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:
According to the Bureau of Labor Statistics, San Diego’s labor force (which would be expected to trend in the same direction as population size) has grown every year. So if you want to believe that population increased, you have to believe that one organization, the Census Bureau, got it wrong. But if you want to believe that population decreased, you have to believe that both the DOF and the BLS got it wrong.
Not being compelled to delve into the statistical techniques and data sources involved, I’m going with the majority on this one.
The reason I don’t feel the need to investigate further is that this really doesn’t matter in the grand scheme of things. I think the issue of whether population is rising or falling is of some academic interest, and I thought it would have been especially ironic to find that it was shrinking despite the permabulls’ "housing crisis" histrionics. But when it comes to forecasting the housing bubble endgame, small changes in population size simply aren’t much of a factor.
Home prices doubled in the space of a four-year period during which population growth was fairly modest, and during which growth in the housing supply actually exceeded that of population. It is completely obvious, permabull rationalization notwithstanding, that population growth had very little to do with skyrocketing home prices. Home prices rose because there was a speculative bubble. Prices came to reflect expectations of huge future appreciation. That’s it. That speculative euphoria — and not the ponderous growth rate of San Diego’s population — was the "fundamental" that drove prices high into the sky.
Now that buyers have stopped pricing non-stop 20% annual appreciation into their rent-vs-buy calculations, prices have begun to come down. And once the population has factored in the probability of multi-year depreciation, prices will come down even more. It is this gradual shift from optimism to pessimism that spells the end of all speculative bubbles. San Diego housing is no different, and whether the population grows a bit or shrinks a bit simply does not change the post-housing bubble equation all that much.
October 30, 2006 @ 3:27 PM
Nice follow-up. I thought
Nice follow-up. I thought some of the initial comments to your previous post were a bit overboard as you can tell by my comments there.
At least the 2005 numbers from BLS fall between the other two sources (When in doubt take the average).
October 30, 2006 @ 6:22 PM
Bob Casagrand keep saying,
Bob Casagrand keep saying, over and over, that if we continue having a population decline, all bets are off on how low housing will go. He said we used to have 50K people per year moving here, increasing demand for homes. As potential buyers leave our city, the months supply will keep rising. So while I agree that prices will fall even if population stays steady, price drops will be much greater if population declines, at least according to Bob.
That’s because we are very dependent on the first time home buyer in San Diego, and the housing market then is sustained by the ripple effect of move up buyers. Once the chain is broken, the rest of the chain is dead. So if the $500K home seller leaves San Diego, he will not buy the $750K home, thus breaking the chain of 2 futher sales ($750K house, $1.2 mil house). So because of the ripple effect of home buying, population decline does matter.
However, prices would have to drop even if population is steady. I think that a negative population growth just makes the price drops steeper, i.e. the declines happen over a shorter time (steeper slope).
October 31, 2006 @ 10:38 AM
Yes, employment numbers have
Yes, employment numbers have increased, but that doesn’t mean that population has increased. If employment increases at the same rate as population, then we would have steady unemployment. Insted, the SD unemployment rate is falling, and is now at 3.9%, down from 4.1% in August 2006, by adding 3600 jobs in one month. This still supports the thesis that population is falling, because rising employment and lower population would result in lower unemployment rate.
The labor market seems especially tight the last 6 months. I don’t ever recall seeing so many “Hiring” signs. The Subway on Poway Road has a huge Hiring banner flying outside off its sign since several weeks, Mission Federal in Poway has a Hiring sign on its front door, various carpet cleaners and Sears electronics van have Hiring signs on their vans, and the electronics engineer from the gym said he gets calls every day from headhunters. I could go on and on… When I talk with people, I hear stories of people moving away. Even piggington has a group of folks who left San Diego and wish to return. Bob C. tells me that in his real estate dealings, he is faced with people leaving. Sellers are selling so they can leave, and many listings are vacant.
Last, we’ve seen what a mess the government makes of their statistics. The CPI is a convenient measure to understate inflation so cost of living adjustments are less than they should be. Commerce Dept. counts new home sales but not cancellations, overstating the number of sales by 20-30%. BLS overstated auto production, making .9% GDP into 1.6% GDP. It’s not difficult to believe that similar mistakes were made for population changes.
BLS gets their population info from a household survey done for them by Census.
The San Diego County data from the State of California Economic Development Department shows a reduction in our labor force by 600 people from August to September 2006. It is possible that population is growing by births, and we have a simultaneous decrease in people who would be in the labor force and buying homes. So the out migration could be overcome by the natural births.
October 31, 2006 @ 10:40 AM
Unless you assume that the
Unless you assume that the numbers are in error, most likely the population increased through 2005. But, the trend is definitely downward.
October 31, 2006 @ 5:20 PM
From Aug 06 to Sept 06, we
From Aug 06 to Sept 06, we added 4000 jobs but lost a few hundred people, according to Labor Market Info, State of CA. So unemployment keeps getting lower and lower. Most hiring was in music and book retailers, colleges and universities, and government.
October 31, 2006 @ 7:24 PM
I would add anecdotally that
I would add anecdotally that in technology related industries (excluding biotech of which I know little) San Diego seems to be a shadow of what it once was. Manufacturing is dwindling (lots has gone to China) and design work has gone down since the dot com bust. I wonder if in a few years we see more and more just high end defense contractors.