San Diego Housing Market News and Analysis

Home prices pulled back in January, despite increasingly tight inventory and robust sales.  Supply and demand will be discussed later; first, some graphs on prices. 

The median price per square foot fell on a month-to-month basis by .9% for detached homes, 6.4% for condos, and 2.3% in aggregate.  The graph below shows that such huge moves occur somewhat routinely for condos, so as always, it makes more sense to pay attention to the detached home line in blue.

The median price per square foot rose again last month.  Here are the stats...

Month to month:

• 1.9% for detached homes
• 1.4% for attached homes
  
• 1.8% in aggregate

For the Year 2012:

• 12.6% for detached homes
• 18.0% for attached homes
  
• 14.0% in aggregate

Here's a look at this price measure since the March 2009 trough:

Alright, let's take a look at the resale data for November...

Our old friend the median condo price per square foot continued its volatile ways, up 7.4% for the month!  Though that's after getting spanked the prior month.  That would be the volatility, which is why I prefer the much more reliable detached home median price per square foot, which was actually flat for the month.

Here's a look since the March 2009 trough.  Note that both series are now very close to their prior post-crash highs during the 2010 stimulus-fest.

Prices flattened out or maybe declined last month, depending on how you want to look at it... while the much less volatile detached home median price per square foot actually rose by .3%, the condo median ppsf declined by 3.3%, leading to an aggregate decline of .5%.

After taking a breather in July, the median price per square foot rose again in August:

After a pretty steady rise for the year to this point, home prices (as measured by the median price per square foot) largely flattened out in July:

It was more of the same last month, as months of inventory remained very low:

Apologies for the tardiness of this month's rodeo.

I'll start with the chart I've been watching most closely -- months of inventory (inverted) in blue, and annualized monthly price change in red:


Months of inventory is now at the lowest level in many years, and as foreshadowed by the above graph, prices have been on the rise.

Inventory has remained super tight, and as the historical relationship depicted in the following chart would have predicted, prices have been on the rise:

Due to time constraints I am going to do a graph-only version of the rodeo this month.  Except for this part, I guess. 

I will quickly note the following:

1. The median price per square foot did rise last month, as the low months-of-inventory figure suggested might happen
   
2. Months of inventory (final graph) is 30% lower than last year, and the lowest it's been in at least 6 years (as far back as my data goes for this series)
3. If the typical historical relationship between months of inventory and prices is still in place, inventory at these levels strongly suggests near term price rises
4. Housing bears please note the use of the phrase "near term" before flaming me in the comments
   

The median price per square foot was mixed last month, with single family homes up 2.0% but condos walloped for 4.3%.  In aggregate, prices by this measure were mildly up simply because a lot more single family homes than condos sell each month.  In any case, the single family series tends to be smoother and a more reliable indicator of what's really going on, so I'd say February was a mild win (or at least a tie) for prices:

The median price per square foot of sold San Diego homes dropped once again in January:

I have bought a house in San Diego.  I'm also going to start putting up guest posts by Ted McGinley.

This (the house buying part) shouldn't be a huge shock for people who've been reading the site of late, because I've talked a lot about how it makes sense to buy in certain situations.  That said, I will briefly outline my thought process here.

After the recent leg down in interest rates, monthly payments are the lowest compared to incomes and rents than they've been in the history of the data, and are quite dramatically below their median historical levels:

The year ended on a small up note, as the median price per square foot of resale San Diego homes was up .5%for single family homes, down .2% for condos, and up .3% in aggregate:

Below you will find updated charts showing how San Diego home prices (and, further on down, monthly payments) stack up against local incomes and rents.

Longtime readers know that I consider the price ratios to be absolutely fundamental to determining whether housing is fairly valued.  It makes intuitive sense that home prices would tend to track incomes and rents: incomes, because they determine how much money people have available to pay for housing; and rents, because rent prices reflect how much San Diegans are willing and able to pay to put roofs over their heads when there is no speculative or investment element involved.  The historical record bears out this intuitive logic, as San Diego's home price-to-income and price-to-rent ratios have tended to be strongly mean-reverting over time.

Of course, there are other factors to take into account, such as employment trends, rates, and divergences between the various sub-markets that make up the aggregate numbers.  But these ratios represent a good starting point in determining where the market stands from a valuation standpoint.

The first chart shows the ratio of the typical San Diego single family home to San Diego per capita income.  (Median household income would be better but there's less data available -- however, having charted the data that is available, there is actually very little difference in the ratios whether they are based on household or per capita incomes).  The price to income ratio is in blue, with historical mortgage rates charted in gray to provide context, and the historical median price to income ratio (what we might somewhat simplistically designate as "fair value") in red.