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The last time the market took off, it was for different reasons (easy money, shorter-term thinking, and more move-ups), but the market psychology should be similar this time around – because buyer exhaustion is inevitable.

Here is how it looked then – during the first part of 2003 you could feel the market bubbling up, and by summer it was evident in the closings.

From June, 2003 to May, 2004, average pricing rose from $331/sf to $469/sf, which is a 42% increase:

graph (27)

Here’s the SD Case-Shiller graph, which reports three months late and documents the whole county, which lagged behind the coast:

Case-Shiller Home Price Index: San Diego, CA Chart

Case-Shiller Home Price Index: San Diego, CA data by YCharts

The big difference this time is that while it feels like a frenzy with prices increasing, the overall stats are far more moderate than last time. Comparing last July’s $366/sf to last month’s average of $420/sf, the increase is 15%:

graph (28)

This frenzy is focused on the quality properties, which apparently doesn’t float all the boats higher this time (or at least not as high), and the fraud is keeping a damper on the statistical increases too.

If a frenzy can stay red hot for about a year, then we should be wrapping up this version shortly – probably in the next couple of months. Future pricing trends should fall more in line with the averages (sub-10% annually), with an occasional outburst.

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