Let’s do a quick check-in on San Diego housing valuations:

Valuations have risen a bit in 2014, but haven’t changed
substantially since I reviewed them earlier this year. Thus, the
conclusions I made in that update
— about what this all means and so forth — remain. I’m far too
slothful to rehash them all here, so please so that prior
installment if you missed it the first time around.

What’s new this time is that current valuations — how expensive San
Diego homes are compared to local rents and incomes — are 17% above
the historical median, a level that surpasses the 1979 and 1990
peaks. That is to say, in the history of the data I have, San
Diego housing is now more expensive than it has been at any time
outside the late, great housing bubble. Fun!

In my view, unusually low mortgage rates are playing a major role in
keeping valuations aloft despite a not-terribly-robust economic
backdrop. Nothing’s changed there: thus far in 2014, the small
valuation increase has been entirely offset by a decline in rates.
Monthly payments (as compared to rents and incomes) may have clawed
their way out of the abyss to some degree, but they are still quite
low compared to decades past:

So there’s that going for housing, for as long as it lasts (which is
a subject of considerable debate).

It’s worth bearing in mind, though, that the valuation series shown
in the first graph has been highly mean-reverting across a wide
variety of interest rate climates. Rates come and go; in my view,
the fundamentals such as rents and incomes are the more important
factor in determining whether homes are over- or under-valued on a
long-term basis. And right now, those fundamentals say that San
Diego housing is the most overpriced it’s been outside of the
mid-2000s bubble.