San Diego Housing Market News and Analysis
April 2013 Data Rodeo: Rock-Bottom Inventory and Rising Prices, Again
Submitted by Rich Toscano on May 16, 2013 - 4:38pm
April saw a continuation of what we saw in March: fairly strong demand, ridiculously constrained supply, and rising prices.
Starting with the latter, the median price per square foot for single family homes rose 2.6% last month. That makes for a year-over-year increase of 19.5%! The condo price/sqft was actually down for the month, but that doesn't mean much considering last month's moonshot. I tend to ignore the condo series due to its volatility, but for what it's worth, the median condo price/sqft is up 26.9% since last year, and the detached/condo aggregate figure is up 21.3%.
Now, I strongly suspect that a portion of the recent price rise represents a shift in quality, as opposed to actual price increases. In other words, people are buying nicer stuff than they were -- that would be the quality shift part. The "actual" price increase part is that they are also willing to pay more for a home of a given quality than they were before. I don't really have any idea what the mix is, but I suspect that quality shift plays a role because:
Here are the same two graphs as above, starting from the housing bubble peak:
Moving on to supply and demand, sales were pretty solid -- the best April in many years, but not by a dramatic degree:
As has been the case for a while, the real "drama" has been in the lack of inventory. Inventory was pretty flat for the month, but sits at what is a very low level comparative to previous years:
If we take out the contingent inventory (mostly short sales with offers waiting for bank approval), inventory did nudge up a tiny bit, but is still exceedingly low:
Months of inventory declined slightly to hit a new post-bubble low:
This longer-term graph of months of inventory (unfortunately this is as far back as the data I have goes) shows just how extreme the decline has been:
As I've often discussed, months of inventory is highly correlated with short-term price movements. Over the course of data I have, 6 months of inventory has tended to mark the line between upward and downward pressure on prices. This can be seen in the chart below, which marks the 6-month level with a thick black line (the months of inventory figure is inverted in order to make the correlation more clear). Also clear from the chart is the strong relationship between prices and months of supply in general. The recent price increase was well predicted by the relentless decline in months of inventory:
(BTW, I've noted this before, but I want to mention again that the idea for this graph came from the extremely informative Calculated Risk blog).
As compared to the historically neutral level of 6 months of inventory, we currently stand at just 1.9 months. If the above relationship remains intact, that is obviously an auspicious sign for home prices in the near term (and a depressing one for potential buyers).
As for the long term, that will be dictated by things like the economy, rates, and of course valuations. On that last point, I intend to finally update my valuation ratio graphs soon (I really mean it this time). Stay tuned.
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