San Diego Housing Market News and Analysis
~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:
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Submitted by Rich Toscano on June 2, 2009 - 6:32pm
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:
Submitted by Rich Toscano on May 25, 2009 - 11:07am
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.
Submitted by Rich Toscano on May 22, 2009 - 11:56am
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:
Submitted by Rich Toscano on May 15, 2009 - 1:45pm
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:
Submitted by Rich Toscano on May 13, 2009 - 6:08pm
3,673 San Diego mortgages went into default last month -- not quite the fastest pace on record, but close enough.
Submitted by Rich Toscano on May 8, 2009 - 5:27pm
As noted in the prior post, the size-adjusted median actually experienced a bit of a monthly bump for the first time in 2 years:
Submitted by Rich Toscano on May 5, 2009 - 9:12pm
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:
Submitted by Rich Toscano on May 1, 2009 - 9:37am
Back to the topic of local rents and their relationship to incomes, I found some historical data on San Diego's median household income at the Census Bureau website.
The median household income is better than per capita income, which I used in the prior article, because it is a median while per capita income is an average. A median is the middle value in an ordered set of data, and unlike an average it is not thrown off by extreme outlier values (per the "Bill Gates problem," in which Mr. Gates walks into a dive bar and the average net worth of all bar patrons skyrockets into the millions). So the median makes for a better indication of what the typical San Diegan household, and especially the typical San Diegan renter household, earns.
The Census site also had data on the median San Diego rent, which is also good. The downside is that the Census data only goes back to 2001 and is current through 2007. So we don't get the same long-term view as in last week's article, but it's worth taking a look at this alternate set of numbers.
With all that said, here is a chart of the median rent as a percentage of median household income for San Diego:
Submitted by Rich Toscano on April 29, 2009 - 10:31pm
...for to go with that last article. No explanation needed (well, none provided, anyway).
Submitted by Rich Toscano on April 28, 2009 - 6:37pm
In a somewhat gruesome milestone for the beleaguered San Diego housing market, the low-priced tier of the Case-Shiller home price index has now dropped by more than half since it peaked in June 2006.
Specifically, the low-priced index was 50.4 percent below its peak value as of February, the most recent release of the Case-Shiller index. The mid-priced tier had declined by 39.3 percent and the high-priced tier by 32.6 percent from their respective peaks. The aggregate index had fallen by 41.4 percent.
Submitted by Rich Toscano on April 25, 2009 - 3:49pm
I got a lot of pushback when I wrote last month that San Diego home prices were, on the whole, back in line with their historical relationships with local incomes and rents. One of the more frequent counterpoints was the claim that while home prices might be in line with rents, rents themselves had become unsustainably high.
How to analyze such a question? My first thought was to compare how much rents had changed in comparison to local incomes. An increase in rents that was way out of line with what San Diegans were earning would suggest the rent prices had indeed become distorted by the housing bubble.
But the data I have indicates that this is not the case. The accompanying graph charts average San Diego rent as a percent of income per person. The average percentage over the entire measurement period is illustrated by the orange line.
Submitted by Rich Toscano on April 21, 2009 - 4:58pm
It seems that enough people expressed interest in attending Thursday's economic forum that they had to move to a bigger venue over at the USD campus. So if you were planning on attending, please be sure to check out the updated location info.
Moving on, I wanted to highlight some really interesting analysis recently performed by realtor and fellow panelist Jim Klinge.
I have been writing for some time about the strange mixed signals being sent by housing inventory and foreclosure activity. Housing inventory is at a level that, superficially, would indicate a fairly healthy market. Yet homes are going into foreclosure at a very rapid pace, a fact that leads one to believe that a lot of must-sell inventory could eventually hit the market.
Submitted by Rich Toscano on April 17, 2009 - 11:31am
San Diego unemployment hit 9.3 percent in March. This is the highest level in the three-decade history of the unemployment data series.
The below chart shows unemployment trends now and during the prior two recessions. In addition to the magnitude of unemployment, the abruptness of the rise surpasses anything seen in the last two downturns.
Submitted by Rich Toscano on April 14, 2009 - 5:01pm
(Note: The KPBS These Days appearance is archived here for anyone interested).
The number of San Diego properties entering foreclosure hit an all-time high last month, as illustrated by the blue line in the following graph:
In the month of March, 4,260 homes received default notices, which are nastygrams informing delinquent borrowers that they are in foreclosure.
Submitted by Rich Toscano on April 11, 2009 - 11:47am
Kelly and Will over at voiceofsandiego.org broke the story yesterday on a huge condo scam involving overpaying for condos with loans made to straw buyers.
What's interesting is that this all happened in the midst of the bust in mid-2008, after lending had tightened up. The scammers even paid 20% down -- but the prices were inflated by so much (sometimes more than 100%) that the 20% down was easily recouped.
What's also interesting is that the straw buyers willingly lent their identities to this guy:
This is just an investigation by some journalists -- no law enforcement agencies were involved (yet, anyway). I wonder how much of this kind of stuff has been going on out there?
You can read the whole piece here.
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