~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:

  • New visitors are advised to begin with the Bubble Primer or (if wondering about the site name) the FAQ list.
  • Housing articles I’ve written are found in the main section below.
  • Discussion topics posted by site users are found in the “Active Forum Topics” box to the lower right.
  • This website is an avocation; by day I help people with their investments as a financial advisor*.  Market commentary, an overview of our investment approach, and more can be found on my firm's website.

Thanks for stopping by…

The Dumb Money

Submitted by Rich Toscano on December 20, 2006 - 8:45pm

One argument I hear a lot is that foreign demand for local real estate has grown substantially in recent years, and that such foreign demand will be supportive of prices in the future.

Unfortunately, this argument puts the cart squarely in front of the horse. Investors from other countries are well known to be the very last participants to arrive at the scene of a financial bubble. They are the last to hear about all the riches to be made, the last to buy in, and the last to realize that the party is over.

read more at voiceofsandiego.org

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Subprime Stabilizes

Submitted by Rich Toscano on December 19, 2006 - 9:44am

Let's check back in with the denizens of EZ-Ville for a look at how things are going after the early-December shakeout.

For starters, I wish to address one poster's comment to assert that I feel completely justified in having called the decline in the ABX "disorderly." The falling-off-a-cliff section of the graph represents a 25% increase in the cost of insuring subprime mortgage backed securities (from 316 basis points to 395 basis points, per this Dow Jones piece among others) in precisely one week. That doesn't seem very orderly to me.

That said, subprime CDS index price managed to stabilize after the decline and have since begun to ratchet back upwards, as the red line indicates:

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Mortgage Rate Update

Submitted by Rich Toscano on December 17, 2006 - 4:16pm

The causes of the housing market's well-documented ills, whatever those causes may be, do not appear to include interest rates.

The average rate on a 30-year fixed mortgage has declined steadily since July and now rests near levels not seen since 2005. The average 1-year adjustable-rate mortgage (ARM) rate has likewise fallen, but still rests above its early 2006 levels.

read more at voiceofsandiego.org

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"Better Buy Now"

Submitted by Rich Toscano on December 16, 2006 - 12:37pm

I don't have a lot to add to this statement by Chuck Smiar, president of the North County Association of Realtors, as quoted in the North County Times:

"I think it's sort of a false drop, if there is such a thing in real estate," Smiar said, in referring to the single-family home sector. "If anyone is going to buy, they better buy now, because things are going to turn around. We're going to start seeing a slow increase in prices."

I just wanted to get it on record for future reference.

This article originally appeared at voiceofsandiego.org.

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The Case-Shiller Index

Submitted by Rich Toscano on December 14, 2006 - 9:06am

Last week's NY Times piece on home price metrics (login required) prompted some forum discussion on the accuracy of the Case-Shiller home price indices, which I use for all my long-term price charts. It ends up that I looked into their methodology a while back and have been meaning to write about it -- so now seems like as good a time as any!

To start with, let me quote from an old voiceofsandiego.org piece as a means of reviewing the problems with the median price:

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Site Performance

Submitted by Rich Toscano on December 13, 2006 - 10:13am

This website's speed and reliability have not been great in recent months, but they really went to hell over the past week.

As a result, I've spent the past couple of days learning far more than I ever wanted to know about optimizing the PHP/Apache/MySQL stack and tweaking the server configuration accordingly.

I also substantially increased the capacity of the server. This of course substantially increased cost. Whereas I used to easily serve this site off a standard $5/month shared hosting setup, I am now up to $75/month and counting. The housing bubble has certainly gone mainstream.

Anyway, I wanted to bring everyone into the loop on why the server has been acting squirrely of late, why my tweaking caused it to be extra-squirrely yesterday, and why I hope that performance should substantially improve going forward.

Now, if all goes well, I may actually start generating some content. Thanks for bearing with me...

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Trouble in EZ-ville

Submitted by Rich Toscano on December 12, 2006 - 9:28am

Last week, subprime lenders Sebring Capital Partners and the ironically named Ownit Mortgage Solutions abruptly bit the dust due to waning demand for subprime asset backed securities.

Just how much has demand declined? Maybe a lot. The ABX indices measure the price of credit swaps for various grades of recently-issued mortgage-backed securities. Last week, an orderly decline in the subprime ABX index turned disorderly, as indicated by the red line on this chart from the people who track the index:

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November Housing Data

Submitted by Rich Toscano on December 6, 2006 - 10:24am

There are no big surprises in the latest batch of housing stats, so I don't have a whole lot to say that the charts don't say themselves. Let's have a look.


My preferred measure of home price changes, the median price per square foot, was down on the month for both property types, with detached homes notably smacked down after the prior month's attempt at improvement:

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Historical Home Prices, Payments, Rents, and Rates

Submitted by Rich Toscano on December 1, 2006 - 2:09pm

OK, here is the whole series: home prices, monthly payments, rents, and rates, for as far back as the complete set of data goes.

The first chart displays the percent change in inflation-adjusted San Diego prices, payments, and rents since 1977. The second chart displays the same information in nominal terms. Mortgage rates are indicated on the right axis in both charts.

At this point I am clinging to a shred of hope at least a few minutes will elapse before someone asks for a followup chart.

I kid, I kid. OK, onto the good stuff:

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October Employment

Submitted by Rich Toscano on November 30, 2006 - 3:50pm

Employment is on the rise in San Diego, although the housing boom beneficiary sectors are starting to show a little wear and tear.

read more at voiceofsandiego.org

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Last Time to the 90s

Submitted by Rich Toscano on November 28, 2006 - 11:12pm

OK, indulge me for one more 1990s housing bust fun fact and then we can return our focus to more contemporary concerns.

As we've discussed, everyone holds job losses responsible for the downturn. But not just any old job losses -- the blame is laid specifically at the feet of the defense and aerospace industries, which suffered as the Cold War wound down in the early 90s. And thus is born one of the bullish analytical classics: the "diverse economy" argument. Since defense and aerospace comprise a much smaller proportion of San Diego's economy in 2006 than they did in 1990, we are immune to job losses and a resultant housing downturn.

read more at voiceofsandiego.org

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Before and After: Rents, Prices, Payments

Submitted by Rich Toscano on November 28, 2006 - 10:34am

Here are the pre- and post-1990s correction rents, prices, and monthly payments as requested by a couple of commenters:

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The Cause of All Busts

Submitted by Rich Toscano on November 20, 2006 - 4:25pm

Last week we determined that San Diego's early-90s housing downturn was not caused by unemployment, as it is ubiquitously believed, nor by interest rates.

Yet the price of a typical single family home price fell by 17 percent between 1990 and 1996. A price decline of that magnitude and duration must have had its cause in something. And it did -- but that primary cause was not external to the market itself, and it wasn't anything that took place during the downturn.

The housing bust was the inevitable result of the housing boom that preceded it.

A speculative bubble took place in the late-1980s San Diego real estate market. For a brief peak at some evidence, consider the accompanying chart of San Diego home prices and rents in the half-decade leading up to 1990.

read more at voiceofsandiego.org

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Return to Return to the 90s

Submitted by Rich Toscano on November 17, 2006 - 7:04pm

We determined in a previous episode that despite an overwhelming belief in the idea, job losses did not trigger the early-1990s housing downturn. Something else must have been at work... but what?

Today we'll turn our suspicious eye toward interest rates. After all, potentially higher mortgage rates are the clouds on the horizon of even the sunniest real estate forecast. As long as rates stay low, bullish housing analysts routinely tell us, home prices should hold up. (This statement is often followed by a silent prayer to the gods of the bond market). So it seems reasonable to wonder whether uncooperative interest rates were at least partly responsible for the 90s downturn.

The answer in this case is a resounding "no."

read more at voiceofsandiego.org

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Big Profits, Little Relevance

Submitted by Rich Toscano on November 15, 2006 - 1:06pm

The permabulls are drooling all over themselves with glee about a recent study indicating that the median San Diego home seller in recent months collected a tidy 91% profit on his or her home. Of course, this doesn't include transaction costs, improvements, or cash-out refis along the way... it is just a comparison of prior sale price and recent sale price. Even considering all that, though, 91% sure isn't bad.

But this is all a waste of perfectly good permabull drool, because the statistic in question has nothing positive to say about the future disposition of home prices.

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