Monday, February 14, 2011

San Diego Affordable Again

I have found Rich Toscano's posts over at Prof. Piggington's interesting over the years. Rich had correctly called the San Diego bubble -- the first major US market to experience price weakness -- and has been tracking its distress all the way down.

As a bit of an epilogue to San Diego's terrific bubble experience, Toscano has summarized the city's housing market conditions in his latest post Shambling Towards Affordability: Year-End 2010 Edition.

Why is Toscano such a great read? He has continually concentrated on the true "fundamentals" of real estate investing, including:
  • price to income ratios
  • price to rent ratios
  • construction and real estate sector employment
  • loan arrears
  • rent and wage growth
  • months of inventory
Save a handful of bloggers like CalculatedRisk and others, understanding what truly drives house prices in the long term seems oddly absent from discussion. Toscano has presented both relevant fundamental data as well as poignant analysis of them. Some of Toscano's important contributions have been:
  • Even through the severe recession, he quickly understood rental growth continued to track CPI inflation even as wages and house prices were dropping and inventory was high.
  • Prices per square foot closely tracked the Case-Shiller house price index, allowing a 3 month sneak-preview into apples-to-apples price movements. (The CS-HPI is released with a 3 month delay.)
  • Construction and real estate-related employment distress portended a significant increase in foreclosure activity.
  • Higher quality houses tend to be more "downwards sticky" compared to lower quality stock; likewise detached property prices fell slower than condos and apartments.
The biggest takeaway from Toscano's work is that, in San Diego -- a city with a growing population, a reasonably diverse economy, and desirable climate -- fundamentals eventually mattered. As 2010 drew to a close, San Diego's house price bubble has been summarily bookended with prices approaching fundamental values again, a process that took 5 years from their peak in 2005.

San Diego and Toscano ftw.

7 comments:

NickH said...

Jesse, are you also "langley_financial_planning"? That email address doesn't seem to work.

jesse said...

@NickH, no I am a guest poster here. mohican is the owner of the blog. Not sure about the email address...

mohican said...

That email should still work. I'm not aware of any issues.

jesse said...

I get a bounceback from langley_financial_planning@yahoo.ca

NickH said...

@jesse, are you able to reveal any information about your line of work or education? I ask just out of curiosity because your comments always seem very astute.

mohican said...

BTW - that email address is working again. I don't really know what happened but it is working again.

jesse said...

@NickH, I have a scientific background and limited formal economic training. I expect these are rather evident from my comments. :)