San Diego Housing Market News and Analysis

Note: I did some housekeeping on the graphs, getting rid of many that I thought didn't add that much value. For example, condo data was volatile without adding much info (so I mostly focus on single family homes now), and contingent inventory hasn't been a factor for many years. Also, for the long-term price graphs I wanted a log scale graph, and user spdrun told me a trick for getting those to look good (thank you spdrun!). However, the downside is that the Y axis units on the log scale graph are pretty meaningless. So, for both the long term price graphs (pr/sq foot and Case Shiller), I include both a linear and log scale version.

OK, onto the data. Looking at these graphs, my feeling is that the frenzy has probably peaked. It's still a frenzy! But months of inventory has finally stopped declining and even rose a bit. (Edit: to be clear, I am not suggesting that prices have peaked, just that the imbalance between supply and demand may have started to diminish).


Zooming out, supply and demand might be moving back towards balance, but it has a long way to go:

I'm still trying to put together a post with some big picture thoughts on the SD housing market. The market's confusing in several ways, and my thoughts are more jumbled than usual.

While I flail away at that, here are some updated valuation charts:

Here's that rather alarming price chart from the prior post. The rampup this year looks absolutely huge!


The price increase has been quite large, but the graph exaggerates this effect. This is because the Y axis is on a linear scale... when you are looking at a long-term compounding series like home prices, a linear scale will have the effect of making the later moves look bigger and the earlier moves (off of lower levels) look smaller. Here's a simple example: a 10% increase on 50 is 5, while a 10% increase on 500 is 50. On a linear scale, the 50 will look a lot bigger than the 5. But they are both just a 10% increase.

This can be addressed by using a log scale, in which the numbers on the Y axis increase exponentially. This will make a 10% increase always look the same, regardless of whether this entails an increase from 50 to 55 or from 500 to 550.

Here are San Diego detached prices (pr/sqft) on log scale. Unfortunately Excel kind of sucks at making nice looking log axes (or maybe I suck) but it gets the idea across:


This puts the recent move in better perspective. For instance -- in the first chart, the recent move looks significantly bigger than the 2011-13 move. In fact, the current move is actually smaller than 2011-13 (in percent terms, but that's what we really care about).

I'm just going to start with this:


OK, the price per square foot is a somewhat noisy figure. You can't make too much of just one month. With that said... holy mackerel. The single family price/sq ft was up 9% in a single month.

The blue line below shows the much-less-noisy Case-Shiller index. The red is my estimate of the past two months, which is based on the ppsf and thus re-introduces some noise, but here it is for what it's worth:


The story here is much less of demand than of supply. Demand is strong, but nothing out of the ordinary:


Now here's supply... half what it was a year ago, and 1/3 what it was in 2019:

February was another blistering month for prices... even ignoring the nutty condo numbers (they are very volatile), the single family home price/sq ft popped almost 3%:


The latter, by the way, is now 19% up from a year ago. The pandemic has put upward pressure on prices in 3 ways - increased demand, decreased supply, and lower rates. As the economy opens up, all three of these things should recede to some extent. It's already happening on rates -- the 10 year Treasury yield is now pretty much back to pre-pandemic levels. Mortgage rates have followed partway; if they also return to pre-pandemic levels, that is a serious hit to affordability atop the 19% price increase.

So it will be intersting to watch how the increase in rates effects things, should it persist. Meanwhile the market is red hot. Active inventory is the lowest since I've started tracking it:

The "valuation index" shown below compares San Diego home prices to San Diego rents and per capita income. As of the beginning of 2020, valuations had gone nowhere for 4 years. Then the pandemic hit, and valuations popped 10% in a year. San Diego home prices (as compared to rents and incomes) are easily the highest they've been outside the bubble.


The next chart is similar to the first chart in that it compares to local rents and incomes, but instead of measuring purchase prices, it measures monthly payments (thus including the effect of mortgage rates). This paints a very different picture than the first chart: the rise in monthly payments has been more than offset by the decline in rates! Monthly payment "valuation" is actually lower than it was in early 2020, and was only lower at the depths of the post-bubble housing crash.


Here's a look at how home prices compare to incomes and rents separately.