~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…

Media Appearance

Submitted by Rich Toscano on July 27, 2006 - 1:28pm

I just got back from a taping of KSWB's "Take 5," where I discussed the real estate market with Will Carless (voiceofsandiego.org) and Charles Jolly (SD Association of Realtors).

As far as I can tell, the appearance went just ok. I was kind of nervous, being entirely new to the TV thing, and I only realized about halfway through that you have to be pretty aggressive about getting a word in (something that is very much not in my nature). So I did sort of a middling job of defending the bear case. The unabashedly bullish case made by Jolly was light on factual backing, to put it charitably, but he certainly had more poise delivering his message than I did mine.

Anyway, it's going to air on Sunday at 10:30 PM, if any San Diegans are interested.

Update: I've now watched the segment. I didn't look as nervous as I felt, and although I was remiss in rebutting some of the SDAR guy's points, many of them were weak enough to effectively rebutt themselves. So all in all it came out better than I expected, for what that's all worth.

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The Bulls Strike Back

Submitted by Rich Toscano on July 23, 2006 - 10:19pm

"Hold off on that panic attack," suggests a piece in today's LA Times. The implication of the article's title and opening-paragraph reference to Chicken Little suggests that those who expect a housing price decline are simply being emotional.

The article proceeds to trot out the usual suspects for this week's round of "permanently high plateau"-style nonsense. There is a new tack, however. While acknowledging the signs of trouble in San Diego, the article attempts to distance Los Angeles and the rest of Southern California from our fine city:

"...median home price there [San Diego] fell 1% and the number of sales dropped 24% from the same month a year ago — a tumble experts attribute largely to conditions peculiar to that area, most pointedly the overbuilding of downtown condominiums."

"Peculiar?" What seems peculiar to me is the idea that overbuilding of downtown condos could somehow be responsible for a decline in overall sales volume. Aside from the absurd idea that increased supply would cause a decrease in demand, the fact is that downtown is far too small to have any measurable effect on countywide stats. (To put this argument in perspective: ziprealty.com shows 759 homes listed downtown versus over 20,000 listings countywide).

Have a look at some graphs I put together late in 2005:

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Questionable Career Moves

Submitted by Rich Toscano on July 21, 2006 - 1:05pm

As suspected, there has been a fairly serious media response to the first year-over-year decline in median prices.

We've known for a while that home prices were on the decline, thanks to the Shiller index and to numerous examples of specific properties selling for less than their prior purchase prices. But I guess that there's nothing like having it all wrapped up in a single stat like that (despite the previously noted issues with using the median to gauge actual pricing power).

Despite the recent spate of concerned commentary, including some backpeddling by no less than the chief economist of CAR, there are still plenty of optimists out there. As my man Calculated Risk has helpfully charted, California real estate salesperson licenses are up 14% over last twelve months. Brokers licenses are up 8%.

So not only are there still plenty of buyers, there are actually still plenty of people who are bullish enough on real estate to actually be entering the field.

That's optimism. And it underscores my point that, despite a recent directional shift in pricing momentum, we are just at the very beginning of the housing bubble aftermath. This correction will probably not be over until sentiment is almost universally pessimistic on housing. As the continued rush into the real estate industry clearly demonstrates, that day is still far in the future.

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Piggington Makes the News

Submitted by Rich Toscano on July 17, 2006 - 9:15am

I was interviewed in an LA Times article running today: For San Diego Real Estate, the Skies Are Not So Sunny. (I'm on page two.)

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That's More Like It

Submitted by Rich Toscano on July 13, 2006 - 9:37pm

Since I mentioned yesterday that I was surprised at the sanguine tone of the UT article on the median price drop, I must in fairness mention that (as suspected) they came out with an expanded and more gloomily-titled piece today.

While I'm here, I can't help but comment on a couple of sections from the article. This:

San Diego real estate agent Calvin Goad, who represents the Fleischmanns, says the region is experiencing a normal cycle of decline following a boom. “The prices are coming down right now, but it is a good time for the buyer to jump into the market,” he said. “San Diego historically does take a small drop in price, but then the market levels.”

...is simply outrageous. The "normal cycle of decline" is pictured here:

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The U-T Makes It Official: Prices Are Falling

Submitted by Rich Toscano on July 12, 2006 - 1:30pm

The Union-Tribune reports that, as predicted here last week, year-over-year medians have gone negative. As of June 2006, the median price of a San Diego home was down 1% from a year prior. The median was down 6% since its peak last November, representing a loss of $30,000 on the median priced home.

Get ready for all the pundits to claim victory on their "soft landing" forecasts. Prices are down 1%, and that's a soft landing—get it? Of course, this interpretation requires you to pretend that prices have fallen as much as they are going to, despite the lack of any evidence to that effect.

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Year-Over-Year Medians Have Gone Negative

Submitted by Rich Toscano on July 7, 2006 - 11:46am

I'm on vacation with Mrs. Piggington so I'm going to make this quick. MLS data shows that for the first time, median prices for both condos and single family homes have gone negative year-over-year.

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Ruh-Roh, Raggy!

Submitted by Rich Toscano on July 4, 2006 - 3:41pm

...is how Scooby-Doo might react upon reading about an impending rate hike by the Bank of Japan. Assuming, that is, that Scooby took an interest in global liquidity conditions instead of just constantly getting high.

Rampant E-Z mortgage lending during the first year-and-a-half of Fed tightening posed a seeming puzzle. But the answer to the puzzle lay outside our borders: in this age of globalized capital markets, tightness by one central bank could be offset by looseness of another. And they don't come any looser than that Bank of Japan. The BOJ's ultra-low rate policy made it easy for financiers to borrow in Japan, lend to US homebuyers, and pocket the interest rate differential. It also encouraged yield-starved Japanese to lend their own money in a similar manner.

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Still Panicking

Submitted by Rich Toscano on July 3, 2006 - 1:13pm

I'm breaking radio silence, finally, after having sequestered myself for a week and a half to cram for a securities licensing exam. (The exam manual suggested studying for 4-6 weeks vs. my 1.5 weeks, hence the cramming). Anyway, said exam was successfully passed yesterday, so I can close the door on that particularly onerous 10-day period of my life and get back to writing occasional content for this site.

I did check the forums from time to time during my absence, and now that I have a minute I wanted to revisit a really interesting article someone posted. The USA Today article, entitled "Buyers in more markets find housing out of reach," chronicles the plight of a San Diego postdoc who bought a home with 100% financing, whose PITI eats up 70% of her take home pay, and who has among other things taken to selling her fertile eggs in order to make the mortgage payments.

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Soros: "Gigantic Real Estate Bubble"

Submitted by Rich Toscano on June 24, 2006 - 6:30pm

I just came across this blurb from George Soros' latest book:

I believe we are currently in the midst of a gigantic real estate bubble. It was caused by the determination of the Federal Reserve Bank not to allow a stock market decline in 2001 to turn into a self-reinforcing rout. The federal funds rate was lowered to 1 percent. Mortgage institutions encouraged mortgage holders to refinance their mortgages and withdraw the excess equity. They lowered their lending standards and introduced new products such as adjustable rate mortgages (ARMs), “interest only” mortgages, and promotional “teaser rates.” All this encouraged speculation in residential housing units. House prices started to rise at double-digit rates. This served to reinforce speculation, and the rise in house prices made the owners feel rich; the result was a consumption boom that has sustained the economy in recent years. Again, the bubble can be attributed to a short-circuit between the value of assets and the act of valuation. This short-circuit is called the wealth effect.

Nothing qualitatively new nor surprising to readers of this site; it's just always nice to have one of the world's most successful financial market players land on our side of the debate.

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Rates No Longer an Excuse

Submitted by Rich Toscano on June 22, 2006 - 8:40pm

Low rates have been one of the mainstays of the bullish arsenal. But given that mortgage rates are where they were four years ago, then they shouldn't be a factor in explaining any price difference that has taken place during that time period.

So if we take rates out of the picture, we are left with population, housing stock, inflation, and incomes: all factors that would affect both rents and home prices. Which is to say, if rates are the same now as they were four years ago, why should home prices have risen so much more than rents during that time?

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The Optimism Fades...

Submitted by Rich Toscano on June 13, 2006 - 2:52pm

As if on cue (given the housing market report's discussion of an imminent shift in sentiment), the Union-Tribune has released an article with the gloomy title "San Diego County home prices take a tumble."

I believe we'll be seeing a lot more headlines like this in the future...

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Housing Market Report: May 2006

Submitted by Rich Toscano on June 12, 2006 - 8:23pm

The party is officially over. This is no great surprise, and we've seen it coming for months. But what's different now is that there is no longer any question that the home price downturn has begun.

At the beginning of 2005, we were in a situation where prices had been flat since the summer, inventory had risen substantially, and sales volume was down. Things didn't look terribly promising for the market. But rates remained fairly low, and lenders tried to drive more volume by pushing non-traditional mortgage products that lowered initial monthly payments. The resulting bump in demand fed a little spring rally, and the spring of 2005 actually saw a bit of a rise in median home prices.

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Mortgage Resets + Harvard Hogwash

Submitted by Rich Toscano on June 11, 2006 - 12:51pm

Last week featured a couple of interesting housing articles in the local press.

At voiceofsandiego.org, Will Carless has dug up some really compelling info for an article on mortgage resets. Specifically, an estimated 50% of all San Diego mortgage debt has been borrowed at an adjustable rate that will reset by 2010. If rates don't stay nice and low over the next four years all these resets will make a bad situation worse. (This is another clue that the 2010-2011 timeframe might be a good time to start buying San Diego homes hand over fist).

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Credit Market Report: May 2006

Submitted by Rich Toscano on June 6, 2006 - 10:16am

(Click here for an audio version of this article).

The upward surge in mortgage rates has continued, and as of now both fixed and adjustable mortgage rates are sitting atop their multi-year highs:

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