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Are cheaper mortgages bad news for California’s housing market?

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Are cheaper mortgages bad news for California’s housing market?


Falling mortgage rates should come with a warning label stating: “Be careful what you wish for!”

This summer’s cheaper home loans ignited real estate buzz suggesting California’s two-year homebuying slump may be nearing its end.

The Federal Reserve’s lengthy battle against inflation – fueled by higher interest rates – helped make California homebuying nearly impossible for most house hunters. But mid-2024’s moderating cost of living, plus overall economic lethargy, has already trimmed mortgage rates off 20-year highs. Come September, the Fed is expected to begin cutting its benchmark rates.

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Yes, lower rates mildly prune California’s huge affordability challenges. Some industry insiders even speculate these savings could create a rush to buy, forcing California prices even higher.

But the same cheaper mortgages that lead to a “buy now” narrative are often signals of economic trouble. Remember, interest rates typically fall when the business climate cools.

By the numbers

To contemplate the mix of rates and pricing, I filled my trusty spreadsheet with these stats dating to 1977: the average 30-year mortgage from Freddie Mac, California home price data from the Federal Housing Finance Agency, and what you may think is an odd number: the state’s unemployment rate from the Bureau of Labor Statistics.

Consider what we learn when slicing history into 12-month periods, simply based on whether mortgage rates got pricier or cheaper over the past 47 years.

When mortgage rates grew over a year’s time, California home prices averaged 10%-a-year gains.

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Then look at what happens when mortgage rates fell. California prices gained only 4.4% on average. Yes, less than half.

Now, let’s not blindly cheer rising rates. Think about a theoretical buyer’s house payment using math that combines these pricing patterns and rate swings.

When rates rise over a year, estimated California house payments jumped 21% on average. Pricier homes plus pricier loans is a painful bite to the wallet. But buyers seem willing to pay up.

Conversely, payments in times of falling rates dropped by 2.6% a year on average. So it’s the cheaper money that creates whatever meager affordability exists in California.

Now, these results may seem illogical as pictured through a traditional real estate lens. But take a broader view of the economy and ponder the cyclical health of California’s job market.

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When mortgage rates rose during the past half century, the statewide unemployment was falling by 0.7 percentage points per year on average. Basically, interest rates rise when times are good and bosses are hiring.

Unfortunately, when the economy gets too hot – such we saw in 2021 to 2023 – the bond market and/or the Fed may play Grinch, pushing up interest rates, and spoiling the economic party.

Contrast that pattern to how the economy performs when loan rates decline during the past half century: California joblessness was increasing by 0.3 percentage points. So fewer jobs, less demand for all sorts of goods and services – and a Fed more willing to help.

Bottom line

Don’t overthink housing’s sometimes myopic data. It’s really about real estate’s three pillars: “Jobs. Jobs. Jobs.”

In the past 47 years, when jobs are scarce and unemployment rises in a year, California home prices average 2% gains. When unemployment drops, prices rise 9%.

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Please note that California joblessness has been above 5% for 10 months, after reaching an all-time low of 3.8% in August 2022.

You see, successful house hunting requires not only a paycheck – but confidence that you’ll remain employed. And cheaper mortgages frequently come with a weaker business climate and depressed consumer confidence.

That can make California house hunters think twice about paying top dollar for housing. It’s a key reason why you see weaker pricing when rates are down.

Of course, every cycle is different. Maybe the odd post-pandemic real estate market will act unlike the statistical norms shown by this math.

Ponder history’s extremes. Prices jumped 29% with lower rates in the year ended in September 2004. But cheaper mortgages did not prevent a 23% drop in the 12 months ended September 2008.

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So summer 2024 might be a “buy now” moment with tumbling rates helping to push California home prices skyward. But the true catalyst would be an economy that nails an Olympic-quality soft landing with few job losses.

My spreadsheet also tells me that since 1977 when mortgages got cheaper in a year, California home prices rose 67% of the time. Not bad odds.

But when rates were rising, price gains came 85% of the time.

Postscript

The economic fallout of cheaper mortgages has modestly varied in the past half century, depending on the size of the rate drops. Ponder these California examples of one-year dips …

Rates down half-percentage-point or more: Home prices rose 3.6% in 12 months on average in these situations. Again, a weak economy, as California’s unemployment rate averaged a 0.9-point increase in a year.

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Off three-quarters-point or more: Prices up 2.5%. Unemployment up 1.1 points.

Off 1 point or more: Prices rise 4.2%. Unemployment up 0.6 points.

Jonathan Lansner is the business columnist for the Southern California News Group. He can be reached at jlansner@scng.com

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California

Why was Southern California’s earthquake impact so widespread? | The Answer

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Why was Southern California’s earthquake impact so widespread? | The Answer


Why was Southern California’s earthquake impact so widespread? | The Answer – CBS Sacramento

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Here’s why so many people in Southern California felt Tuesday’s earthquake centered near Bakersfield.

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More than 60 aftershocks rattle Southern California following 5.2-magnitude earthquake

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More than 60 aftershocks rattle Southern California following 5.2-magnitude earthquake


The United States Geological Survey (USGS) detected more than 60 aftershocks within 20 miles of the epicenter, less than 24 hours after a 5.2-magnitude earthquake centered near Bakersfield shook the region Tuesday night. 

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According to the U.S. Geological Survey, the most recent aftershock was a preliminary 3.2-magnitude quake that hit around 3:16 p.m. Wednesday about 18 miles northeast of Bakersfield. 

SUGGESTED: Prelim. 5.2-magnitude earthquake, followed by at least 22 aftershocks shake Southern California

The Grapevine recorded several aftershocks ranging from 2.7-magnitude to 3.3-magnitude between 8 a.m. and 2 p.m. Wednesday, according to the USGS. 

This comes after the preliminary 5.2-magnitude earthquake, followed by at least 22 aftershocks.  According to the USGS, the 5.2 magnitude temblor stuck at 9:09 p.m. and was centered near Mettler, an unincorporated area in Kern County about 85 miles north of downtown Los Angeles.

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Just seconds after the first quake, two aftershocks were reported in Lamont and four additional aftershocks struck in the Grapevine area. The aftershocks were reported between 9:10 p.m. and 9:46 p.m. with preliminary magnitudes ranging from 2.5 to 4.5.

There were no immediate reports of damage or injuries. 

Aftershocks are described by the USGS as smaller earthquakes that happen in the same general area during the days following a larger “mainshock” – in this case, Tuesday night’s 5.2-magnitude quake. 

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“They occur within 1-2 fault lengths away and during the period of time before the background seismicity level has resumed. As a general rule, aftershocks represent minor readjustments along the portion of a fault that slipped at the time of the mainshock. The frequency of these aftershocks decreases with time,” the USGS said on its website. 

While most aftershocks are smaller than the mainshock, they can still be damaging or deadly. 

The Associated Press contributed to this report.

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Forest Service orders Arrowhead bottled water company to shut down California pipeline

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Forest Service orders Arrowhead bottled water company to shut down California pipeline


In a decision that could end a years-long battle over commercial extraction of water from public lands, the U.S. Forest Service has ordered the company that sells Arrowhead bottled water to shut down its pipeline that collects water from springs in the San Bernardino Mountains.

The Forest Service notified BlueTriton Brands in a letter last month, saying its application for a new permit has been denied.

District Ranger Michael Nobles wrote in the July 26 letter that the company “must cease operations” in the San Bernardino National Forest and submit a plan for removing all its pipes and equipment from federal land.

The company has challenged the denial in court.

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Environmental activists praised the decision.

“It’s a huge victory after 10 years,” said Amanda Frye, an activist who has campaigned against the taking of water from the forest. “I’m hoping that we can restore Strawberry Creek, have its springs flowing again, and get the habitat back.”

Read more: A bitter feud centers on source of Arrowhead bottled water

She and other opponents say BlueTriton’s operation has dramatically reduced creek flow and is causing significant environmental harm.

The Forest Service announced the decision one month after a local environmental group, Save Our Forest Assn., filed a lawsuit arguing the agency was illegally allowing the company to continue operating under a permit that was past its expiration date.

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The company has denied that its use of water is harming the environment and has argued it should be allowed to continue piping water from the national forest.

BlueTriton Brands and its predecessors “have continuously operated under a series of special use permits for nearly a century,” the company said in an email.

“This denial has no legal merit, is unsupported by the facts, and negatively impacts the San Manuel Band of Mission Indians,” the company said, adding that the tribe uses a portion of the water that passes through the pipeline and relies on that water for firefighting needs.

Representatives of the tribe did not respond to a request for comment.

If the Forest Service decision stands, it would prevent the company from using the namesake source of its brand, Arrowhead 100% Mountain Spring Water.

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The springs in the mountains north of San Bernardino, which have been a source for bottled water for generations, are named after an arrowhead-shaped natural rock formation on the mountainside.

State officials have said that the first facilities to divert water in the Strawberry Creek watershed were built in 1929, and the system expanded over the years as additional boreholes were drilled into the mountainside.

Read more: Arrowhead bottled water company sues to continue piping from California forest

At the base of the mountain and near the company’s water pipeline stands the long-closed Arrowhead Springs hotel property, which the San Manuel tribe bought in 2016. The company has said that under a decades-old agreement, a portion of the water that flows through the 4.5-mile pipeline goes to the Arrowhead Springs property, and a portion of the water is delivered to a roadside tank and hauled on trucks to a bottling plant.

The Forest Service has been charging a permit fee of $2,500 per year. There has been no charge for the water.

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Controversy over the issue erupted when the Desert Sun reported in 2015 that the Forest Service was allowing Nestlé to siphon water using a permit that listed 1988 as the expiration date.

The Forest Service then began a review of the permit, and in 2018 granted a new permit for up to five years. The revelations about Nestlé piping water from the forest sparked an outpouring of opposition and prompted several complaints to California regulators questioning the company’s water rights claims, which led to a lengthy investigation by state water regulators.

BlueTriton Brands took over the bottled water business in 2021 when Nestlé’s North American bottled water division was purchased by private-equity firm One Rock Capital Partners and investment firm Metropoulos & Co. (Last month, BlueTriton and Primo Water Corp. announced plans to merge and form a new company.)

State officials determined last year that the company has been unlawfully diverting much of the water without valid water rights — agreeing with Frye and others, who had questioned the company’s claims and presented historical documents. The State Water Resources Control Board voted to order the company to halt its “unauthorized diversions” of water. But BlueTriton Brands sued to challenge that decision, arguing the process was rife with problems.

Read more: California environmental group sues U.S. Forest Service over Arrowhead bottled water operation

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In the July Forest Service letter, Nobles said the company was repeatedly asked to provide “additional information necessary to assure compliance with BlueTriton’s existing permit” but that the requests were “consistently left unanswered.”

Nobles said that under the regulations, he may consider whether the water used exceeds the “needs of forest resources.”

He also said that while the company had said in its application that the water would go for bottled water, its reports showed that 94% to 98% of the amount of water diverted monthly was delivered to the old hotel property for “undisclosed purposes,” and that “for months BlueTriton has indicated it has bottled none of the water taken,” while also significantly increasing the volumes extracted.

“This increase represents significantly more water than has ever been delivered previously,” Nobles wrote. “The hotel and conference facility on the property is not operating, and there is no explanation of where the millions of gallons of water per month are going.”

He said the decision is final and cannot be appealed.

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Nobles ordered the company to “stop use of the BlueTriton pipeline” within seven days “by severing or blocking the pipe at each tunnel or borehole” at a dozen sites; to remove the locks on its equipment; and to submit a plan within three months for removing all of its infrastructure.

Forest Service officials did not respond to an email requesting comments about the decision.

BlueTriton’s spokesperson said the Forest Service has agreed to a “temporary 30-day stay for the sole purpose of supplying the needs of the San Manuel Band of Mission Indians, including for fire prevention.”

“We will continue to operate in compliance with all state and federal laws while we explore legal and regulatory options,” the spokesperson said.

The company argues in the lawsuit that the Forest Service has violated federal law with a decision that is “arbitrary and capricious.”

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BlueTriton said studies by its scientific consultants have found that the taking of water “has not negatively affected the Strawberry Canyon environment.”

Records show about 319 acre-feet, or 104 million gallons, flowed through the company’s pipes in 2023.

In the rugged canyon downhill from the springs, Strawberry Creek has continued flowing in recent years. But when Frye has hiked along the creek, she has found that its western fork, located downhill from the boreholes, is just a trickle, forming a series of puddles among the bushes and trees.

“Our goal was to get that water back in the creek and protect the forest,” Frye said. “The proof will be when the pipes and all that infrastructure is taken out and it’s restored. But I think we’re nearing the end.”

This story originally appeared in Los Angeles Times.

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