San Diego Housing Market News and Analysis
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).
The recent price increase is substantial. But it's not as big as the linear graph made it look. Going forward I'll be doing both linear and log charts for the long-term price graphs. Here's a log graph for Case-Shiller:
Another way of comparing to the 2013 boom is by looking at the year-over-year price increase:
In nominal terms, we are at just about the same annual increase as the peak (in terms of annual increase) of the 2013 boom. However, in inflation-adjusted terms, we are still below the 2013 rate of change.
The concern now is that the recent price surge began at a much higher valuation level than the 2013 one. More on valuations in the next post.
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