Brief but disturbing report in New American Media:

The New Homeless Look More Like You

RIVERSIDE, Calif. — The national credit crisis has produced a “new kind” of homeless on the streets, reports La Opinión. Hundreds of former homeowners are now living in shelters because they couldn’t afford their mortgages, Don Smith, supervisor of Riverside County’s housing program, told the Los Angeles Spanish-language newspaper. The typical homeless person, according to Maria Márquez, supervisor of Riverside County’s Mental Health Department, is no longer the man who suffers from mental illness or the war veteran with a psychological disorder. “Today’s homeless can mix with the people because they may have been their neighbor, work colleague or student,” said Márquez. “There is no longer a single definition, a stereotype of the homeless. The current situation could make a homeless person out of any one of us.”

Mortgage defaults and a “sustained lull” in home building will weigh on California’s economy for at least another year but will not tip the state into a recession, according to UCLA Anderson Forecast. “Overall, our forecast is that California is in for at least another year of these economic doldrums, with rising unemployment, weak job growth and a slowdown in all broad indicators,” the report said and “Barring a substantial worsening in housing or another source of weakness suddenly appearing, California’s sluggish economy will not spiral into a full-blown recession”. Economist Ryan Ratcliff of the forecasting unit wrote in the report that rising mortgage defaults in California have begun to slow payroll job growth and lift the state’s unemployment rate. Mortgage-related job losses have “swamped” financial service payrolls while construction payrolls are being trimmed, Ratcliff wrote. However, other sectors are adding employees so California will maintain very weak payroll growth through late 2008.

A majority of Californians expect the economy to worsen over the next year as housing sales plunge and more residents lose their homes to foreclosure, according to the results of a poll conducted by the Public Policy Institute of California. Fifty-nine percent of adults expect “bad times” financially over the next 12 months, a jump of 10 percentage points since June, according to the survey. “There has been a significant shift in attitude this year,” Mark Baldassare, the president of the institute, said in a statement. “For so many people, the feeling of overall financial well-being is tied to the value of their homes, something that seems increasingly threatened as they see sales slow, prices dip, and foreclosures rise.” Pessimism about the state’s economy cuts across all regions and income levels and is similar for those who own and rent homes, according to the poll.

Overseas international flights at Los Angeles International Airport (LAX) make a substantial contribution to the economy of Southern California, adding $82.1 billion in total economic output, according to a study by the Los Angeles County Economic Development Corporation (LAEDC) and other organizations. he LAEDC study revealed that the LAX flights created 363,700 direct and indirect jobs with annual wages of $19.3 billion in Los Angeles, Orange, Riverside, San Bernardino, San Diego and Ventura Counties in 2006. Over the course of 2006, an average transoceanic flight traveling round-trip from LAX every day added $623 million in economic output and sustained 3,120 direct and indirect jobs in Southern California with $156 million in wages. The economic output, jobs, and wages were calculated from the production and transportation of freight exports (carried in the belly of the plane), the transportation of freight imports, the operation of the airport itself, and the purchases made by international visitors on the flights. Freight exports (which are generally high-value items) accounted for over 80% of the annual economic activity generated by international flights at LAX.

From today’s San Francisco Chronicle:

The number of homes entering the foreclosure process hit a record high in the second quarter, but things are going to get even worse over the next 12 months, when millions of borrowers see the interest rate on their adjustable-rate mortgages reset for the first time. ARMs are tied to short-term interest rates but are typically fixed for a few years before they begin adjusting. Because short-term rates have increased dramatically, many homeowners will face payment shock when their rates adjust. In a meeting with mortgage servicers Wednesday, Treasury Secretary Henry Paulson said, “We’ve been experiencing market turbulence, and as I’ve said for a while, this will take some time to work its way out.” …

About $1.1 trillion of adjustable-rate mortgages were scheduled to reset for the first time in 2007 and 2008, according to First American LoanPerformance. These represent about 10 percent of all mortgages outstanding. Virtually all these ARMs will reset at higher rates – in many cases much higher – resulting in bigger payments for homeowners. Reset activity is likely to peak in the fourth quarter of this year and the first quarter of next year… Well over half of the resetting loans were made to subprime borrowers with low credit scores. “The subprime resets will create more difficulty for households and the economy because many subprimes qualified based on a low teaser rate,” not on the post-adjustment rate, says Steve Cochrane, senior managing director of Economy.com. With tighter lending standards and no investor appetite for risky mortgages, refinancing “might not be possible,” Cochrane says. And with home prices lower in most areas, borrowers who put little or nothing down now owe more than their homes are worth, so selling the home to pay off the loan is no longer an option. The brunt of the reset problem has yet to hit.

The first nationwide decline in jobs in four years raised new fears that the housing market and credit squeeze, particularly in hard-hit states like California, could drag the economy into a recession, according to a report in the Sacramento Bee:

“I think we’re very near recession, and California is on the leading edge of the downturn,” said chief economist Mark Zandi of Moody’s Economy.com. “The housing market is the economy’s most significant problem, and California’s housing market is among the worst in the country.”

The U.S. Labor Department said nationwide payrolls shrank by 4,000 in August, the first monthly decline since August 2003. Although the unemployment rate was unchanged at 4.6 percent, the payroll loss jolted Wall Street, which had expected jobs to grow. The Dow Jones average fell 249.97 points, to 13,113.38. Economists said the job loss was evidence the housing market’s problems are seeping into the overall economy. They believe the Federal Reserve, in an effort to boost the economy, will almost surely lower interest rates at its next meeting Sept. 18…

Yet the national slowdown in jobs mirrors what’s been occurring lately in California, where payrolls are in decline and unemployment is inching up. The state lost 8,600 jobs in July as unemployment rose to 5.3 percent. Sacramento-area unemployment is up to 5.4 percent, as the region lost 5,200 jobs in July. State and local job numbers for August will be released Sept. 21.

“We are leading in terms of this whole correction, or whatever you want to call it, in the housing sector,” said Howard Roth, chief economist at the California Department of Finance. “Where it ends, I’m not sure.” On the national level, 22,000 construction jobs disappeared in August, as did 46,000 factory jobs and 6,000 in the lending industry.

In addition, the government revised downward its estimates of job creation in June and July, from a combined 218,000 jobs to 137,000. Analysts believe some of the losses in manufacturing are tied to housing as anxious consumers, no longer tapping their home equity for cash, cut back on spending. Auto industry officials, for instance, say most of the downturn in U.S. auto sales is in California and Florida, where the housing market is the weakest. Car sales in California fell 7.7 percent in the first half of the year. “The problems in housing and mortgage markets are now affecting confidence, and thus activity, in other parts of the economy,” said Zandi of Moody’s Economy.com.

And, of course, industries directly tied to housing are continuing to shed workers. A host of mortgage lenders suspended operations in recent weeks, eliminating jobs in the Sacramento area. The construction industry is still weakening. Christopherson Homes of Santa Rosa has laid off 22 of its 30 employees in south Placer in the past year, while Folsom-based Elliott Homes cut 15 jobs in the past two weeks. “We laid some people off,” said Elliott Vice President Russ Davis. “I think every company in the region has laid people off.”

Chris Thornberg, head of Beacon Economics consulting in Los Angeles, said California will feel the effects of a recession worse than most states because it was such a hotbed of subprime mortgage lending. “We will bear the brunt of this primarily because of the mortgage issue,” Thornberg said.

The Los Angeles Times Reports:

A sagging real estate market and tighter lending standards are exacting a growing toll on Californians, forcing them from their homes in record numbers, figures released Tuesday show. Foreclosures soared to 17,408 for the three months ended June 30, an increase of 799 percent from the same period last year. The current rate handily exceeds the previous foreclosure peak set in 1996, when the state was in the final throes of six-year slump. Separately, Countrywide Financial Corp. — the nation’s largest mortgage lender — reported a sharp rise in delinquencies, even among customers with good credit. That sent shivers down Wall Street, helping to trigger a 226-point plunge in the Dow Jones industrial average. Although a relatively small fraction of homeowners face eviction, the concern is that a flood of foreclosures will further weaken housing prices — and make people less willing to spend money.

Because to the bad news from the housing sector there seems to be a growing consensus that the economy is headed for a recession, or at the very best a slow down.

Dragged down by the real estate slump, California’s employment engine ground to a near standstill in June with a net gain of only 400 positions, according to a report in the Los Angeles Times. As expected, financial activities and construction were the biggest losers among six sectors that posted employment declines in June, according to the state Employment Development Department report.

Reflecting layoffs by troubled sub-prime mortgage lenders and the big chill in home building, the financial activities sector lost 5,700 jobs, while construction shrank by 5,300. By comparison, the four other declining sectors lost a total of 5,900 jobs. “Slowing state job growth has been primarily caused by the slowdown in residential building and resale activity,” said Stephen Levy, senior economist for the Center for the Continuing Study of the California Economy. “A continuation of the slowing will cause problems for this year’s and next year’s state budget.”

Unemployment ticked up by 0.2% in the Inland Empire and by 0.4% in San Diego, where home construction has slowed, said Steve Cochrane, an economist with West Chester, Pa.-based Moody’s Economy.com, a consulting and forecasting firm. The Central Valley may be the next major area to be hit by problems tied to sub-prime mortgage delinquencies, Cochrane added.

Overall, California’s unemployment rate held steady at 5.2%. By comparison, the state jobless rate was 4.9% in June 2006, and the U.S. rate was 4.5% last month, unchanged from May. A steady unemployment rate means the number of jobs is growing at about the same pace as the number of people seeking them. The state has matched the national job growth rate for the last year, Levy said, although unemployment has risen here but not in the nation because the state labor force has grown by nearly 300,000.

Since June 2006, the state’s employers have added 204,700 jobs, an increase of 1.4%, for a total last month of 15.3 million. Sectors gaining jobs last month were led again by the educational and health services category at 8,600. Government employers added 4,600 jobs, while the leisure and hospitality sector hired 3,300 workers. Other services added 600 jobs, and professional and business services added 200.

Some of the slack in the housing market is being taken up by continued construction activity in the commercial real estate market and by motion picture and film production, said Jack Kyser, chief economist for the Los Angeles Economic Development Corp. Movie studios “are rushing to get productions done” ahead of possible labor-related disruptions related to contract negotiations with screen writers, actors and directors late this year and early next, he said.

According to a report in Reuters, June home sales in southern California fell to their lowest in 14 years and the slump hit the region’s most affordable markets east of Los Angeles hardest, according to a report released on Tuesday. The report by DataQuick Information Systems said a total of 20,166 new and resale homes were sold in June in Los Angeles, Orange, San Diego, Riverside, San Bernardino and Ventura counties last month, marking a rise of 1.5 percent from the prior month and a decline of 36.2 percent from a year earlier. The region’s home sales have been declining from year-earlier levels since October 2005, raising concerns that the downward trend could cause the broad California economy to suffer.

The sharp drop-off in growth in the first quarter of 2007, and the expected weak second and third quarters of less than 2% growth, caused the widely watched UCLA Anderson Forecast, a leading national economic forecaster, to conclude that although we may not actually be in a recession “it is certainly close.” The Anderson Forecast saw the slowed economy as lasting longer than previously expected. Weakness in the housing market and higher gasoline prices are starting to affect consumer spending. California, hit by a “double-whammy” from construction and mortgage finance, foreshadows a drag on the rest of the economy.

“Weakness in the real estate sector will finally spill over into the job market as the combination of job losses in construction and real estate finance pull overall payroll job growth in California to less than 1% for the next five quarters. Unemployment will rise to 5.5% and broad measures of real output (Gross State Product and Personal Income) will grow at a less-than-average rate of just-below 3%. The Forecast believes that weakness in the housing sector will finally spill into consumption spending, noting that retail sales stalled in April and that auto sales have been weak.

With housing and consumption both “down,” the strength of the national economy lies in the rest of the world. “The global economy is booming,” the report states “Indeed, it is the strength of the global economy that is powering the stock market to new highs (and) it is no accident that the Wall Street rally is being led by the giant global corporations who are benefiting most from the worldwide expansion.”

More indications the Californians aren’t exactly thrilled about the economy these days.  From the Los Angeles Business Journal:

Consumer confidence in California evaporated during the second quarter thanks to the one-two punch of a soft housing market and record high gas prices, according to a survey from Chapman University.  Chapman’s consumer sentiment index rating for the second quarter was 82.8, down 19 points from the first quarter, though slightly higher than the second quarter of 2006 when gas prices also were high and the housing slowdown had just begun statewide.  n index level below 100 reflects a higher percentage of pessimistic consumers in the survey as compared to those who are optimistic.  “Continued housing market woes coupled with higher gasoline and food prices are negatively impacting consumers’ assessment of current and future economic conditions,” said Esmael Adibi, director of the Anderson Center for Economic Research at Chapman and the author of the survey.

“Southland residents already pay among the highest grocery prices in the nation, and the forecast is for even higher costs. Federal statistics released Tuesday for April show that food prices in Southern California rose 5.7% from a year earlier. Prices are going up for much of what gets dumped into the grocery cart including cereals, bread, bacon, pork roasts, chicken, eggs, cookies, hot dogs, oranges, soda pop and dried beans. Nationally, food prices rose 3.9% in April compared with the same month in 2006, and the outlook is equally chilling wherever you shop. It is happening for many reasons: inflation, drought, freezing weather, even the rising cost of corn — highly sought after not only as ingredients for thousands of food products but also to make ethanol.”

“LendingTree has laid off 20 percent of its work force nationwide, with some of the cuts coming from its office in Irvine. The online lending and realty-services exchange, which has 2,200 employees, cites the slump in the mortgage industry. The layoffs occurred Friday. In addition to Irvine, the cuts also came from the company’s offices in Charlotte, N.C., and Jacksonville, Fla. ”The mortgage market has changed dramatically over the last quarter,” says company spokeswoman Rebecca Anderson. “This decision was a proactive move to adapt to the current market.”

“Spring may come and go without the usual annual home-buying rush, says the math of Steve Thomas at Re/Max Real Estate Services in Aliso Viejo. He calculates “market time” or a benchmark of how many months it theoretically takes to sell all the inventory in the local MLS for-sale listings at the current pace of pending deals being made. By this Thomas logic, it would take 8.33 months for buyers to gobble up all homes listed for sale at the current pace of deals vs. 7.75 months two weeks earlier and vs. 4.43 months a year ago. And Thomas notes: Believe it or not, the Spring market is almost over. This month we can anticipate more of the same, buyers sitting on the sidelines digesting and slowly moving past the fading spotlight of the subprime debacle. However, with the growing inventory, dropping sales, increased foreclosures (nothing compared to the Inland Empire and Central Valley), we can anticipate additional media attention which could continue to dampen demand.“

“FTB’s statistics on the statewide median income for all personal income tax returns show an increase of 2.7 percent in 2005, and 4.1 percent for joint returns. Four Bay Area counties again top California’s 2005 median income report. For the past 34 years, the counties of Contra Costa, Marin, San Mateo, and Santa Clara have consistently reported the highest median incomes. Median income is the point where one-half of the tax returns are above and one-half are below the midpoint of the range of income values. Median income represents the income reported by a typical California individual or couple. Taxpayers filed 14.8 million 2005 California income tax returns with the FTB, reporting slightly more than $1 trillion of adjusted gross income, minus specific tax deductions before Federal Schedule A itemized deductions. This is an increase of 4.2 percent over 2004 figures. Marin County still has the highest median income for joint returns, reporting $107,856 – an increase of 8 percent from 2004. San Mateo County ranked second with $89,672 (4.3 percent increase), Santa Clara County ranked third with $89,618 (4.6 percent increase), and Contra Costa County ranked fourth with $83,605 (3.5 percent increase). Los Angeles County taxpayers filed 25.6 percent of all 2005 income tax returns in California.”

“L.A.-area executives are bullish on their companies’ performance and the local economy, yet they still believe L.A. is not a good place to do business, according to an annual survey from KPMG LLP. Sixty-three percent of the 104 executives surveyed in early March said their companies plan to hire additional employees in the next 12 months, while 72 percent said they expect their companies’ financial performance will be better than last year. What’s more, despite the continuing real estate slowdown, 45 percent of the executives said they expect the L.A.-area economy to improve over the next 12 months, while another 29 percent said it would remain the same. That’s a much better outlook than for the national economy, which 77 percent said would be the same or worse off over the next 12 months. “Unlike the last housing bust in the early 1990s, interest rates haven’t gone up and people haven’t lost their jobs. Those factors override the housing sector concerns,” said Mark Hutchins, managing partner in KPMG’s downtown Los Angeles office. Yet despite the executives’ rosy outlook, 56 percent said that the L.A. marketplace is not an attractive location for businesses to relocate to. Comparatively high tax rates in Los Angeles and California are a major factor in this gloomy assessment, with 45 percent of the executives saying state and local taxes negatively impact their businesses. L.A.’s legendary traffic congestion also weighs on executives’ minds, with 43 percent saying it negatively impacts their businesses.”

AeA has released its 10th anniversary Cyberstates report detailing national and state trends in high-tech employment, wages, and other key economic factors:

California’s high-tech industry added 14,400 net jobs — a two percent increase — for a tech industry total of 919,300 in 2005, the most current state data available. This marks the first net increase in jobs since the tech bubble began to burst in 2000. Leading the way in job creation were the computer systems design and related services sector (+7,100 jobs) and the engineering services sector (+6,400 jobs).

The report found that California continues to lead the nation by most high-tech industry metrics. California’s tech workers had the highest average wage at $95,300, which is 109 percent above the state’s average private sector wage. This differential is also the highest in the nation. Venture capital investments increased 14 percent to $12.2 billion in 2006, accounting for 48 percent of all venture capital in the country.

“This job growth in California’s high-tech industry is a boon for the state and San Diego ” said Kevin Carroll, Executive Director AeA San Diego Council. “Tech is been one of the most critical — if not the most critical – - industry for promoting economic growth, innovation, and job creation in the state. Since the bursting of the tech bubble in 2001, the high-tech industry has continued to help grow the economy and spawn innovation, but not until the release of this latest data can we say definitively that we are back in the business of creating jobs for the Golden State. And these are high paying jobs with average wages that are more than twice as high as the state’s average private sector wage.” What the data does not show is it
is not just Silicon Valley but Southern California and San Diego which has also experienced job growth.

“

“The governor paid a visit to the Burbank set of ABC’s freshman series “Brothers & Sisters” on Monday and praised ABC Television Studio, executive producers Ken Olin, Jon Robin Baitz and Greg Berlanti, along with the show’s cast and crew, for their commitment to keep production in California, Broadcasting & Cable reports. Schwarzenegger said production companies have choices about where to film, and shooting in the state translates to the generation of more jobs and revenue for California’s economy. Since July 2006, 25 episodes of the drama have been filmed exclusively at the Disney studios in Burbank and on-location around Southern California.”

“The number of mortgage default notices sent to California homeowners last quarter rose to its highest in nearly 10 years as home prices stagnated and rates on adjustable loans pushed higher, a report released on Monday said. Mortgage lenders filed 46,760 notices of default from January through March, marking an increase of 23.1 percent from the previous quarter and 148 percent from the year-earlier period, according to a report by DataQuick Information Systems, a real estate information service. The first quarter’s default level was the highest for the most populous U.S. state since the second quarter of 1997. It came amid a sharp rise in defaults on mortgages held by subprime borrowers, or borrowers with blemished credit, across the United States… Most mortgages in California that went into default in the first quarter were originated between April 2005 and May 2006 and their median age was 15 months.”

“Borland Software Corp. said Monday it will relocate its corporate headquarters to Austin, Texas. Cupertino-based Borland said it will expand its existing Austin R&D center with finance, human resources, facilities, IT and sales operations functions. Tod Nielsen, the company’s president and CEO, chief financial officer Erik Prusch, and head of human resources Jonathan Schoonmaker will also relocate. ‘We are making this move to take advantage of an area that combines a strong talent pool with a cost-effective environment for Borland, so that we can continue to execute on our plan to profitability, while building our company for the future,’ Nielsen said.”