San Diego Housing Market News and Analysis

I am the first to admit that I don't know exactly how this whole shadow inventory thing is going to play out. But I am certain that it is a legitimate area of concern.

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This is all becoming a bit routine. I write about how little housing inventory is currently for sale in San Diego. Then I write about the apparent mountain of "shadow inventory" -- homes that have entered foreclosure, or may yet do so, but that are not yet on the market. And then I go on and on about the irony, market distortions, and general analytical weirdness that result from having so much shadow inventory looming alongside so little genuine inventory.

In my defense, sometimes I reverse the order in which I write about these things.

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Nothing too exciting happened in the latest release of the Case-Shiller San Diego home price index. Unless the lack of a noticable decline qualifies as exciting. Which I suppose it kind of does, given the context.

The aggregate price index for San Diego County declined a mere .1 percent between March and April, the latest month measured. The stabilization is no big surprise considering the strength in other price measures and the run on inventory currently underway.

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Frequent readers know I've spilled a lot of virtual ink on the concept of "shadow inventory" -- the fairly vast category of homes that are in foreclosure but not for sale. This overhang of potential but not-yet-actual inventory contrasts with the very low levels of inventory currently for sale.

The title of this post refers to a recent entry describing how current inventory is even lower than it seems. That prior article contained a graph showing that the amount of current inventory is unusually low compared to the number of sales, even before taking account of the reverse-shadow inventory effect.

But while sales are numerous in comparison to available inventory, homes in foreclosure are quite numerous in comparison to sales.

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Between May 2008 and May 2009, according to the latest estimates, the San Diego economy lost 52,200 jobs. This 4 percent year-over-year decline is the fastest we've yet experienced during the current downturn.

The below graph shows the rate of job loss for the overall San Diego economy in orange. As usual I've also included the three sectors -- construction, finance, and retail -- that I have long contended grew unsustainably large as a result of the housing bubble. The green line indicates changes in employment outside the three bubble sectors:

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Yes, it's a word. I think.

Another California anti-foreclosure measure went into effect this week. It's called the "California Foreclosure Prevention Act," and it puts a 90-day moratorium on certain qualifying foreclosures. The name "California 90-Day Procrastination on a Subset of Foreclosures Act" was apparently deemed too unwieldy.

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San Diego housing inventory dropped again last month, but supply may be even tighter than it appears. I'll talk about that more below, but first, let's have a look at the data.

The number of existing San Diego homes for sale last month was 32 percent lower than the same time last year, while the volume of sales was 19 percent higher. These two trends combined to make for the lowest supply of for-sale housing in years.

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Three weeks ago, according to quasi-government mortgage giant Freddie Mac, the average rate for 30-year fixed mortgages stood at 4.82 percent. This week, the average rate was 5.59 percent.

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San Diego has just experienced a second consecutive month of solid gains to the size-adjusted median home sale price. It would appear that the Spring Rally is more or less official.

Between April and May, the size-adjusted median price rose 3.3 percent for detached homes and 2.9 percent for condos. The accompanying graph chronicles the declines from the peak in this price measure.

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I'm back from my vacation and ready to clog up the Internets with some bandwidth-hogging images. Kelly put together a nice overview of the latest Case-Shiller home price data last Tuesday, so I will just put up some charts to add color.

Each price tier's decline from its respective peak:

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I will be out of town this week, so you all will be able to enjoy a few days without being assailed by charts and graphs. First, let's wrap up the series on San Diego rents.

A couple months back, I wrote a blog entry maintaining that San Diego home prices in aggregate had finally become "reasonable" in comparison to local incomes and rents. Several readers replied by arguing that while the ratio of home prices to rents might be back in the middle of its historical range, rents themselves had become unsustainably high as a result of bubble-era economic distortions and were likely to fall substantially.

Now underway is the fourth in a series of blog entries in which I've tried to determine whether or not San Diego rents became unmoored from their fundamental underpinnings as the housing bubble took place. The first installment compared rent levels with local per capita income; the second measured rents against median household income. Both comparisons indicated that rents were pretty well in line with incomes after all. The third entry compared San Diego's housing availability to its population and determined that, as of 2008 anyway, the rent to income ratio was quite reasonable considering the number of San Diegans vying for the region's supply of homes.

The purpose of this exercise is to determine whether the housing bubble somehow caused rents to become unsustainably expensive. If we find that 2008 rents were in line with their fundamentals, that doesn't mean that rent prices couldn't drop in the future due to a recession-induced deterioration of those fundamentals. But this is a different question from whether rents were overpriced to begin with.

That latter question is the one I've been trying to answer, and so far, the answer has been that as of last year, rents appeared reasonable in comparison to San Diego incomes. The last topic I want to look at is to what extent incomes themselves might have been distorted by the housing bubble.

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According to the California Employment Development Department's latest estimates, San Diego's year-over-year rate of job losses hit a new low last month. Between April 2008 and April 2009, according to the EDD, San Diego employment declined by 45,300 jobs or 3.7 percent. The orange line on the graph below shows that this is as steep a rate of decline as we've seen this downturn. Also included on the graph are the three sectors that most benefited from the erstwhile housing boom as well as the job market exclusive of those three sectors:

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Let's pick up where we left off in our effort to figure out whether San Diego rents are at fundamentally justifiable levels.

The first two articles on the topic (here and here) compared aggregate San Diego incomes and rents using a couple different approaches and data sources. The conclusion in both instances was that rents, while having occasionally been cheaper in the past, were pretty well in line with their historical relationship to incomes. (The usual disclaimers about the heavy-handedness of averaging together the entire county apply).

That the rent-to-income ratio is within a normal range is a good first step, but it is not conclusive. We also have to figure out whether it should be within a normal range -- or whether market conditions warrant a rent-to-income ratio that is substantially different from the norm. Candidates for two such conditions include changes in incomes and changes in the relationship between population and housing supply.

This article puts the supply of available housing in the crosshairs. That big old housing bubble spawned quite a boom in the homebuilding industry. If the supply of available San Diego homes were to grow substantially in excess of population, the oversupply could put downward pressure on rents and justify a lower-than-normal ratio of rents to incomes.

But the following chart of San Diegans per housing unit -- San Diego population divided by housing supply, per SANDAG's data-- indicates that this is not what's going on at all. As of 2008, in fact, the number of people per home hit its highest level in three decades:

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3,673 San Diego mortgages went into default last month -- not quite the fastest pace on record, but close enough.

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The Compleat Data Rodeo will be up shortly, but in the meantime, I've written a post at voiceofsandiego.org about the fact that the size-adjusted median actually increased last month for the first time since May 2007:

Read the whole thing here.