Home sales up in Bay Area while median price declines

Sales of Bay Area homes increased in August from the same month a year earlier but remained below average for the month. Prices continued to drop. The median home price fell in August from the same month a year earlier for the 11th consecutive month.

Sales of so-called distressed homes –- where the borrower is in default or the home is in foreclosure –- made up half of the market for previously owned homes, according to San Diego real estate firm DataQuick.

Sales were up 9.1% from the prior month and 12.2% from the same month a year prior. A total of 7,513 new and previously owned properties sold. The median, which is the point at which half the homes sold for more and half for less, declined 1.1% from the prior month and was down 3.9% from a year prior to hit $370,000.

“The sliver of positive news here is that, no matter how you look at it, last month’s sales beat the year-ago numbers, which were pretty lousy,” said John Walsh, DataQuick president. “Lower prices and mortgage rates lured some homebuyers off the sidelines last month, but too many others lacked the confidence to step into the game."

Sales of foreclosed homes made up 26.4% of the resale market while short sales -– where the bank allows a home to be sold for less than the debt on the property -– made up about 18.6% of the market.

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-- Alejandro Lazo

Twitter.com/AlejandroLazo

Photo: San Francisco. Credit: Getty Images

 

Consumer Confidential: New Citi bank fee, grocery strike closer

Here's your flash-in-the-pan Friday roundup of consumer news from around the Web:

-- Another new bank fee? You betcha. Our friends at Citigroup say they'll start charging a monthly fee of $10 on checking and savings accounts with combined balances of less than $1,500, joining a growing list of banks seeking to recoup revenue lost under new financial industry regulations. The fee will be waived if a customer completes one direct deposit and one online bill payment per month through an account, or maintains a balance of at least $1,500 in checking and savings accounts. The change takes effect in December. Under Citi's current fee structure, customers are not required to maintain minimum account balances but must complete five transactions a month through an account to avoid a monthly fee of $8. Citigroup says it will not charge for debit card use or online bill payment. At least not yet.

-- We're another step closer to a SoCal grocery strike. Grocery workers could go on strike as soon as Sunday night in response to inaction on healthcare benefits. Eight months into contract negotiations, Southern California grocery workers issued a 72-hour notice Thursday night to cancel a contract extension and pave the way for a strike. A strike isn't guaranteed for workers at Albertsons, Ralphs and Vons, but canceling the contract removes the final barrier to a strike. In separate statements Thursday, all three grocers said they were disappointed in the union's move and they will remain in active negotiations. Let's hope a last-minute deal can be reached.

-- David Lazarus

Photo: Citi has a new fee for account holders. Credit: Tomohiro Ohsumi / Bloomberg

 

Air France-KLM agrees to buy $12 billion worth of new jets

Air France-KLM, the largest European airline, has agreed to purchase 50 fuel-efficient long-range jets at a book value of $12 billion from the world’s two largest makers of commercial aircraft.

The airline will purchase 25 of Chicago-based Boeing Co.’s 787 Dreamliners and 25 Toulouse, France-based Airbus A-350s. In a press release, Air France-KLM said it had an option to buy up to 60 more.

Both planes have yet to enter service.

The first 787 is set to be delivered to Japanese carrier All Nippon Airways next week, and Airbus hopes to have the A-350 ready by mid-decade.

The planes are made of composite materials (carbon fibers meshed together with epoxy) instead of aluminum sheets, which the jet makers say will require less maintenance than the current generation of aircraft because it will involve fewer parts and sustain less corrosion.

Also, the planes’ newly developed engines promise to burn less fuel than jetliners of similar size, both of which seat between 200 and 350 people.

“These new aircraft will reduce fuel consumption by over 15% and will give rise to a significant reduction in noise and gas emissions,” Air France-KLM said in a statement.

Peter Hartman, president and chief executive KLM, added: “Their integration into the fleet will enable the group to continue to operate one of the youngest and most modern fleets in the world.”

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Television news, political talk to stream live on flights

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Defense contractors launch campaign to end military spending cuts

-- W.J. Hennigan

twitter.com/wjhenn

Photo: Air France Airbus A-319. Credit: Air France

Jury renders split decision in TCW-Jeffrey Gundlach case [Updated]

Jeffrey Gundlach was found liable Friday for breaching his fiduciary duty to his former employer, asset management giant TCW Group Inc., after it fired him in December 2009. But in what essentially can be viewed as a win for Gundlach, a Los Angeles jury found no malice in that breach and awarded TCW no financial compensation.  

Further, the  jury found that TCW owes $66.7 million to Gundlach and other co-defendants for failure to pay wages owed them before leaving the money-management firm to set up a rival company in 2009.

[Updated at 9:51 a.m.: After the jury was dismissed, a smiling Gundlach was asked how he felt about the decision. "Great," he said. "It's 67-to-zero," he added, referring to the wages owed to him and his co-defendants.]

On a separate issue, the jury of five women and seven men agreed with TCW’s claim that Gundlach had misappropriated the company’s trade secrets in setting up a rival firm in 2009, causing harm to TCW. Any damages on that claim will be decided by Judge Carl J. West.

The jury foreman read the decisions in a packed courtroom, with Gundlach and TCW’s top officers present. The six-week civil trial in Los Angeles County Superior Court had wrapped up on Tuesday afternoon. Jurors took just two days to decide on 37 separate issues on the verdict form.

TCW, which manages about $120 billion in assets for clients, fired Gundlach in December 2009 in a shakeup that rocked the mutual-fund world. One month later the company sued Gundlach, alleging that he and key aides conspired against the firm and stole TCW proprietary information to set up a rival fund-management business, DoubleLine Capital, almost overnight.

Gundlach, 51, then countersued and accused TCW of ousting him after 24 years at the firm to cheat him out of a huge chunk of promised income.

The two lawsuits were combined into one trial, which began in late July and has been closely watched on Wall Street.

The trial was an unusual airing of the financial industry's dirty laundry. Most such disputes are settled quietly to prevent potentially embarrassing or damaging information from becoming public. But in this one there was so much bad blood between the two sides that they were unable to reach an out-of-court deal.

TCW alleged that Gundlach, a bond-market genius who had managed more than 60% of TCW's total assets, was secretly planning all through 2009 to abandon the company. He allegedly wanted to take his entire bond team with him to another firm, or one that he created, and leave TCW in the lurch.

If he had succeeded, he "likely would have destroyed TCW," TCW attorney John Quinn said Tuesday in closing arguments. Instead, TCW said it used the element of surprise to strike first, firing Gundlach and acquiring another bond firm on the same day to take over the assets Gundlach had managed.

Gundlach denied that he wanted to leave TCW, and alleged that Chief Executive Marc Stern and the company's French parent, banking firm Societe Generale, were plotting in 2009 to oust him in a cost-saving move. Gundlach's attorneys pointed repeatedly during the trial to notes taken at a meeting of TCW executives in August 2009 referring to the idea of firing him.

Gundlach wanted nearly $500 million in damages from TCW, claiming that he would have earned that much through this year based on his contract with the company at the time of his ouster. As one of Wall Street's most acclaimed investors in mortgage bonds, Gundlach had attracted tens of billions of client dollars to TCW over the last two decades. He and TCW had shared management fees earned on the assets. TCW calculated that Gundlach’s compensation since 1991 had totaled $239 million.

During the trial, Gundlach estimated his personal net worth at about $90 million, some of which he has sunk into an extensive collection of modern art.

For much of the six weeks of testimony Gundlach found his personality on trial. TCW lawyers and witnesses described him as arrogant, disloyal and even a “disease” on the company. The jury was told that Gundlach encouraged his staff to refer to him as "the Pope" and "the Godfather."

Gundlach has acknowledged his large ego, but has said his investment results spoke for themselves.

His new company, DoubleLine Capital, has attracted $15 billion in assets in less than two years, despite TCW’s legal onslaught against him. The DoubleLine Total Return Bond fund, Gundlach’s flagship mutual fund, has risen 11.7% over the last 12 months, beating 99% of its peer funds, including the one he left behind at TCW.

Barron's magazine earlier this year crowned Gundlach "King of Bonds." During the trial he estimated his personal net worth at about $90 million, some of which he has sunk into an extensive collection of modern art.

Before the trial, Gundlach and his attorneys accused TCW of engineering a public smear campaign against him. When TCW filed suit against Gundlach in 2010, it included allegations that hard-core pornographic magazines and DVDs and drug paraphernalia were found in his TCW offices downtown and in Santa Monica.

Gundlach said at the time that TCW was resorting to "gutter tactics." Later, he said that whatever the company found in his offices were "vestiges of closed chapters of my life."

TCW wanted to have the jury hear about the alleged porn and drugs, but presiding Judge Carl J. West ruled in July that those accusations weren't relevant to the case, which he said was complex enough.

 RELATED:

TCW chief defends firing Gundlach

Gundlach blames rift on TCW broken promises

Greed at center of TCW Group vs. Jeffrey Gundlach trial

--Tom Petruno

Photo: Jeffrey Gundlach testifies at the trial. Credit: Reuters

California unemployment rate rises to 12.1% in August

California's unemployment rate ticked up a notch in August, to 12.1% from 12% the month before, according to new data from the  U.S. Bureau of Labor Statistics. Employers shed 8,400 jobs from payrolls.

The numbers were little surprise to economists, who had anticipated no growth after national data showed that employers added no jobs nationally in August, when the U.S. unemployment rate stayed steady at 9.1%.

"Businesses are very reluctant to hire people," said Sung Won Sohn, an economist at Cal State Channel Islands in Camarillo. "The last thing they want to do is hire people and then fire them again a few months later."

California has the second-highest unemployment rate in the nation, after Nevada, where 13.4% of the people in the labor force are out of work.

California  lost jobs in construction, financial activities and government. Sohn says that California's dependence on the real estate industry is going to continue to cause pain until home-building starts again. But with uncertainty throughout the economy, few businesses in any field seem willing to hire.

"Businesses are adopting a wait-and-see attitude," he said.

Jesse Medel just wants a job. The 37-year-old recently got out of prison, and says his chances of finding work are slim, since there are so many other people looking. It's much different than when he last looked for employment, five years ago.

"It's bad out there," he said. "I'm competing against kids with college degrees for entry-level jobs."

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-- Alana Semuels

Photo: A job fair for veterans in Culver City. Credit: Francine Orr/Los Angeles Times

The Role of Prices in Health Care Spending

Uwe E. Reinhardt is an economics professor at Princeton. He has some financial interests in the health care field.

The term “health care” evokes different images in people’s minds. To patients who find a miraculous cure, health care may be almost sacred. For physicians, nurses and other health care professionals it is a compassionate human activity. To hard-nosed economists, health care represents just another exchange of favors embedded in a wider market economy that consists of exchanging favors.

Today’s Economist

Perspectives from expert contributors.

The chart below illustrates this exchange. Some members of society surrender real resources — their time, amplified by their skill or the health care products they produce — to the process of patient care, which is meant to improve the patients’ quality of life. In return, society issues these providers of real health care resources generalized claims (money) on all the things included in gross domestic product.

Perspectives from expert contributors.

Thus, the health care sector of any country always has the dual goals of enhancing the quality of life of patients as well as enhancing the quality of life of the providers of health care, and, charity care aside, patients are at once objects of compassion and biological structures yielding cash.

We express the generalized claims given to the providers of real health care resources either in dollar terms per-capita or as a percentage of G.D.P. The chart below illustrates the fraction of G.D.P. ceded to the providers of health care in a number of different countries over the last three decades.

Although not all countries can be featured in such a chart, the fact is that no other country cedes quite the slice of its G.D.P. to the providers of health care as does the United States. Current projections are that health care will claim every fifth dollar (19.8 percent to be precise) of G.D.P. in the United States by 2020.

It follows from the first chart that the claim on G.D.P. that a nation cedes to its providers of real health care resources does not tell us what real resources patients receive in return, let alone what value these resources have to patients (see, for example, this report).

That is because the size of the claim on G.D.P. depends not only on the quantity of real resources surrendered to the process of health care, but also the price paid the providers per unit of real resource. In theory, it would be quite possible that in two otherwise identical countries exactly the same real resources are surrendered to health care and yet the slice of G.D.P. ceded to the providers of these resources in return could differ.

In this regard, a study by Miriam Laugesen and Sherry Glied, published last week in the health-policy journal Health Affairs warrants careful review. The authors assert:

Higher health care prices in the United States are a crucial reason that the nation’s health spending is so much higher than that of other countries. Our study compared physicians’ fees paid by public and private payers for primary care office visits and hip replacements in Australia, Canada, France, Germany, the United Kingdom and the United States. We also compared physicians’ incomes net of practice expenses, differences in financing the cost of medical education and the relative contribution of payments per physician and of physician supply in the countries’ national spending on physician services.

Public and private payers paid somewhat higher fees to United States primary care physicians for office visits (27 percent more for public, 70 percent more for private) and much higher fees to orthopedic physicians for hip replacements (70 percent more for public, 120 percent more for private) than public and private payers paid these physicians’ counterparts in other countries. U.S. primary care and orthopedic physicians also earned higher incomes ($186,582 and $442,450, respectively) than their foreign counterparts. We conclude that the higher fees, rather than factors such as higher practice costs, volume of services or tuition expenses, were the main drivers of higher U.S. spending, particularly in orthopedics.

Other studies point in the same direction. An early one, “U.S. Health Care Costs: The Untold Story,” by the health economist Mark Pauly, was also published in Health Affairs. Professor Pauly showed that a good many nations in Europe actually transferred more real human health-care resources to patients than did Americans – suggesting that the real-resource cost of European health care is higher than it is in the United States (or was, at the time of the study). But these other nations paid physicians and other health personnel less than do Americans.

Higher physician income, of course, cannot explain all or most of the total higher health spending in the United States, as payments for “physician- and clinical services” constitute only about 20 percent to total current health spending ($538 billion out of a total of $2.7 trillion in 2011) and close to half of those payments tend to go for practice expenses, including support staff, malpractice insurance and claims processing.

But prices of other, non-physician health-care services and products in the United States also seem to be higher than elsewhere, as is suggested by the annual surveys of health care prices conducted by the International Federation of Health Plans in their comparative price reports.

None of these cross-national studies are perfect, but together they do suggest that Americans pay more for individual health care services – not only physician services – than do residents of other countries, and that this must contribute to the higher level of health spending in the United States.

What one should make of this finding is another matter. Professor Laugesen and Ms. Glied refrain from going down that route. They merely present the facts as they see them.

Critics of this study will properly point out the enormous methodological hurdles one faces in making cross-national comparisons of this sort. But it is not a compelling argument to suggest that because a study of this sort cannot be done perfectly it should be ignored. My response to the critics: Try to do better!

Buy to let Britain booms amid mortgage famine – but can it last?

Average rents in London now exceed £1,000 a month – or £1,025 to be precise – for the first time, according to a survey of 18,000 flats by LSL Property Services.

Rents in the capital increased by 6.6pc last year – and by 4pc across England and Wales to a national average of £713 a month – as rising numbers of people find it impossible to buy. The house price crash that many wish for  has yet to materialise and house prices continue to rise in London. Meanwhile, credit crunched banks and building societies remain reluctant to lend.

According to the Council for Mortgage Lenders, only about 189,000 first time buyers secured loans last year, compared to an average of nearer 390,000 a year before the credit crisis.

No wonder Scottish Widows predicts that by the time tuition fee increases have added to graduate debts, the average age of first time buyers in Britain will rise to 44. It was 27 just a few decades ago.

Meanwhile, everybody has to live somewhere and it all adds up to good business for buy to let landlords. David Newnes, managing director of LSL said: “In the last two years, average rents have risen by more than £50 a month.

“With significant improvement in the number of buyers able to secure a mortgage unlikely in the foreseeable future, competition for rental accommodation will not drop and further rent rises remain on the cards. Recent graduates moving for their first jobs have further exaggerated the long-term and growing demand from frustrated buyers. ”

Rising numbers cannot even afford to rent a flat of their own. Jonathan Moore, director of Easyroommate.co.uk, said: “Lenders’ unrealistic deposit requirements, combined with hefty house prices have left the private rented sector groaning under the strain of demand from frustrated first-time buyers.

“Such strong competition for limited accommodation is taking its toll on rents, and they will continue to climb for as long as the mortgage market remains at a standstill. As rents rise, driving down affordability in the private rented sector, many renters are cutting costs by turning to flatshares.”

Others are simply failing to pay their rent. According to LSL, 10.7pc of all the rent due last month went unpaid – an increase in arrears of nearly a fifth over the last year. Even when demand consistently runs ahead of supply, there is only so much the market can bear before signs of strain start to show.