Archive for August, 2006

Real estate bust accelerando?

Friday, August 4th, 2006

I noticed something interesting on the way to work this morning — a new handpainted sign reading, “Trapped in a 1% mortgage? Call 555-5555.”

For the second quarter of 2006, California mortgage defaults were up nearly 70% over 2005. The default rate doubled in San Diego and Riverside counties, as well as in Northern California excluding the Bay Area.

In previous regional real estate downturns, default rates typically don’t spike until well after prices peak. Hopeful homeowners hang on as long as they can, making payments and listing their properties for sale. As a result, normally, a real estate bust follows the slow timetable now playing out in Florida. But out here in California, lending practices from the past several years may serve to accelerate a downturn.

The big difference is teaser rate mortgages, in which a homebuyer pays only 1% for a couple of years, after which the rate resets to a variable based on short-term US rates. Because the Fed has raised rates so much, the reset can cause the homeowner’s mortgage payment to abruptly double (or more). Finance types have speculated for some time that teaser-rate mortgages might accelerate defaults in a downturn. Now it appears actually to be happening.

Mahi Mahi off Newport Beach

Friday, August 4th, 2006

The ocean is so warm in southern California this year that mahi mahi, native to the waters off Hawaii, are being caught just a mile off Newport Beach. Deep sea fisherman have reported surface water of 83 degrees (warmer than Hawaii, and at least 10 degrees warmer than the local norm) several miles northwest of San Diego.

My normal kayak fishing routine has been disrupted, as the kelp forests south of Newport are vanishing in the heat. Instead, medium-sized semitropical schoolfish can be seen in 30 feet of water just off Crystal Cove State Beach.

This would be unusual, but not unheard of, if this were an “El Nino” year, in which ocean currents bring tropical water up here. But this is not an El Nino year. Instead, a much more unusual new weather pattern has taken hold. The local ocean is simply heating up, and not circulating. The coastal air is warm, still and, oddest of all, very humid. Totally unlike typical California weather.