollment. The birth stats were there for them to look at, so I don't know why they couldn't plan.

Anyway, they seem to have figured that out and are now planning for declining enrollments.

Also, we have more families leaving the state than entering, and less illegal population, so those things affect enrollment.

The real problem is the college levels, where all those 1989-1990 kids are hitting now. Enrollment levels are high and there aren't enough teachers, classes or funding.

http://data1.cde.ca.gov/dataquest/DQ/EnrTimeRptSt.aspx?Level=State&cChoice=TSEnr1&cYear=1998-99&cLevel=State&cTopic=Enrollment&myTimeFrame=S

Economic Despair said...

I, for one, liked the bad macro blog. I just wished it had worked out for you.

Ged

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