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.
The median price is fixated upon by the media and the populace in general, so it is worth discussing despite its many shortcomings as a measure of home pricing power. From that perspective, the most notable aspect of the above chart is the steep month-over-month drop in the detached home median, to a post-boom low of $540,000.
Thus far, the more serious drops in the resale condo and new home medians have been dismissed as the bullish spinmeisters redirected everyone’s attention to the (suddenly) all-important resale single family home price. It should be fun to watch the permabulls scramble in the weeks ahead as this tactic backfires as a result of detached homes’ relatively poor performance.
A better, though still far from perfect, measure of home price changes is the median price per square foot. By this measure, detached home prices actually staged a mild rebound last month, although they are still down over 4% from last year. The median price per square foot for condos, on the other hand, was whacked for 2.5% from September.
It is worth noting that this was the first increase in the single family price per square foot for six months. It’s possible that the favorable interest rate situation put a small bid under detached prices, but wouldn’t that have bolstered condo prices at least a little bit? It seems more likely that this is just noise in a data series that has been unusually smooth in recent months.
Regardless, the long-term trend is clearly "down."
As always, keep in mind that quality improvements above and beyond square footage (location, view, amenities, etc.) are not captured by the median price per square foot. The same is true for incentives such as extra repairs or closing cost payments. If anything, the price indicators charted above understate the price drop that has already taken place in the housing market.
The Decline Thus Far
Up until now I’ve focused on year-over-year price changes, but now that the decline has gone on for more than a year a new set of charts is called for. Below is the change in median price per square foot since the data series peaked in September of 2005:
By this measure, at least, single family home prices are now down almost 6% while condo prices are down almost 9%. In aggregate, prices are down 6.7% in just over a year. And they said it could never happen.
Here, just for kicks, is the same chart for plain-vanilla median prices. While the price per square foot numbers cooperatively peaked in the same month for both detached homes and condos, the condo and detached overall median prices peaked in different months. So what I did was to calculate a volume-weighted aggregate number to determine the overall median price peak. And the winner is: November 2005. As we can see below, the median for both property types is down about 7% since that date.
Supply and Demand
Volume increased ever so slightly last month alongside a decrease in for-sale inventory. However, both numbers compare abysmally to October 2005.
The same can be said for the crucial months-of-inventory measure, which declined slightly from last month but still stands at over 8 months. 8 months of inventory is widely understood to be a "buyer’s market," to put it politely.
There is a dawning awareness among San Diegans that the housing market is in serious trouble. Such a change in sentiment is itself enough to sink an overpriced market, as buyers stop pricing in infinite appreciation and even begin to price in the possibility of further declines. Yet in addition to increasing pessimism and continued staggering overvaluation, San Diego faces a supply glut and a looming wave of suicide loan resets in the months ahead.
As shocking as it may seem to the folks at NAR, this housing downturn appears to have a long way to go.