~Welcome to the Econo-Almanac~

I started this website in mid-2004 to chronicle San Diego’s spectacular housing bubble.  The purpose of the site remains, as ever, to provide objective and evidence-based analysis of the San Diego housing market. A quick guide to the site follows:

  • New visitors are advised to begin with the Bubble Primer or (if wondering about the site name) the FAQ list.
  • Housing articles I’ve written are found in the main section below.
  • Discussion topics posted by site users are found in the “Active Forum Topics” box to the lower right.
  • This website is an avocation; by day I help people with their investments as a financial advisor*.  Market commentary, an overview of our investment approach, and more can be found on my firm's website.

Thanks for stopping by…

What's going on with housing? Plus valuation update (née shambling towards affordability)

Submitted by Rich Toscano on October 15, 2021 - 4:02pm
Over at my day job, we wrote a long piece attempting to get our heads around what's going on with housing. Check that out and if you're still awake at the end, here are a few bonus graphs:

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September 2021 housing data - ditto

Submitted by Rich Toscano on October 7, 2021 - 4:47pm
I have virtually nothing to add to last month's description... the market spent another month digesting the price overshoot during the frenzy period, and inventory continues to be off the lows but still really low. Not much to see here...

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August 2021 housing data - more of the same

Submitted by Rich Toscano on September 16, 2021 - 2:54pm
August looked a lot like July: no more frenzy, but still a very undersupplied market.

I want to note one thing about this graph, which compares months of supply (blue line, inverted) with monthly price changes (red line). Earlier in the year, we saw a very tight market as measured by a high blue line -- but the red line, prices, rose in excess even to that! At the time I speculated that there might be eventually be some price pullback to make up for that overshoot. It seems that might be happening now, as we are in the opposite situation... supply is still quite tight, and prices are rising, but less than we'd expect at this level of supply. So if you put those two periods together, they make sense. Based on the length of the frenzy overshoot, we may be looking at a few more months of more muted price increases (at least as compared to what one might expect at these supply levels).

Other than that... yeah, more of the same... prices were flat-ish, inventory increased a bit, but so did pendings so months-of-inventory was basically unchanged. IE: no more feeding frenzy, but still a very tight market. Graphs below...

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July 2021 housing data -- the frenzy is over, but the market remains undersupplied

Submitted by Rich Toscano on August 7, 2021 - 5:05pm

Prices backed off a bit last month, sales declined, and inventory rose. It seems that the market has finally come off the boil somewhat. However, supply is still quite low compared to demand, as measured by months of inventory. So while the panic buying phase seems to be over, this is still a strong market. Charts below.

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June 2021 housing data

Submitted by Rich Toscano on July 11, 2021 - 9:57pm
Inventory continued its barely-perceptible rise, and prices increased further. It continues to look like the peak of the frenzy has passed, but inventory remains very scarce.

Crazy stat of the month: the single family price/square foot increased 32% from a year ago! Incredible.

Graphs below.

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May 2021 housing data - we may have achieved peak frenzy

Submitted by Rich Toscano on June 13, 2021 - 2:14pm

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:

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Valuation update

Submitted by Rich Toscano on May 26, 2021 - 3:38pm

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:

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Price changes in perspective (log style!)

Submitted by Rich Toscano on May 22, 2021 - 5:42pm
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).

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April 2021 housing data - now it's getting weird

Submitted by Rich Toscano on May 16, 2021 - 9:50pm

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:

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February 2021 housing data - fewer houses, higher prices

Submitted by Rich Toscano on March 8, 2021 - 6:37pm

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:

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Hastening away from affordability -- San Diego housing valuations, Jan 2021

Submitted by Rich Toscano on January 29, 2021 - 5:11pm

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.

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December housing graphs - quite a year for San Diego home prices!

Submitted by Rich Toscano on January 25, 2021 - 9:58pm

October 2020 housing data - still super-low inventory, still rising prices

Submitted by Rich Toscano on November 19, 2020 - 10:01pm
I wanted to begin by noting this article from the great Calculated Risk. It discusses the relationship between months-of-inventory and short-term price changes, and includes a scatter graph between the two. It was this idea from CR that inspired the San Diego version that's become central to the monthly updates here:

(To quickly explain this graph: the red line is the monthly change in the SD Case-Shiller index; the blue line is months of inventory, but inventory is inverted to make the relationship more clear).

This did a pretty good job of mapping the relationship between inventory and prices through the bust and initial recovery, but early in the teens the lines began to drift apart. Pigg reader gzz offered a theory: the arrival of online real estate portals (Redfin etc) sped up the inventory throughput cycle, changing the "equilibrium" amount of inventory in a balanced market. Previously, the equilibrium inventory (the level at which prices were stable) was about 6 months. More recently, it's been closer to 2 1/3 months.

With this adjustment for a faster moving real estate market, months of inventory has done a really good job of calibrating where we are on supply vs. demand (and thus, upward vs. downward price pressure).

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September 2020 housing data -- more of the same

Submitted by Rich Toscano on October 9, 2020 - 2:46pm
September pretty much looked like August -- sales steady, inventory even a bit lower, and prices popping in response to the low supply/high demand. Charts below...

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August 2020 Housing data -- prices react to inventory shortfall

Submitted by Rich Toscano on September 14, 2020 - 1:36pm
Last month, inventory dropped to the lowest it's been since the bubble. Prices have moved up in response.

Sales continue to be strong... nothing spectacular, but showing no weakness at all:

Meanwhile, available inventory has dropped off a cliff:

The result: super low months of inventory:

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