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an
an
12 years ago

Thanks Rich for the update.
Thanks Rich for the update. Although I’ve looked at these graphs many times before, a few things just dawn on me.
1. We’re w/in a few % from the last two bottom for price to income.
2. Mortgage to rent is below 1, not just the long term average of 1.4. If you’re a buyer who want to stay in your home for a long time, your monthly payment vs rent is the best since 1977 (that’s where your data started). To me, that’s a BIG buy signal. If you have the cash to down for a house, it’s finally cheaper to buy than rent a typical SD SFR (it has never been this way since 1977).
3. The monthly payment of this last peak is actually not the highest since 1977, even though the nominal price is. Around 81-82, the monthly payment to rent was actually ~30% higher.
4. Rate rise around the bottom of 86 and 97. When rate rises after the last two crash, price actually rises, not crash further. My instinct is telling me that if we see rate rises sometime after today, we might see a price increase instead of decrease. We’ll have to wait and see if my instinct is right or wrong.

zk
zk
12 years ago
Reply to  an

AN wrote:
4. Rate rise around

[quote=AN]
4. Rate rise around the bottom of 86 and 97. When rate rises after the last two crash, price actually rises, not crash further. My instinct is telling me that if we see rate rises sometime after today, we might see a price increase instead of decrease. We’ll have to wait and see if my instinct is right or wrong.[/quote]

I’ve read this observation before. I wonder if it would be different this time (higher interest rates causing prices to drop) because rates were (are) artificially low this time.

Not sure how or why that would or wouldn’t affect it. But what if the government stops artificially lowering interest rates, and they rise to where they would be naturally? Still low, but higher than they are now. There would be an increase in interest rates without the usual causes of increases in interest rates. And such causes might normally also cause the average home buyer to be able to pay more per month. So, if interest rates rise but there isn’t the usually coincident rise in ability to pay, prices might be adversely affected.

The above could all be rubbish, as I don’t very well understand interest rates and why they go up or down. It’s more of a question for people who do understand it.

an
an
12 years ago
Reply to  Rich Toscano

I don’t disagree with you
I don’t disagree with you guys that it could be different this time. I was basing my instinct on what has happened in the past. WRT to fear of default, didn’t we already have that when our credit was downgraded? IIRC, mortgage rates actually went down when we were downgraded. Same with the fear about Europe right now. Rates are dropping today with all the fear from Europe default.

Didn’t we see stagflation in the 70s, where real economic growth was basically flat and inflation was high? IIRC, rates sky rocketed and so did nominal housing price. To me, a deflation (& lowering of rates) would more likely take down price than inflation (& rising of rates). With the fed keeping rates at 0% and government doing all they can to prop up housing price. Even when food and energy inflation is going up, the official CPI # is pretty anemic.

WRT to rates just being too low to begin with, haven’t we been too low for a long time now? Isn’t historical average is around 8%? If it is, then we’ve been too low for well over a decade. What would make it different this time that would rates to go back up without economic growth and/or inflation?

I don’t know the answers to a lot of these questions, but I’m just talking out loud, hoping to either be proven wrong (with data) or confirming my assumptions.

(former)FormerSanDiegan
Reply to  Rich Toscano

Thanks for the update
Thanks for the update Rich.

The last chart is a landlord’s wet dream.

an
an
12 years ago

FormerSanDiegan wrote:Thanks
[quote=FormerSanDiegan]Thanks for the update Rich.

The last chart is a landlord’s wet dream.[/quote]
Yep, totally agree.

Anonymous
Anonymous
12 years ago
Reply to  Rich Toscano

peacetime?
Not that I blame

peacetime?
Not that I blame you for not realizing we have two wars in the middle east, a war on drugs, and a war on terrorism given the quality of our media, but I am somewhat cautious in taking a history lesson from someone who would call this peacetime in their economic analysis. While I am not Bush bashing here, unfunded wars do have consequences. In a Keynesian, fiat currency system (which is what we have) it is the governments role to provide counter-cyclical stimulation to smooth out boom bust cycles. That means print money now, and increase revenue during growth.

temeculaguy
12 years ago
Reply to  Rich Toscano

gotta back my brother Rich on
gotta back my brother Rich on this one, “war on drugs?” really? do not confuse the word “war” with an actual war. If you want to classify the war on drugs as a war that can be used to put economic cycles into perspective, you need to get some data. That “war” has been going for decades and we spend less on it today (inflation agjusted) than we have in the past. In fact, you can say the white flag has been raised already in that war, minus some legal wrangling.

For purposes of economics, “wars” are real wars, wars with tanks. Not wars on crime, wars on hunger or any other wars. Wars cause temporary econmic spikes in where our resources and people go. The middle east is drawing to a close, it is absolutely a factor in the near term economics of a county with a large military presence, like San Diego. It also affects housing, ask any large apartment complex owner about cycles related to past deployments.

Now back to your regularly scheduled program, Rich’s graphs tell a tale as long as you are not looking through tinted glasses. Rich is a locally famous housing realist, often confused with a housing bear. So many outliers to the last boom (aka piggington bloggers) are actually buying houses right now, some are buying more than one. They are doing so because of fundamentals like those rich has charted for years. The SD and OC median recently fell about 6% YOY, while riverside and san bernadino rose or stayed the same during that same period.

http://www.signonsandiego.com/news/2011/dec/13/home-prices-fall-6-november/

Riv and SB counties fell first and fell harder, SD and OC fought it off longer but the Bugs butterfly effect is clearly visible now. 8th inning is upon us, the holdouts will reach equilibrium in the next year, stability and affordablity will return and the start date of the next cycle will be delayed by the collective bad taste that will take a little while to be washed out of the sheeple’s mouths. The masses didn’t pay attention to fundamentals before, this will be no different. But it will turn, it has turned, if you look at the charts.

I’ll leave you with this thought, 6 years ago, Rich’s graphs told a story that could not be found in the media. But that story was not a story of the past, it was of the future. Values were way above historical norms. Most of us here back then paid attention to what he wrote and most of us will be eternally grateful. Today, those same charts tell a different tale, depicting numbers at or below historical norms. It comes as no surprise that some people will ignore them because they contradict commonly held beliefs, beliefs that are backwards looking. Just like before.

an
an
12 years ago
Reply to  Rich Toscano

delete
delete

lifeizfunhuh
12 years ago
Reply to  Rich Toscano

Rich,
I don’t think that

Rich,

I don’t think that interest rates (at least those determined by the Federal Reserve) CAN rise. The last few Fed statements have confirmed that federal funds rates will stay low for an “extended period” of time. What must be understood is that at a $15tn national debt, each 1% increase in rates adds another $150bn to the national deficit, which is thereafter compounded. The federal reserve has put itself into a straightjacket.

In other words, the United States could not meet its funding needs without interest rates where they are now. Increases in rates would cause a funding crisis, as evidence suggests with Italy and other European sovereigns that when the government bonds reach a certain interest rate (6% for Italy), government cash flow reaches a point of no return, and default is inevitable.

As I have said on this blog before, the only option for our central planners is to print. This is the ONLY possible outcome for our country. Math is math. Period.

Buy that house, and pay as little down as you can. Put the rest in gold.

ShawnHCRW
ShawnHCRW
12 years ago
Reply to  an

AN wrote:
4. Rate rise around

[quote=AN]
4. Rate rise around the bottom of 86 and 97. When rate rises after the last two crash, price actually rises, not crash further. My instinct is telling me that if we see rate rises sometime after today, we might see a price increase instead of decrease. We’ll have to wait and see if my instinct is right or wrong.[/quote]
The question is which leads the other?

Interest rates are being held down now to keep monthly paments affordable at current valuations; in theory if they rose that would decrease affordability and drive prices down. But previous rate rises have coincided with price increases, which is contrary to that idea.

But maybe the relationship works the other way round. Looking at in in reverse, home prices rising raises the CPI, triggering the Fed to raise interest rates. Will the Fed have to raise rates in response to other inflationary factors before home prices begin to rise? What would that do to home prices in a struggling economy? We’ll see soon enough.

NotCranky
12 years ago
Reply to  ShawnHCRW

Thanks for the great data and
Thanks for the great data and write-up, Rich,
Very timely.

tdelamater
12 years ago

The payment to income ratio

The payment to income ratio and payment to rent ratios are, respectively, 45% and 40% below their historical median levels

I had no idea! This sure makes a good case for putting less money down, but then the question is where DO you put your cash? Stocks? Bonds? A business? There sure is a lot of perceived risk out there.

For me, I hate the idea of taking on any amount of debt. That is, however, looking like the best option.

sdduuuude
12 years ago

Rich – Is this the start of
Rich – Is this the start of the “Housing Trough Analysis and Statistics Site”

peterb
12 years ago

It would be interesting to
It would be interesting to overlay an unemployment graph over the first graph (San Diego Home Prices to Income Ratio)

Jazzman
12 years ago

One man’s affordability is
One man’s affordability is another man’s cheap credit …and that party ends in tears as David Cameron was reminded by a knee in the groin from Merkel.