From our friend Rich Toscano, as published at the www.voiceofsandiego.org:
The first month of 2011 was unkind to home prices, at least as measure by the median price per square foot of resale homes sold during the month. From December to January, this measure of home prices declined by 3.0 percent for detached homes, 7.2 percent for condos, and 4.5 percent in aggregate.
As I often note, the condo series is quite volatile so these big single-month moves can be safely ignored. But the detached home median price per square foot has typically given a fairly good read on actual price changes going on in the market, so the 3.0 percent decline there suggests that market pricing was indeed lower on the whole.
In fairness, January is a seasonally weak month for home prices, but the above chart shows that prices have been on the decline since the assorted stimulus efforts started to fizzle out last summer.
Click here for more of Rich’s commentary and 5 other graphs.
Hmmmm… that March ’09 bottom and subsequent climb seems remarkably correlated to the QE fueled stock market ramp.
Must be a co-ink-e-dink. 😉
Houses are still way over priced in San Diego. I say that simply from a middle class American perspective.
I pull in roughly $9000.00 per month net with a wife and two kids. I believe my income puts me squarely in the the middle class in San Diego. So as a I middle class, I would like to live in a decent school district in a decent house.
I expect to pay no more than 30% of my income towards the cost of house. That’s $3000 and should include the mortgage, insurance, tax, maintenance etc. If I buy a house for $500K and I put down 20% ($100K), my mortgage payment will be about $2200 (5% interest rate). I then have to add another $500 for tax, another $200 for fees/home owners and $300 for maintenance. That’s about $3200 a month! Keep in mind this is using a very historically low interest rate. You can bet that interest rate will only go up.
For me, (I am not an expert or an economist by any measure) I have to see the house price drop to below $400K for me to even consider buying.
I am betting interest rate will go up slowly and with it housing will have to come down.
Median re-sale home prices are below $400K in (4) out of the (5) regions of San Diego County except North County Coastal. 62% of San Diegans can afford the median price home now.
Hi BAM — I feel your pain but think you need to recalibrate your expectations about how expensive San Diego real estate is (and always has been).
First, your income is well in excess of being squarely in the middle of middle class. Median household income is roughly 70k (from memory, but it’s around there)… if you are pulling in 109k/yr net (which I take to mean pre-tax) you are well in excess of that.
And in aggregate (of course your mileage varies based on neighborhood), homes prices are right at their historical norms in relationship with San Diego’s per capita income. Check piggington later today or tomorrow, I am just about to put up an update on valuation ratios. The price to income ratio is 5% below its historical median, so prices in aggregate are slightly below “fair value” in terms of their historical relationship with incomes.
In terms of monthly payments, which you cited above, payments are at all-time lows in comparison to incomes — 39% below the median since the data started (1977).
I agree completely that interest rates will be going up, probably a lot — but even without accounting for interest rates, homes in aggregate are slightly below fair value. San Diego is just a really expensive place to buy a house. I think it’s more effective to look at quantitative measures of how expensive San Diego housing has sustainably been in the past, as opposed to using subjective ideas of how much of your income housing “should” take.
Now I’m not saying that prices can’t go below fair value… in fact my guess over the coming years is that prices will become more undervalued compared to their historical ratios, declining somewhat in comparison to incomes based on a number of factors (primarily rising rates and structural unemployment). But that’s different from saying that San Diego homes are overvalued — on the whole, they are not.
Here’s the raw HH income numbers for San Diego-Carlsbad CBSA
Avg HH Income
1990 = $44,299
2000 = $63,140 – Increase of 42.53%
2010 = $78,313 – Increase of 24.03%
ESRI 2015 projection = $90,008 – Increase of 14.93%
The one thing is in the equation that is difficult to measure is the additional debt many new potential households are possibly faced with (College Debt, Credit Card Debt, Car Debt). Those things existed for previous buyers but probably not at the same degree. It still probably comes down to whether or not somebody thinks you can service the debt and will loan you the money.
TJ,
I saw the same correlation also. March 2009 was when they suspended mark-to-market, magically making the banks solvent again. Given a long enough time horizon, this could work. Unfortunately, by September, our debt will equal our GDP. Historically, this usually means a collapse of our currency.
Who would this benefit? People who own hard assets (i.e. homes).
Rich – Thanks for the feedback and insight. If I understand you correctly, you are saying that because San Diego has always been more expensive than other area, I should expect to pay more?
I think several factors would have to be considered for that arguement to prove true. What makes San Diego special? It’s a myriad of factors such as weather, location, industry, naval bases, etc. Whatever those factors are, will it continue to hold true for the future? If it will, then you’re argument is absolutely valid and I will have to bite the bullet in the near future.
However, I submit the following for your consideration. The economy in general will take turn for the worse. QE (1 & 2) has been successful at boosting the stock market but nothing else. Top 10% American have benefited from this but the rest of people have not. Unemployment is still hovering near 10% and have seen little or no improvement in the last two years. The nation’s debt is breaking record every day. The federal/state government can’t be spending like we are used to any longer. More cuts will have to be made at all levels. All this will drive the interest rate up (especially the 10 yr bonds) driving the mortgage rate even higher. For housing prices to be stable/increase you must have steady demand. Those demand depend on people that are employed and low interest rates, neither of which is expected in the near future. I would also have to consider the record number of baby boomers that are about to retire next 5-10 years. The single biggest asset they have is the house and they will be looking to sell them. So we have expected increase in supply and decrease in demand. I am betting that this will ultimately play out in favor of buyers.
I may be completely off but I am perfectly happy to rent worry free until that happens. Mean while, I will have saving as much as I towards the house. I’ve noticed that the rents are also on a downward trend. Love it!!!
Just checked your website. Very insight and well written. I’ve added as one of my daily reads. Thanks!
BTW, my $9000 per month income is after tax.
Cheers!
Hi Bam — I don’t really disagree with anything in your economic forecast, and I can sympathize with your just wanting to wait out any potential storms.
I just wanted to make the point that while it seems quite expensive, San Diego real estate is actually kind of middle of the road compared to how expensive it’s always been (ie, that in aggregate it’s not actually overvalued). That doesn’t necessarily mean that it can’t become undervalued, or that buying at this time is a good idea for everyone.
I just put up a long post on this same subject, if you are interested: http://piggington.com/shambling_towards_affordability_yearend_2010_edition