Don't Bet on a Recovery for California's Housing Market

We're always surprised at the ability of the media classes in California to seize on any piece of halfway decent news regarding the housing market and extrapolate it into a trend, even if that means ignoring all the other news that would put it in context. As a case in point, we have yesterday's report on foreclosures from San Diego-based MDA DataQuick. According to the report, notices of default (the first step in the process of foreclosure) in the second quarter of 2011 dropped 17% from the first quarter, and over 19% from the second quarter of 2010. DataQuick's president, John Walsh, suggests that this points to a stabilizing of the housing market. "[I]t now appears likely that, barring some new economic shock, the worst of the price declines are behind us." For the LA Times, however, it's a sign that the state's housing crisis may be easing.

With all due respect to the Times, this news isn't particularly encouraging. After an ugly start to 2011, DataQuick reported that the market was still sliding downward as recently as May. And while California-specific data aren't yet available, the National Association of Realtors reported today that the soft market nationally continued through June. While the worst might be behind us, it doesn't suggest that anything is improving. With tighter standards on lending in place after the brutal early months of the crisis, in stands to reason that the rate of foreclosures should have slowed by now. But this data point, in isolation, shouldn't be seen as a sign that the market is recovering.