~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…

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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July 2020 housing data -- inventory hits a new low

Submitted by Rich Toscano on August 16, 2020 - 5:17pm
There just isn't much to buy out there.

Sales are strong, but nothing crazy, when you consider the rebound from the lockdown:

But inventory is the lowest it's been since the post-bubble bull market got started:

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May 2020 housing charts

Submitted by Rich Toscano on June 22, 2020 - 9:12pm

April 2020 housing charts

Submitted by Rich Toscano on May 20, 2020 - 8:38pm

March 2020 housing data

Submitted by Rich Toscano on April 20, 2020 - 8:55pm
Hello friends, sorry for the delay on this.

For the month of March, things looked pretty normal-ish, except for pendings, see right below. Which all kind of makes sense given the timing of the lockdown.

The April numbers will likely look a little weirder than March. In the meantime, user sdrealtor has been posting some updates from the trenches over on the previous data update; see the comments at the bottom. It sounds like the market is pretty resilient, from what he is seeing.

Graphs below and more to come when the April numbers are available...
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December 2019 housing graphs

Submitted by Rich Toscano on January 21, 2020 - 9:22pm
Well, here's how the stats looked for the year:

Quite a change from December 2019, notably with months of inventory down 36%. It's no coincidence this took place alongside a steep drop in interest rates. I think the behavior of the past 2 years -- the rapid  slowdown when rates rose, followed by a rebound when rates fell again -- makes it pretty clear that the housing market is very much beholden to continued low rates.

Here is what I believe to be the best indicator of short term market strength -- months of inventory (number of homes for sale divided by the number of pending sales in a given month).

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