Case-Shiller from 3 months into the future

Tuesday, July 1, 2008

San Diego HPI - June '08

City average: 32.0% off the peak
Top tier: 11.8% off the peak
Middle tier: 33.0% off the peak
Bottom tier: 40.4% off the peak

Low and middle tiers are quite reasonably priced. If this were January, I'd probably call the bottom. But this is June, and we have record-shattering numbers of defaults in the pipeline, and these defaults will mature into REOs during fall and winter, when real estate activity is traditionally low. Also, interest rates have gone up considerably in the last month. Higher interest rates wouldn't yet be reflected in June closings. I think there's still potential on the downside.

Interest rates are about as high today as they were in August-September of '02 (except jumbos). If we assume that houses were fairly valued back then, and add 3% average annual inflation, we get this for current valuations:

Carmel Valley, 4S, Scripps Ranch: 40% overpriced
Carlsbad, Encinitas: 36% overpriced
Rancho Bernardo, Rancho Penasquitos: 28% overpriced (except for lower-end pockets where you can get by without a jumbo)
Mission Trails (Del Cerro, Allied Gardens, Tierrasanta): 6% to 22% overpriced
Clairemont, Mira Mesa: 3% underpriced
Eastlake, Otay Ranch: 8% underpriced (except for high-end parts of 91914)
Chula Vista, Imperial Beach: 9% underpriced
North of 78 (east Oceanside, north Vista): 10% underpriced
54-94: 15% underpriced