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:
Thanks for stopping by…
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...
Submitted by Rich Toscano on December 12, 2006 - 9:28am
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:
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:
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:
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.
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.
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:
Submitted by Rich Toscano on November 20, 2006 - 4:25pm
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.
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."
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.
Submitted by Rich Toscano on November 14, 2006 - 4:49pm
Break out the flannel shirts and re-insert those body piercings, because we're headed back to the early 1990s. The good news: no Judge Ito jokes are forthcoming. The bad: I can't say the same about housing charts.
The idea that San Diego's early-1990s housing bust was caused entirely by local job losses has provided comfort to many a real estate investor in recent years. If job growth can just stay positive, the soothing logic goes, then we can avoid the ugly outcome that took place the last time around. The appeal of this line of thinking, which appears to be almost universally accepted as truth, should be obvious.
But the evidence doesn't support the theory that unemployment was the sole cause of the housing bust. Have a gander at the following chart, which details the monthly changes in San Diego home prices and employment from 1990 through 1997:
Submitted by Rich Toscano on November 9, 2006 - 11:28am
The following slew of charts depicts October's housing market activity here in San Diego. Executive summary: the slow grind downward continues apace.
From the prior month, median prices declined 2.7% and 1.3% for detached homes and condos respectively.
Submitted by Rich Toscano on November 6, 2006 - 8:44pm
Sometimes I wonder if the folks at the National Association of Realtors are actually trying set themselves up for future trouble.
First they released their so-called anti-bubble reports to demonstrate that "the facts simply do not support the possibility of a housing bust." In addition to the usual poor analysis we have come to expect from this outfit, the San Diego edition contained a blatant falsehood that remains there to this day, despite the fact that I repeatedly notified NAR of its existence back in March.
Now, they are at it again with their new $40 million dollar ad campaign to let us know that "It's a great time to buy or sell a home."
Submitted by Rich Toscano on November 3, 2006 - 12:18pm
Last week, Scott Lewis SLOP'd about the San Diego County pension system's sizable investment in D.E. Shaw, a hedge fund that is heavily involved in so-called "credit default swaps."
If you're like most people, you probably started to lose consciousness by the end of that last sentence. But stay awake if you can. Because it turns out that San Diego's fortunes are very much tied to these arcane financial instruments
Credit default swaps, or CDSs, are basically a form of insurance that lenders of money purchase in order to ensure that they will be paid back. That, at least, is the idea. Let's examine a hypothetical, certainly oversimplified, but hopefully illustrative day in the life of a CDS.
Submitted by Rich Toscano on October 30, 2006 - 12:33pm
Some folks didn't cotton to my conclusion that the DOF population data was probably better than the Census Bureau data, so I thought I'd clarify my reasoning.
I do not pretend to know much about the ins and outs of tax returns vs. driver's license issuance or for that matter any of the other methodological differences between the two organizations' figures. Nor do I really care to take the time that would be required to dig into it (for reasons that are explained below).
I mentioned in the last article that positive job growth belied a population decline. This was, for me, the deciding factor. Let's look at those numbers:
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