San Diego Housing Market News and Analysis

Bubble chatter has been on the rise, especially with the recent new all-time high in in the SD median (nominal) home price. In my latest article for Voice of San Diego, I make the case that San Diego housing exhibits neither the valuation nor the behavioral characteristics of a bubble:

There’s Still No San Diego Housing Bubble Yet

The article includes a chart that will be new to Piggs, showing the speed of price increases now vs. during the late-stage bubble.

(Remember, digital charts are most compelling if you print them out on paper and hold them up to a video camera -- the lower resolution, the better).

After a pullback in March, prices surged again last month.  The price per square foot for single family homes increased by 3.2% in April, bringing the year-to-date increase in that metric to 6.5%.

Here's how those prices look on a chart (note: I mostly ignore condos as they are much more volatile):


The next chart uses the 3-month average of the single family ppsf, to approximate where the Case-Shiller index will go:

In last month's update, we saw an unusually large one-month jump in the price-per-square-foot metric, with single family homes up 4.5%. This month, prices by that measure pulled back by 1.4%, indicating that some of the increase was month-to-month noise. Still, when you combine the two months, it makes for a robust 3.0% increase in February and March together. By comparison, last year the single family ppsf rose by 1.7% over the same period.

This really brought me back:

http://www.macleans.ca/economy/realestat...

("Just jump in" was a thing a realtor actually said to me back in 05 or so).

It's a full on speculative mania (to resurrect a term I was fond of back in the day). Except this time, the exact same KIND of bubble burst horrifically just 10 years ago.

People just never learn... or, maybe more accurately: they never stop just believing whatever they feel like.

Just thought this would be a fun link for the old timers...

The median price per square foot surged in February:


This level of price increase is in some sense what should be expected given the pretty severe lack of inventory, but to see prices go up so much in a single month is unusual:

I went on the Voice of San Diego podcast to discuss my last couple of articles for them, including:

• Why it's important to compare prices to incomes and rents, rather than looking at them in isolation
• The duality of our market -- high prices but low monthly payments
• The (lack of) historical relationship between rates and prices
• Potenential changes to interest rates
• Whether it's a good time to buy a home in San Diego
  

If this sounds interesting, you can listen to it here... hope everyone has a nice weekend!

I just posted an article at Voice of San Diego which, along with its companion piece, will serve as background to these ongoing valuation updates. Here's what they discuss:

• A framework for measuring San Diego housing valutions (why compare home prices to local rents and incomes, and what the current elevated valuations might mean)
  
• How mortgage rates figure into everything (they haven't been as big a driver of home prices as most people believe)
  

I'll be referring back to these two articles when I update the valuation charts -- that way, I can spare regular readers (and myself) the rehashing of all the background info each time.

So for starters, check those out if you haven't.  The second article in particular might be of interest even to old-timers, as it's the most thorough piece (that I can remember anyway) I've written on the role of mortgage rates.

OK, with that background behind us, let's check in on the data as of year-end 2016. Here is the primary chart... San Diego home valuations:

I just put up a new piece at Voice of San Diego discussing the following:

• Despite high home valuations, San Diego monthly payments (as compared to local rents and incomes) are on the low side of history
• While it seems intuitive to believe that interest rates should be a big driver of home prices, this has historically not been the case. I posit several reasons why this might be.

Why High Home Prices Don’t Necessarily Mean High Home Payments

I'm working on some valuation stuff to be posted soon. Meanwhile, here's a selection of graphs on the January resale data.  Take note of that steep decline in months of inventory from this time last year... if that doesn't rectify itself, it's a sign of higher prices immediately ahead.

Here's the final score for the year 2016:


Looking at the single family number, which gives the best read, prices increased a couple % more than inflation, and roughly the same as wage and rent growth.  As one would expect in a given year, all things being equal. 

This time they're not equal in that valuations began the year at an elevated level.  However, as discussed in the afore-linked article, perhaps valuations can remain higher than usual while interest rates remain lower than usual.

Back to the monthly data, prices did pull back, but that's reasonable at this time of year:

Months of inventory crept up a bit, but still made for the lowest November in recent years:


The 3-month average of prices crept up as well:

I wrote a piece for voiceofsandiego.org, the intent of which was to introduce people to my preferred valuation approach (and to give a quick overview of where we are now). Probably not a whole lot new for longtime Piggs, but possibly of interest to newer readers.

Here's the synopsis:

A good approach to measuring the “expensiveness” of San Diego housing is to compare home prices with local rents and incomes, which together encompass the most important drivers of home prices. This shows homes to be unusually pricey right now, though nowhere near levels reached during the bubble.

And the link:

Minus the Bubble, San Diego Homes Are at Their Most Expensive Ever

Just a quick update on the September data.  Here's an overview:


Inventory remained very tight, with months of inventory easily at the lowest level in the past four years: