San Diego Housing Market News and Analysis

I've often discussed how the three industries that I refer to as the "housing bubble beneficiary sectors" took the brunt of the recessionary job losses.  In this post, I have updated some graphs showing the enormous degree to which this is the case.

The bubble beneficiary sectors, so named because they grew like weeds as a result of the housing boom, are: construction, finance (which includes real estate transactions), and retail (not directly related to housing like the other two, but a bubble beneficiary nonetheless as a result of vigorous home equity-financed consumer spending).  In the graphs below, I have grouped these three sectors together as the "Housing Bubble Sectors" and charted the change in their size alongside that of the non-bubble private sector industries and government.

I took these graphs all the way back to the beginning of 2007 because the bubble sectors started to deflate alongside the housing bubble even before the recession officially began in December of that year.  In order to avoid seasonality problems, I started and ended the graphs on the same month (January 2007 through January 2012).

This first graph shows the number of jobs lost in each of these three categories:


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According to the Employment Development Department latest estimates, seasonally-adjusted employment in San Diego is estimated to have dropped between December and January, and then to have rebounded somewhat February:


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The Case-Shiller index of San Diego home prices declined once again in January, falling by 1.6 percent for the high-priced tier, 1.0 percent for the mid-priced tier, and .2 percent for the low-priced tier.  (The tiers represent, respectively, the top, middle, and bottom one-third of homes sold by price).  The overall San Diego index fell by 1.1 percent.

As the following graph shows that the middle and high tiers are now below the post-bubble low points they hit in early 2009.  (I guess that means I should remove the word "2009 trough" from these graphs).


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The median price per square foot was mixed last month, with single family homes up 2.0% but condos walloped for 4.3%.  In aggregate, prices by this measure were mildly up simply because a lot more single family homes than condos sell each month.  In any case, the single family series tends to be smoother and a more reliable indicator of what's really going on, so I'd say February was a mild win (or at least a tie) for prices:

The Case-Shiller index of San Diego home prices declined across the board in December:


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The median price per square foot of sold San Diego homes dropped once again in January:

The latest Case-Shiller data, released last week, provided a not-very-clear picture of home price trends.

The overall index fell by .9 percent between October and November.  There was some serious divergence amongst price tiers, though: the high tier fell by a mild .4 percent, the middle tier was whacked for 1.7 percent, and the low tier was actually up by .4 percent.


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I have bought a house in San Diego.  I'm also going to start putting up guest posts by Ted McGinley.

This (the house buying part) shouldn't be a huge shock for people who've been reading the site of late, because I've talked a lot about how it makes sense to buy in certain situations.  That said, I will briefly outline my thought process here.

After the recent leg down in interest rates, monthly payments are the lowest compared to incomes and rents than they've been in the history of the data, and are quite dramatically below their median historical levels:

The year 2011 was a positive one for San Diego employment.  The number of local jobs rose in absolute terms...


...but the more important seasonally-adjusted data shows that employment rose even when accounting for holiday hiring....

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Scott Lewis of VoiceOfSanDiego.org just invited me to appear on the VOSD radio program this week. The show be recorded tomorrow but will air on AM 600 KOGO at the ungodly hour of 7:30AM this Saturday. Fortunately for people who don't want to think about housing and economics on an early weekend morning (most people, I can only assume), an archived version will eventually be uploaded here.

Jim Klinge has kindly invited me to join him on his new radio show this Monday, Jan 23 at 8PM PST.

The show will be live, so you can call in to ask questions. You can also ask a question or suggest a topic beforehand by posting here.

I'm not exactly sure how you tune in, but I expect that if you visit Jim's site shortly before 8PM on Monday, all will be made clear.

The year ended on a small up note, as the median price per square foot of resale San Diego homes was up .5%for single family homes, down .2% for condos, and up .3% in aggregate:

The October Case-Shiller data was released last week.  It showed a mild decline in home prices, with the low and middle tiers down .6 percent from the prior month, the high tier down .2 percent, and the overall index also down .6 percent.


However, the seasonally-adjusted indices, which aim to back out the effects of seasonal influences on prices, were more mixed...

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San Diego employment was up in November, per the Employment Development Department's latest estimates:


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Below you will find updated charts showing how San Diego home prices (and, further on down, monthly payments) stack up against local incomes and rents.

Longtime readers know that I consider the price ratios to be absolutely fundamental to determining whether housing is fairly valued.  It makes intuitive sense that home prices would tend to track incomes and rents: incomes, because they determine how much money people have available to pay for housing; and rents, because rent prices reflect how much San Diegans are willing and able to pay to put roofs over their heads when there is no speculative or investment element involved.  The historical record bears out this intuitive logic, as San Diego's home price-to-income and price-to-rent ratios have tended to be strongly mean-reverting over time.

Of course, there are other factors to take into account, such as employment trends, rates, and divergences between the various sub-markets that make up the aggregate numbers.  But these ratios represent a good starting point in determining where the market stands from a valuation standpoint.

The first chart shows the ratio of the typical San Diego single family home to San Diego per capita income.  (Median household income would be better but there's less data available -- however, having charted the data that is available, there is actually very little difference in the ratios whether they are based on household or per capita incomes).  The price to income ratio is in blue, with historical mortgage rates charted in gray to provide context, and the historical median price to income ratio (what we might somewhat simplistically designate as "fair value") in red.