San Diego Housing Market News and Analysis
Shambling Towards Affordability: Housing Valuations Surpass Pre-Bubble Peak
Submitted by Rich Toscano on May 25, 2014 - 5:39pm
Let's do a quick check-in on San Diego housing valuations:
Valuations have risen a bit in 2014, but haven't changed substantially since I reviewed them earlier this year. Thus, the conclusions I made in that update -- about what this all means and so forth -- remain. I'm far too slothful to rehash them all here, so please so that prior installment if you missed it the first time around.
What's new this time is that current valuations -- how expensive San Diego homes are compared to local rents and incomes -- are 17% above the historical median, a level that surpasses the 1979 and 1990 peaks. That is to say, in the history of the data I have, San Diego housing is now more expensive than it has been at any time outside the late, great housing bubble. Fun!
In my view, unusually low mortgage rates are playing a major role in keeping valuations aloft despite a not-terribly-robust economic backdrop. Nothing's changed there: thus far in 2014, the small valuation increase has been entirely offset by a decline in rates. Monthly payments (as compared to rents and incomes) may have clawed their way out of the abyss to some degree, but they are still quite low compared to decades past:
So there's that going for housing, for as long as it lasts (which is a subject of considerable debate).
It's worth bearing in mind, though, that the valuation series shown in the first graph has been highly mean-reverting across a wide variety of interest rate climates. Rates come and go; in my view, the fundamentals such as rents and incomes are the more important factor in determining whether homes are over- or under-valued on a long-term basis. And right now, those fundamentals say that San Diego housing is the most overpriced it's been outside of the mid-2000s bubble.
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|* Rich Toscano is a registered representative of and offers securities and investment advisory services through Girard Securities, Inc., a registered Broker/Dealer, Registered Investment Advisor, and member FINRA/SIPC. Pacific Capital Associates is not a subsidiary or affiliate of Girard Securities. The views and opinions expressed on this site are not those of Pacific Capital Associates or Girard Securities, Inc. The information on this site should not be construed as investment advice.|