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» gains of at least 21 percent, and San Jose, Orange County, Oakland, and L.A. seeing gains of at least 30 percent. Despite that robust growth, prices are still well below their all-time peaks, with L.A., Oakland, and San Diego home prices still more than 20 percent below their highs. Despite the discount in prices, affordability proved temporary for the Golden State, as the lack of income growth and rising mortgage rates has made home prices unaffordable once again at these levels. Only San Diego measures out as affordable and that is by a very slim margin. The lack of wage recovery during the economic recovery has been a persistent feature, owing to high unemployment, and every major California coastal metro saw median family income lower at the end of 2012 than in 2007 when it peaked. Even San Francisco and San Jose, the epicenters of the social media and tech boom that has occurred, have seen incomes fall 3.3 percent and 2.1 percent, respectively, from their 2007 peak. San Diego has seen incomes fall 7 percent, and L.A./Orange County has seen incomes fall 4.3 percent from their peak. In addition to a lack of wage growth, mortgage rates have risen significantly over the last several months. Conventional 30 year fixed mortgage rates hit a low of 3.49 percent at the end of 2012, and have been climbing since, measuring 4.59 percent most recently in October. The rise in rates by more than a full percentage point has been rapid and coupled with strict underwriting standards already in place, has made buying a home increasingly difficult for many. Though mortgage rates remain below their pre-recession level, it is not enough to offset the lost income from the recession. While it is possible for unaffordability to remain in place for some time, especially in destination markets such as San Francisco and L.A., we believe something will have to give to normalize the market. Last time we saw this phenomenon, it resulted in people fleeing the coast for more affordable inland markets, prompting development that eventually got ahead of itself. It's unlikely this will reoccur given how many people were just burned by it and the fleeting liquidity that exists in the housing market due to the preponderance of institutional buyers. However, the status quo is unsustainable for a long period of time. Currently, our up-to-the-minute auction data shows home prices easing in the state, and this should be reflected in home price data that comes out over the next several months. Traditional pricing metrics have a several-month-lag owing to the long closing and reporting times of traditional home sales. The easing in prices should help dissuade concerns about affordability temporarily. The healthiest resolution, though, would be for the economy to kick it up a gear, reducing the slack in the labor market and generating a rise in incomes. This would likely signal a shift into economic expansion and perhaps mean the whole episode is finally behind us. The other solution would be for mortgage rates to fall, but a significant downshift seems improbable. Interest rates are already low and the next Fed action, whether it comes sooner or later, is going to be a de facto tightening of policy, which should bring rates higher. As we mentioned, it is possible for markets to remain unaffordable for a period of time, but it is very hard to imagine significant, sustained home price appreciation in the California coastal markets until incomes begin to rise—something that has proved elusive throughout this economic cycle. Peter Muoio, Ph.D., is the chief economist for Auction.com Research and a regular lecturer at the New York University Real Estate Institute. LRES Brings PennyMac on as New Valuation Services Client Orange, California-based LRES, a national provider of commercial and residential valuations and asset management, announced it is now serving the retail lending division of PennyMac Financial Services. As part of its services for PennyMac, LRES is managing appraisals that comply with all USPAP requirements as well as all state and federal appraiser independence regulations for the company's customers. "We look forward to nurturing a longterm partnership with PennyMac and providing quality service and customizable valuation solutions for its customers," said LRES CEO Roger Beane. LRES' automated selection process assigns the most experienced local appraiser to each appraisal conducted for PennyMac in every market. LRES' staff then reviews the appraisal, ensuring it meets underwriter readiness and satisfies all regulatory and investor requirements, including those set by PennyMac and HUD. VISIT US ONLINE @ DSNEWS.COM "We developed our relationship with LRES because the company has a solid reputation throughout the industry for cost effectively managing its network of appraisers, which delivers quality appraisals quickly, with a strong focus on compliance," said Paul Atkinson, first VP of PennyMac. Capital Market Veteran Outlines New Method of Home Financing Perhaps you've known someone who raised money for a documentary or civic project by making an appeal through crowdfunding on the Internet. Now, the concept of pooled resources is being used as a mortgage investment vehicle offering equity in homeownership to investors and loan assistance to prospective homebuyers. One of the first companies to offer such a program is PRIMARQ in San Francisco, a capital market company that uses equity shares to enable a person to be the major equity owner in a property that otherwise would have been difficult or impossible for that person to obtain. In addition, investors are able to purchase partial equities in the property. The creative mind behind this movement is Steve Cinelli, founder and CEO of PRIMARQ. "I had an 'aha moment' one day when thinking about the housing finance base established 90 years ago by the Federal Home Loan Bank back in the 1930s," Cinelli told Five Star Radio's Mortgage Markets Today. "I realized that other asset classes have both equity capital available to the users as well as debt capital, and I wondered why there wasn't an equity capital market for housing. I also wondered why there isn't financing tied to the asset price movement, namely equity," he explained. Subsequently, PRIMARQ was created to bring equity capital into the mortgage and housing markets. Some may doubt the need for such a plan in the current marketplace with interest rates being so low, and they may doubt that prospective homeowners would choose to invest in equity rather than take on debt in such a low interest rate environment. But Cinelli explains that lenders have become more restrictive in terms of their underwriting, and come January 10, there will be increased standards that make credit availability even tighter. 135

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