March 2025 housing data, and a look back at inventory vs. price changes

Here’s a fun new chart — months of inventory vs. monthly price change for San Diego houses:

There is a clear relationship here, and it suggests that prices tend to come under pressure starting at about 3.5 months of active inventory. 

There is some noise month to month, and it could be that this relationship will be different in the future than it has in the past. But this seems like a decent rule of thumb. (BTW those outliers at the lower left of the chart occurred during 2022, when the interest rate shock — combined with nosebleed valuations — caused prices to decline despite low inventory).

So where are we now? The good news is, we’re nowhere near that 3.5 months level:

The less-good news is, this number doesn’t look as robust when we consider that March is typically the inventory low-point for the year.  March inventory was well above the pre-pandemic average and even further above March 2024. A normal seasonal increase would push us near the price decline zone by year-end; a 2024-sized increase would push us past it.

To summarize inventory: looking ok for now, but unusually weak for this time of year, so let’s see what happens (oh and there are some economic shenanigans underway, maybe you’ve heard about them). 

One other graph I’ll emphasize here, since people don’t even believe me when it comes up in conversation. Real home prices are lower than they were 3 years ago:

Those are all the words for this installment; more graphs below.