San Diego Housing Market News and Analysis

With recent robust price increases has come a resurgence of talk about a bubble.  Whether a given investment is in a bubble or not may depend on many factors, but in my mind, the most important of these is valuations.  If valuations (properly measured) do not show the asset to be extremely overvalued, then you probably aren't dealing with a bubble.  This is not to say the asset can't go down in price -- not at all.  It's just to say that it's not a proper "bubble."

So what are valuations telling us about the state of the San Diego housing market right now?  Let's have a look at the two most important ratios that have guided us through this boom and bust: the home price to income ratio, and the home price to rent ratio.  These ratios compare home prices with two real-world fundamental underpinnings: how much potential home buyers earn, and how much it costs to rent (put another way, how much it costs to not buy).  Over time they have tended to "mean revert" around a middle of the road value which we can roughly say represents the fair value for San Diego housing.

Let's start with the price-to-income ratio:

April saw a continuation of what we saw in March: fairly strong demand, ridiculously constrained supply, and rising prices.

Starting with the latter, the median price per square foot for single family homes rose 2.6% last month.  That makes for a year-over-year increase of 19.5%!  The condo price/sqft was actually down for the month, but that doesn't mean much considering last month's moonshot.  I tend to ignore the condo series due to its volatility, but for what it's worth, the median condo price/sqft is up 26.9% since last year, and the detached/condo aggregate figure is up 21.3%.

Sorry if the title sounds hyperbolic, but... wow, it's true.  As of March, the market was blazing (to continue with the heat-related metaphors).

Let's start with this graph of the median price per square foot since the 2009 trough: