San Diego home price index

Animation

2010-04-08T00:13:00.000-07:00

Okay, this is silly.

I can't use Flash here. If I upload the animation as an AVI, it's resized to matchbox resolution. And, if I upload it as an animated GIF, the server automatically removes all frames except the first one.

Trends, deviations, and investors

2010-04-04T23:58:00.000-07:00

In his latest blog entry, Rich Toscano at Piggington.com looks at dynamics of different price tiers in San Diego and makes an observation that all three tiers appear to have converged by early 2009. He then concludes that the recent rebound in the lower tiers must have been caused by government stimulus rather than economic fundamentals.

Whether or not government stimulus had much impact on prices, that I can not say. I also can't comment on tiered Case-Shiller numbers, since I never was able to reproduce them myself. I do want to make a point that it's inaccurate to claim that relationships between prices were back to what "prevailed before the era of reckless mortgage finance".

Differences did exist, and they were severe. By mid-'09, there were parts of the county where prices were up 80-90% or more compared with early 2000 (these were mostly in the top tier), and there were those where prices were up only 20-30% (usually in the lower tier, though there were deviations.)

The following crude map should illustrate the point. It shows approximate price changes from January 2000 to July 2009.

Notice a red band along the coast west of the I-5. As of mid-2009, places like Del Mar, Solana Beach, Pacific Beach, all had "effective Case-Shiller" above 190 (meaning that a typical detached property in the area gained 90% or more in value since 2000). Hillcrest was at 185 and Rancho Penasquitos was at 180.

At the other extreme, we have dark blue areas inland and south of downtown. Some of them are generally thought to be poor and dangerous (zip code 92113: 120), others are too out of the way to attract prospective buyers with jobs near the coast (Valley Center: 133, Ramona: 136), but, for one or the other reason, they were all driven down towards or below historical trend.

Now, what is behind the lower tier rebound? The first-time buyer tax credit and low down payment FHA loans may certainly play some role. However, we're seeing strong rebound even in areas where FHA-equipped first time buyers generally fear to tread. Median FICO score of a FHA buyer is above 690 by now. It's hard to imagine throngs of FICO-700 homebuyers rushing to capture properties in Logan Heights and Spring Valley.

We do hear tales of prospective homebuyers struggling to compete with real estate investors. It could be that the relentless influx of subprime foreclosures brought prices in some areas low enough to make sense from rental cash-flow standpoint.

As evidence towards that point of view, depressed areas where properties are not easily rented out (Jamul or Valley Center) do not seem to experience any kind of rebound at all.

March '10 (for real this time)

2010-04-01T23:51:00.000-07:00

March '10 price crash

2010-03-31T23:59:00.000-07:00

As you may have heard, the Fed has recently ended its mortgage-backed security buying program. Furthermore, Bank of America is increasing the foreclosure rate of its properties, from 7,500 homes a month nationally, with the goal to increase that number to 45,000 homes per month by December of 2010. On top of that, there's evidence of increased strategic defaults, and the $8,000 first-time homebuyer credit is about to expire.

All these factors, combined, appear to have created a perfect storm in the housing market. Just in the last month alone, all San Diego sub-markets crashed 10+% across the board, and it looks like the decline will only accelerate from this point on.

February '10

2010-03-04T22:28:00.001-08:00

All tiers are up slightly:

January '10 HPI

2010-02-01T22:42:00.000-08:00

I missed a couple of months, but, fortunately, there was nothing interesting going on in the mean time.

October '09

2009-11-07T05:13:00.000-08:00

Clairemont and Mira Mesa appear to have staged a strong recovery. Here's a different perspective - smoothed median prices of a few different mid-range neighborhoods over time, and one top-tier neighborhood thrown in for comparison:

If we take two properties, one in Mira Mesa and the other in Ramona, that were worth the same amount, say, 300k in early '02, assuming no structural changes, the one in Mira Mesa is now worth 400k and the one in Ramona is only worth 325k. Other similarly priced peripheral locales, such as Alpine and Fallbrook, have also been underperforming. One possible explanation is that strength of Clairemont and Mira Mesa is due to their proximity to Sorrento Valley / University City tech hub, which has been affected by the downturn to a lesser degree than most of the city.

Temecula update

2009-10-09T01:16:00.000-07:00

Unlike San Diego, the overhang of delinquent inventory in Temecula is so heavy that the summer rally was only able to stabilize prices for a while:

2009-10-02T02:40:00.000-07:00

According to my calculations, city average index is now up slightly year-over-year:

The official July Case-Shiller read came in at 150.99, in agreement with my expectations. The forecast is 154.5 for August, 158.0 for September, ~160 for October. At this point I don't expect any official reads indicating month-to-month declines before the end of the year (since the October number comes out around Christmas).

I have to caution against identifying this dynamics as genuine recovery, there's quite a bit of nonmarket stuff going on (the first-time-buyer tax credit, "shadow inventory", some degree of mortgage interest rate manipulation by the Fed), but the market appears to be robust and this uptrend has gone far beyond any seasonal fluctuations.

On shadow inventory

2009-09-03T22:00:00.000-07:00

As promised, a word or two about shadow inventory. It didn't turn out particularly illuminating, but here goes.

First of all, I'm not a serious corporation like RealtyTrac or ForeclosureRadar, and I don't have access to their (paid-for) databases. I tried to put together some numbers using free public sources. To do that, I pulled the index of the San Diego grantor-grantee database (http://www.sdarcc.com) and looked for some patterns.

The grantor-grantee database is a place where many important real estate transactions and events are recorded. Some well known types of events are notices of default (NOD) and notices of trustee sale (NOT or NTS). The database also contains records of trustee sales, transfers (deeds), and some of the less known events. The complete database is, unfortunately, unavailable online, but its index is. The index contains document numbers, dates and names. So, for example, I might find out that a Mr. John Smith (a made-up name) received a Notice of Default on 7/30/2008 and a Trustees Deed on 11/15/2008. Of course, I can't be sure that the two refer to the same property, but it's a reasonable assumption.

These are my preliminary results.

Areas marked as "Foreclosure" and "Short sale" refer to NODs that were followed by an ownership transfer (i.e. the former owner is no longer in possession of the property). This simple approach does not allow me to track the property any further - if the bank chooses to "sit" on the property after foreclosing, there's no way for me to tell that. Anecdotal information suggests that it does not happen often.

Next two: "Reconveyance" and "Rescission". Reconveyance is recorded when the bank releases interest in the property (because the loan was paid off or refinanced). It appears that very few people have been able to refinance their way out of default. Rescission means that the bank "rescinds" a previously recorded document for any reason - for example, because the loan was modified. A NOD followed by a rescission probably indicates that the borrower is now okay.

That leaves us with the last two categories: "NTS" and "No action". This is where our shadow inventory would live. Some borrowers are in this category because they got a loan modification, but the bank never bothered to rescind the NOD or the NTS. Others are there because they are trying to complete a short sale. Those that don't conform to either of these situations, probably represent the true shadow inventory.

There's typically a 3-4 month delay between a NOD and a NTS. It means that May '09 and later defaults are not "shadow inventory" yet, they are still in the pipeline. The total number of "uncured" non-duplicate defaults between 7/1/2008 and 4/30/2009 is 10,335. That's the upper bound on the size of shadow inventory in San Diego county. The actual number is most likely lower.

My next step is to head to the nearest county clerk's office and run some names. I heard that it's possible to access the grantor-grantee database directly for free from a public computer in any county clerk's office. That should clear things up. I want to estimate how many people in "NTS" and "No action" categories are current on their property taxes. For people who defaulted substantially earlier than 4/10 (when the most recent installment of the property tax was due), property tax status should be a good test of distress.

August '09

2009-09-01T17:31:00.000-07:00

With kids back to school, it looks like the summer rally finally ran out of steam.

MLS inventory is still tight, but there are fewer buyers around, so prices will probably move sideways or decline somewhat in the upcoming months.

July Case-Shiller forecast is revised down to ~155 from 158 (last official read was 147.31). At this point, I can't give any firm predictions as to the August value, except to say that it'll most likely be in 156-159 range.

July '09

2009-08-01T03:22:00.000-07:00

City average: 39.1% off the peak, 57.9% above Dec 1999
Top tier: 20.1% off the peak, 80.1% above Dec 1999
Middle tier: 39.9% off the peak, 55.3% above Dec 1999
Bottom tier: 50.9% off the peak, 42.5% above Dec 1999

The market is really heating up. The overall city index is up 5% in one month, which is the highest rate of change in the recent history, even exceeding records set during the spring of 2004.

There's one caveat, though - this exponential-looking growth is partly caused by a change in sales structure: the ratio of top tier sales to middle tier sales seems to be up about 20% compared with the previous month. Middle tier by itself is up "only" 3%. It may be an artifact in my data, since some sales may not yet be reported yet, maybe top tier sales are reported faster. I'll update charts and numbers when late-reporters become available.

Also, it's already August and the frenzy may subside in a month or two.

Here's my forecast of the official Case-Shiller index for the next three months:

I've rescaled the "SDHPI" curve to match up exactly with last month's official reading.

Final point is less certain since I need August sales to calculate it precisely - but it should be roughly in that area.

What moves the top tier?

2009-07-03T12:10:00.000-07:00

Just an interesting observation:

June '09

2009-07-02T01:59:00.000-07:00

City average: 42.1% off the peak, 50.1% above Dec 1999
Top tier: 21.2% off the peak, 77.3% above Dec 1999
Middle tier: 41.6% off the peak, 50.9% above Dec 1999
Bottom tier: 51.8% off the peak, 40.0% above Dec 1999

City average is up for the third month in a row, so far up 5.7% from March trough.

May '09

2009-06-01T02:00:00.000-07:00

May index is up slightly in all tiers and most sub-areas.

City average: 42.7% off the peak, 48.1% above Dec 1999
Top tier: 21.3% off the peak, 77.3% above Dec 1999
Middle tier: 42.7% off the peak, 47.8% above Dec 1999
Bottom tier: 51.4% off the peak, 41.1% above Dec 1999

Short term, upward movement should continue for at least a couple of months, due to tight MLS inventory and active homebuying among families with school-age children - unless mortgage rates spike past 7% or something else equally bad happens. Things will get more interesting in September-October. There's talk of considerable "shadow inventory" due to foreclosure moratoria & such, I'll try to address this issue in a later post.

Regarding the official Case-Shiller index with 3-month averaging, next month's numbers for San Diego should be flat or slightly down, but May C-S will definitely be up (due to be released July 28, if I'm not mistaken) and so far it looks like June C-S (due end of August) will be up as well.

UC enrollment stats

2009-05-24T03:20:00.000-07:00

Last year, just over 2200 high school graduates from San Diego County enrolled into one of the UC universities.

Which high schools were the most likely to send their students to the UC system?

I found the admissions database and used it to compute 3-year average enrollment rates for all major San Diego high schools ("major" defined as having 1000 or more students in 2008).

The overall ranking should not be very surprising to anyone who spent any time studying school characteristics such as API - quite naturally, Torrey Pines High is on top, with 19.4% UC enrollment rate; three out of four Poway USD schools are in the top 10, the exception being Poway High at #12; three SDUSD schools made top 10, namely La Jolla High (#4, 14.5%), Scripps Ranch High (#8, 12.1%), University City High (#9, 9.8%).

There are some deviations from the common API rating. As mentioned, University City High is in the top 10 (an average of 46 students or 9.8%), even though it's only API rank 7. San Marcos High (also API rank 7) had a remarkably bad showing during the last few years, sending an average of 13 students or 2.8% of its graduating class to UC during 2006-08. But overall the pattern is familiar.

What's interesting though is that the distribution is not quite as extreme as one could have expected. On one hand, high-end percentages are surprisingly low. Sure, some students from TPHS go to private schools such as Stanford or Ivy League universities ... but there are probably fewer of those than the number admitted to UC. On the other hand, the distribution has a long thick tail. Combined together, San Dieguito, Carlsbad, and Poway schools provide only a third of all UC freshmen. Why? Because even schools like Morse High (SE San Diego) and Fallbrook High have UC enrollment rates in 4-5% range.

Top 20:

1 Torrey Pines High 19.4%
2 San Dieguito High Academy 18.3%
3 Westview High 15.5%
4 La Jolla Senior High 14.5%
5 Canyon Crest Academy 13.3%
6 Rancho Bernardo High 12.8%
7 La Costa Canyon High 12.5%
8 Scripps Ranch High 12.1%
9 University City High 9.8%
10 Mt. Carmel High 9.6%
11 Coronado High 8.4%
12 Poway High 8.3%
13 Mira Mesa High 7.8%
14 Carlsbad High 7.5%
15 Bonita Vista Senior High 7.1%
16 Henry High 6.8%
17 Eastlake High 5.9%
18 Otay Ranch Senior High 5.7%
19 San Pasqual High 5.6%
20 Point Loma High 5.5%

April '09

2009-05-02T21:37:00.000-07:00

City average: 44.5% off the peak, 43.3% above Dec 1999
Top tier: 24.0% off the peak, 71.1% above Dec 1999
Middle tier: 43.9% off the peak, 44.8% above Dec 1999
Bottom tier: 53.0% off the peak, 36.5% above Dec 1999

March '09

2009-04-01T01:46:00.001-07:00

(Will be updated in a few days to include late reporters and more graphs)

City average: 45.2% off the peak, 41.5% above Dec 1999 (Case-Shiller index: 141.5); 2.5% down month to month, 22.6% down year over year
Top tier: 24.0% o8ff the peak, 71.1% above Dec 1999
Middle tier: 43.7% off the peak, 44.8% above Dec 1999
Bottom tier: 51.8% off the peak, 39.6% above Dec 1999

No January bottom

2009-03-26T10:24:00.000-07:00

So far it looks like the city will drop another 2-3% in March.

February '09

2009-02-28T22:43:00.000-08:00

Last summer I made a bold call for a bottom in February '09. Six months, one stock market crash and one huge stimulus bill later, it's time to see where we are.

My basic model did not anticipate a rapid-onset recession and a 40% drop in Dow that decimated down-payment savings of top tier buyers and 401k's of pretty much everyone else. It also did not anticipate 4.625% interest rates and fat tax credits to new homebuyers. I made the forecast when oil was around $115/barrel and everyone was afraid of $200/barrel. Today it's $44.

The forecast was for a bottom in 150-155 range and we're certainly lower than that. And since interest rates are lower too, houses are quite a bit more affordable than I expected. Would that be enough to bring enough buyers out of the woods to stabilize prices?

City average: 43.4% off the peak, 44.8% above December 1999 (predicted March '09 Case-Shiller for San Diego: 144.8)
Top tier: 24.8% off the peak, 66.3% above December 1999
Middle tier: 42.0% off the peak, 47.6% above December 1999
Bottom tier: 50.4% off the peak, 42.5% above December 1999

As you may know, official C-S applies 3-month "smoothing" (averaging) to all numbers - one of the reasons why they are so much behind. To calculate final "March 2009" C-S, we need to look at sales through the end of March (even though it's most representative of sales in February). I get around that by publishing an estimate that's based on a single month of sales, then revising it a month later.

3-month averaging raises revised overall "February 2009" Case-Shiller to 146.1 - we still appear to be down month-to-month. However, we'll see what averaging does to today's number.

Middle tier is the most populous one - 50% of all houses - and it held up very well last month. Non-smoothed index for the middle tier is up 1.6% month-to-month, which is the first increase since 2007.

Top tier is still getting hammered, but the stimulus bill increased conforming loan limits from 546K to 697K as of February 18 and that may slow down the decline.

Is this the bottom (or at least "a" bottom)? Too soon to tell - we need a couple of months of steady appreciation to know for sure - but it's possible.

San Diego HPI - January '09

2009-02-01T02:23:00.000-08:00

City average: 43.6% off the peak, 44.1% above December 1999 (predicted February '09 Case-Shiller for San Diego: 144.1)
Top tier: 21.9% off the peak, 72.6% above December 1999
Middle tier: 43.0% off the peak, 45.3% above December 1999
Bottom tier: 49.0% off the peak, 46.7% above December 1999

Reminder - tier & zone definitions:

Top tier: Carlsbad, Encinitas, Cardiff, Del Mar, Solana Beach, Rancho Santa Fe, Carmel Valley, La Jolla, University City (92122), Pacific Beach, Ocean Beach/Sunset Cliffs (92107), Point Loma (92106), Mission Hills/Hillcrest (92103), Coronado, Rancho Bernardo (92127,92128) (including 4S Ranch, Del Sur, Santaluz), Carmel Mountain Ranch, Sabre Springs, Rancho Penasquitos, Scripps Ranch, Poway

Bottom tier: Chula Vista west of 805 (91910 and 91911), San Ysidro, Otay Mesa, Imperial Beach, National City, Logan Heights, Encanto, Lemon Grove, Spring Valley, Paradise Hills; Southeast San Diego (92102,92105,92115); Central El Cajon (92020); Oceanside; Vista north of 78 (92083,92084)

Middle tier: everything that's not included in either top or bottom tier

"RB, PQ": 92127 excluding 4S Ranch/Del Sur/Santaluz/Crosby/etc., 92128, 92129
"North of 78": 92083, 92084, 92056, 92057
"Southwest": Chula Vista west of 805, San Ysidro, Otay Mesa, Imperial Beach
"Southeast": Chula Vista east of 805 (91913, 91914, 91915)
"54-94": National City, Logan Heights, Encanto, Lemon Grove, Paradise Hills

December '08 HPI

2009-01-02T09:49:00.000-08:00

City average: 42.4% off the peak, 46.9% above December 1999 level
Top tier: 19.7% off the peak, 77.5% above December 1999 level
Middle tier: 41.5% off the peak, 49.1% above December 1999 level
Bottom tier: 48.2% off the peak, 49.4% above December 1999 level

Two lower tiers are cheapest they were since the summer of 2002. If you take inflation and low interest rates into account, houses in San Diego have not been so affordable since 1999.

November '08 HPI

2008-12-15T19:48:00.000-08:00

City average: 41.1% off the peak
Top tier: 20.3% off the peak
Middle tier: 39.1% off the peak
Bottom tier: 47.9% off the peak

4% drop in one month in the top tier. Sales volume took a hard hit, too. The number of repeat sales in the top tier is down 50% month-to-month. This is probably the consequence of the stock market crash - that's where people with significant stock portfolios shop for their houses. Sales volumes in the other two tiers dropped by much smaller amounts - 10% and 14%.

Bottom tier as a whole is back to May '02, middle tier is back to September '02. 54-94 area solidified its position as the place with most severe price declines: a typical house in 54-94 is worth 48.4% of what it would've gone for at the peak in April-May '06.

Neg-ams in San Diego

2008-12-07T23:11:00.000-08:00

Downward pressure on house prices in San Diego has been in part caused by foreclosures. In the last few months, the supply of new foreclosures on the market has been reduced to a trickle. Mortgage modifications are getting increasingly popular. In a mortgage modification, lender agrees to lower the principal or the interest rate for a delinquent borrower and/or to transfer the modified loan to FHA. Jim the Realtor has a number of comments on this subject.

There's a catch. The lender will not reduce the principal much lower than the market value, and the borrower must qualify for a modified mortgage, fully documenting his income, with strict income limits.

And that's what brings us to neg-ams. A negative amortization loan is the one where monthly payment is insufficient to cover all interest accrued, making the principal grow rather than shrink over time. Neg-am borrowers' houses are way bigger and more expensive than they can realistically afford. Even after 30+% principal reductions, they are very unlikely to be able to pay modified mortgages. In addition, many neg-am borrowers were "investors" (owners of multiple non-owner-occupied properties), these obviously aren't getting any modifications. Areas with high densities of neg-ams will continue to produce foreclosures well into 2009 and possibly 2010. So, it's good to know where they are. Unfortunately, this kind of information is not readily available. We have to improvise.

I went through a database of all foreclosures that took place in San Diego County between July and November. There were approximately 10,000 of them. For every foreclosure, public sources give us 1) the initial loan amount, 2) the delinquency amount ( sum of all missed payments when the loan was declared in default ), 3) "sale amount" - the amount which the bank hopes to recover through foreclosure. #3 includes the balance on the loan on the day the borrower stopped paying, missed payments, late fees, and legal fees incurred by the bank. By subtracting #2 from #3, we can estimate the balance.

Inspection of the data quickly reveals a pattern. Half of all foreclosures have #3-#2 in the range between 101% and 104% of the initial balance. These are well known subprime interest-only loans. The bank needs to get back full amount loaned, and probably 1-4% of loan balance in legal fees.

Another big group of foreclosures has #3-#2 between 107% and 115% of the initial balance. These loans have lower interest rates. In this group, there's a noticeable correlation between the "sale amount" and the age of the loan. Loans in this category tend to grow 4-5% a year - the characteristic feature of a neg-am.

Overall, approximately a quarter of all foreclosures since July appear to have been caused by a neg-am. Neg-ams are everywhere. They are somewhat overrepresented in South Bay (44% of foreclosures in 91914, 37% in 91913, 32% in 92154). 92154 (San Ysidro) had the largest absolute number of suspected neg-ams in the dataset. 92037 (La Jolla) and 92109 (Pacific Beach) had relatively few foreclosures, but many of these were neg-ams. Weak prices in these areas should be expected to continue for some time, despite modification efforts.

Here's a random example of negative amortization. On 5/17/2006, Michael Ghanayem bought a 1,827 sf unit D102 in Seahaus condo complex in La Jolla, two blocks from the beach, for $1,090,000 with 10% down. Two months later, he refinanced into a $990,000 loan from "No Red Tape Mortgage" (later adding a $250k second from WaMu). On 11/17/2008, the condo was repossessed by the bank. Sale amount was $1,143,400. In two years, loan balance has grown at least 10%.

Here's another one. On 12/10/2003, Therese Ghanayem bought a house in a gated community in Santaluz (7378 Los Brazos) for $823,500. On 7/12/2005, the house was refinanced into two loans with Countrywide, $995k and $350k. First loan ended up in foreclosure on 8/15/2008. Sale amount was $1,133,294.

Both Seahaus D102 and 7378 Los Brazos are currently bank-owned and off the market. It's not clear what happened to Michael & Therese Ghanayem. With more than half a million tax-free dollars pulled out just from these two properties using cash-out refis, they can probably afford to retire in the Caribbean. (Incidentally, Michael is a 1998 Mt. Carmel High alumnus. That makes him 28 or so today.) But I digress.

Rural areas appear to have escaped this problem to some degree. Ramona (92065), north Escondido (92026), El Cajon (92020, 92021) have considerable numbers of foreclosures caused by "old-fashioned" subprime loans, but neg-am percentages in all these are below 20%.

Election map

2008-11-22T12:49:00.000-08:00

Perhaps you'll find this interesting:

Election results are from San Diego Registrar of Voters; precinct boundaries are from SanGIS, parsed with Shapefile library. I used the map of Congressional Districts as the background - that was the highest-resolution map of San Diego I could find. (I tried to stitch together a map from Google Maps screenshots, but that didn't work so well - I couldn't get the election overlay to match geographic features perfectly.)

All precincts with 20 or more recorded votes are shown.

It's striking how little opposition there is for Prop 8 outside North County coast and central neighborhoods (Hillcrest, South Park & such). Most neighborhoods south of 94 vote for Obama and Yes on 8. Same with Indian reservations (Pala, Barona, Santa Ysabel) and democratic pockets in Escondido and El Cajon.

Mandatory election post

2008-11-09T21:32:00.000-08:00

Every blogger seems to have something to say about our recent election. Here's my try.

This is how different parts of San Diego County voted on November 4th.

Neighborhood	Votes for McCain	Votes for Obama	% for Obama	% Yes on Prop 8
Alpine	4202	1939	31.6%	69.4%
Ballena	310	133	30.0%	69.4%
Bonita	2748	2427	46.9%	62.6%
Bonsall	690	358	34.2%	65.9%
Borrego Springs	477	518	52.1%	56.3%
Bostonia	3786	2755	42.1%	66.3%
Boulevard	341	164	32.5%	72.8%
Buena	1845	1390	43.0%	62.0%
Campo	414	159	27.7%	77.4%
Carlsbad	21637	21843	50.2%	51.2%
Centre City	1893	4165	68.8%	36.5%
Chollas Park	716	4571	86.5%	65.0%
Chula Vista	24675	36318	59.5%	62.5%
City Heights	1059	3284	75.6%	49.9%
Clairemont E	6240	7731	55.3%	51.8%
Clairemont N	4458	5993	57.3%	47.7%
Clairemont S	3605	5363	59.8%	43.3%
Coronado	4224	3095	42.3%	54.8%
Crest	840	437	34.2%	69.2%
Dehesa	195	132	40.4%	63.5%
Del Dios	2372	2151	47.6%	58.1%
Del Mar	812	1439	63.9%	32.6%
Del Mar Heights	5604	8362	59.9%	40.3%
Descanso	1134	474	29.5%	70.1%
El Cajon	13004	11324	46.5%	63.9%
Elfin Forest	124	104	45.6%	55.3%
Encanto E	2857	5790	67.0%	68.7%
Encanto W	1660	6356	79.3%	66.5%
Encinitas	9981	16538	62.4%	38.3%
Escondido	18635	15711	45.7%	64.1%
Fairbanks Ranch	503	250	33.2%	58.7%
Fallbrook	8732	4816	35.5%	68.1%
Felicita Park	892	499	35.9%	62.0%
Foothill	287	219	43.3%	60.6%
Golden Hill	413	2098	83.6%	30.7%
Harbison Canyon	301	147	32.8%	63.2%
Harbor	745	643	46.3%	50.1%
Helix	3030	2752	47.6%	55.8%
Hidden Meadows	2131	1076	33.6%	69.1%
Hillcrest	1481	7791	84.0%	16.4%
Imperial Beach	2553	3511	57.9%	55.9%
Jacumba	58	73	55.7%	65.6%
Jamacha	661	373	36.1%	67.0%
Jamul	1963	1139	36.7%	66.7%
Julian	789	504	39.0%	60.1%
La Jolla	6467	8886	57.9%	40.0%
La Mesa	9133	11730	56.2%	50.7%
La Playa	1929	2004	51.0%	47.9%
Lake Morena	331	153	31.6%	71.4%
Lake San Marcos	1515	927	38.0%	65.9%
Lakeside	7590	3868	33.8%	69.0%
Lakeview Flinn	3491	1634	31.9%	70.4%
Lemon Grove	2919	4114	58.5%	61.4%
Lincoln Acres	172	319	65.0%	65.7%
Linda Vista	2787	4488	61.7%	48.9%
Loma Portal	2668	3408	56.1%	44.9%
Lomas Santa Fe	231	314	57.6%	36.8%
Middletown	1863	5030	73.0%	28.1%
Midway Old Town	1498	2734	64.6%	40.0%
Mira Mesa	9464	11220	54.2%	57.2%
Mission Bay	659	1087	62.3%	33.8%
Mission Hills	1286	3220	71.5%	27.7%
Mission Valley	1459	2966	67.0%	35.1%
Montezuma	2004	4526	69.3%	33.8%
Montgomery	296	449	60.3%	44.6%
National City	3273	6065	64.9%	65.9%
Navajo	6324	7238	53.4%	50.5%
Nestor	3488	6460	64.9%	65.0%
Normal Heights	3227	10063	75.7%	34.4%
North Park	2322	11834	83.6%	23.5%
Oak Grove	268	188	41.2%	68.1%
Ocean Beach	2217	6328	74.1%	26.9%
Oceanside	25385	26334	50.9%	59.5%
Otay	2170	3655	62.7%	66.4%
Pacific Beach	5390	11021	67.2%	31.6%
Pala	57	115	66.9%	59.7%
Paradise Hills	3374	4808	58.8%	68.4%
Pauma Valley	174	205	54.1%	62.9%
Pomerado	8297	8830	51.6%	52.1%
Potrero	161	140	46.5%	75.1%
Poway	11416	7920	41.0%	60.0%
Rainbow	287	200	41.1%	65.7%
Ramona	8215	3886	32.1%	68.0%
Ranchita	156	109	41.1%	64.4%
Rancho Bernardo	9423	8625	47.8%	57.4%
Rancho El Cajon	1453	637	30.5%	72.3%
Rancho Santa Fe	1652	837	33.6%	57.7%
Rho Monserate	432	247	36.4%	72.1%
Rho Penasquitos	14972	16475	52.4%	52.7%
Rincon D Diablo	2045	1188	36.7%	64.4%
Rock Springs	431	267	38.3%	65.3%
Rolando Redwood	3380	7575	69.1%	51.4%
San Carlos	5361	5863	52.2%	51.7%
San Marcos	11446	11181	49.4%	59.8%
San Ysidro	1709	4217	71.2%	65.4%
Santee	12007	7869	39.6%	62.7%
Se San Diego E	339	2116	86.2%	65.4%
Se San Diego W	289	1838	86.4%	61.0%
Serra Mesa	3130	3845	55.1%	52.0%
Solana Beach	2571	3445	57.3%	41.1%
South Park	1400	5628	80.1%	25.2%
Spring Valley	7093	8756	55.2%	64.1%
Sweetwater	405	415	50.6%	66.6%
Tierrasanta	4455	5437	55.0%	48.2%
University N	3812	11904	75.7%	29.7%
University S	2791	4063	59.3%	43.8%
Valle De Oro	6877	4506	39.6%	63.6%
Valley Center	3869	1806	31.8%	70.2%
Vista	11208	10934	49.4%	60.8%
Vista Acres	724	556	43.4%	61.6%
Whispering Palms	804	484	37.6%	56.1%
Yaqui Wells	61	64	51.2%	57.3%

All numbers come from here.

Rural areas are pro-McCain, central San Diego neighborhoods (e.g. Golden Hill, South Park) are heavily pro-Obama. Hillcrest and North Park favor Obama 5 to 1. In Fairbanks Ranch and Rancho Santa Fe, 67% of votes went for McCain, but neighboring Del Mar Heights and Solana Beach vote 57-59% for Obama. (Carmel Valley is probably part of Del Mar Heights in their definition)

Hillcrest is the most liberal, deep East County (Campo, Descanso, Boulevard) is the most conservative. Chollas Park, Encanto, San Ysidro, National City vote for Obama and Yes on 8 at the same time.

Next, I'll try to build a map. I'll either have to find 2008 precinct definitions or adapt 2006 definitions somehow.

San Diego HPI - October '08

2008-11-07T10:27:00.000-08:00

City average: 37.9% off the peak
Top tier: 15.5% off the peak
Middle tier: 37.4% off the peak
Bottom tier: 45.9% off the peak

These numbers represent transactions that went into escrow in late August or early September. Stock market began tanking in the last week of September. I expect to see some impact of the stock market crash in November and December data.

San Diego HPI - September '08

2008-10-01T21:18:00.000-07:00

City average: 37.5% off the peak
Top tier: 15.3% off the peak
Middle tier: 37.6% off the peak
Bottom tier: 44.9% off the peak

Note: the chart is rebased to use December '99 = 100%, this way my numbers can be directly compared with Case-Shiller.

Month	S&P Case-Shiller	SDHPI
January '08	197.45	198.06
February '08	190.34	190.64
March '08	185.42	184.87
April '08	180.56	179.99
May '08	178.03	176.52
June '08	175.37	174.37
July '08	172.20	171.42
August '08		168.25
September '08		164.32
October '08		159.23

Good schools vs bad schools

2008-09-15T00:35:00.000-07:00

This is only marginally related to the main topic of my blog.

When I do tiered price analysis, I define "top tier" as a set of desirable geographical areas with low crime and good schools. But what makes good schools good?

This is a plot of API scores of 450 elementary schools in San Diego County against average education level of all parents of students in these schools. Average parent education level is defined in such a way that it would be 5 if every student in a school had at least one parent who spent any time in a graduate school; it would be 1 if no one in the school had a single parent who managed to graduate from high school.

It seems that parent education is a strong predictor of school ratings. On the other hand, school district itself has almost no say.

All numbers come from here

http://www.cde.ca.gov/ta/ac/ap/apidatafiles.asp

San Diego HPI - August '08

2008-09-01T18:09:00.000-07:00

City average: 35.1% off the peak
Top tier: 14.3% off the peak
Middle tier: 35.3% off the peak
Bottom tier: 44.1% off the peak

Almost all regions are showing declines again. City average is down 2% month-to-month, top tier is at the lowest level since 2004, and 54-94 geo finally went below 50% off the peak.

Price changes since 2000:

Forecast

2008-08-22T10:36:00.000-07:00

This is an attempt to predict the dynamics of the real estate market in San Diego over the next 3-4 years.

"Fundamentals" curve assumes more or less unchanged interest rates and steady wage inflation that averages 3%/year going forward. For the top tier I use a soft-landing scenario (exponential decay to fundamentals). To extrapolate two other tiers, I use quadratic approximations of season-adjusted HPI points from the last 9 months.

Summary of predictions:

* Aggregate Case-Shiller bottom in February '09 in 150-155 range (late '02 pricing)
* Top tier: 5% decline followed by many years of scraping along the bottom
* Middle tier: 6-8% decline followed by a mild bounce-back

Caveats:

* Bottom tier may get some support from FHA short-refinancing program, in which case the decline will not be so severe.
* I'm assuming that GSE conforming-jumbo loans and higher FHA loan limits stay with us until the return of a healthy jumbo market. Technically, they are supposed to be discontinued on Dec 31, 2008, but it's likely that loan limits will be extended.
* Interest rates may not stay the same. Here are two alternative scenarios, with rates heading to 5.5% and 7.5% long term, respectively:

I'm not a prophet and I may be seriously off, only time will tell.

UPDATE: recalculated the "fundamentals" curve using actual CPI and mortgage rate data.

Prices by zip code: 2008 vs 2002

2008-08-05T02:19:00.000-07:00

Approximate median values of detached homes in each community in Q2 2008, and how much they were worth in Q3 2002.

Rank	Area	Definition	Median price	Median price - Q3/02	Rank - Q3/02	Change
1	Logan Heights	92113	$186,000	$195,000	1	-5%
2	Chollas/Euclid	92105	$242,000	$233,000	2	4%
3	Encanto	92114	$250,000	$245,000	4	2%
4	Golden Hill	92102	$253,000	$263,000	5	-4%
5	National City	91950	$263,000	$234,000	3	12%
6	Vista NW	92083	$267,000	$267,000	7	0%
7	Lemon Grove	91945	$281,000	$273,000	8	3%
8	Escondido E	92027	$289,000	$282,000	10	2%
9	Spring Valley	91977,91978	$290,000	$278,000	9	4%
10	Escondido SE (valley)	92025	$290,000	$283,000	11	2%
11	Paradise Hills	92139	$290,000	$267,000	6	9%
12	Oceanside NE	92057	$318,000	$289,000	12	10%
13	Santee	92071	$329,000	$297,000	14	11%
14	San Ysidro	92173	$331,000	$303,000	18	9%
15	Escondido N	92026	$332,000	$306,000	20	8%
16	Chula Vista SW	91911	$334,000	$298,000	16	12%
17	El Cajon E	92021	$335,000	$299,000	17	12%
18	NE Vista	92084	$337,000	$327,000	27	3%
19	Otay Mesa	92154	$347,000	$298,000	15	16%
20	El Cajon W	92020	$348,000	$295,000	13	18%
21	Oceanside SE	92056	$354,000	$304,000	19	16%
22	Imperial Beach	91932	$360,000	$319,000	23	13%
23	La Mesa	91941,91942	$360,000	$318,000	22	13%
24	Chula Vista NW	91910	$374,000	$340,000	31	10%
25	Lakeside	92040	$375,000	$319,000	24	18%
26	Linda Vista	92111	$378,000	$345,000	32	10%
27	San Marcos N	92069	$382,000	$337,000	30	13%
28	SDSU	92115	$385,000	$320,000	25	20%
29	Rancho San Diego	92019	$386,000	$354,000	36	9%
30	Mira Mesa	92126	$389,000	$328,000	28	19%
31	W Oceanside	92054	$392,000	$317,000	21	24%
32	San Carlos	92119	$394,000	$346,000	33	14%
33	Serra Mesa	92123	$399,000	$324,000	26	23%
34	Ramona	92065	$402,000	$350,000	35	15%
35	Eastlake, Otay Ranch	91913,91915	$416,000	$356,000	37	17%
36	Vista S	92081	$417,000	$328,000	29	27%
37	Falbrook	92028	$434,000	$350,000	34	24%
38	Clairemont	92117	$441,000	$374,000	40	18%
39	Alpine	91901	$454,000	$410,000	47	11%
40	San Marcos S (except San Elijo Hills)	92078	$455,000	$369,000	39	23%
41	Valley Center	92082	$457,000	$407,000	45	12%
42	Normal Heights	92116	$457,000	$379,000	42	21%
43	Eastlake NE	91914	$482,000	$409,000	46	18%
44	Allied Gardens, Del Cerro	92120	$485,000	$375,000	41	29%
45	South Park	92104	$491,000	$365,000	38	35%
46	SW Escondido	92029	$495,000	$417,000	48	19%
47	Tierrasanta	92124	$513,000	$420,000	51	22%
48	Poway	92064	$514,000	$404,000	44	27%
49	Rancho Bernardo	92127	$528,000	$394,000	43	34%
50	Bonita	91902	$536,000	$434,000	53	24%
51	Carlsbad NE	92010	$547,000	$420,000	50	30%
52	Penasquitos	92129	$560,000	$418,000	49	34%
53	Carmel Mtn Ranch	92128	$571,000	$433,000	52	32%
54	San Elijo Hills	92078	$592,000	$452,000	54	31%
55	Bay Park	92110	$593,000	$464,000	55	28%
56	Escondido SE (hills)	92025	$644,000	$504,000	59	28%
57	Carlsbad NW	92008	$666,000	$485,000	57	37%
58	Scripps Ranch	92131	$676,000	$520,000	60	30%
59	University City	92122	$677,000	$474,000	56	43%
60	Ocean Beach	92107	$681,000	$496,000	58	37%
61	Hillcrest, Mission Hills	92103	$735,000	$559,000	64	31%
62	Carlsbad SE	92009	$743,000	$527,000	61	41%
63	Carlsbad SW	92011	$760,000	$551,000	63	38%
64	Pacific Beach	92109	$795,000	$563,000	65	41%
65	Encinitas	92024	$804,000	$576,000	66	40%
66	4S Ranch	92127	$838,000	$582,000	67	44%
67	Point Loma	92106	$875,000	$616,000	68	42%
68	Cardiff	92007	$884,000	$538,000	62	64%
69	Carmel Valley	92130	$982,000	$690,000	69	42%
70	Del Mar, Solana Beach	92014,92075	$1,393,000	$912,000	70	53%
71	La Jolla	92037	$1,698,000	$1,119,000	72	52%
72	Coronado	92118	$1,748,000	$1,108,000	71	58%
73	Rancho Santa Fe	92067,92091	$2,506,000	$1,932,000	73	30%

San Diego HPI - July '08

2008-08-01T01:52:00.000-07:00

City average: 33.8% off the peak
Top tier: 13.3% off the peak
Middle tier: 34.2% off the peak
Bottom tier: 42.6% off the peak

Steady decline continues. Top tier remains resilient, but the spring bounce is clearly over. 54-94 geo is getting close to breaking the 50% off the peak.

Two lowest-priced geos ("54-94" and "north of 78") are back to mid-'02 prices. If this trend persists, we'll see 2001 prices before the end of the year.

These charts include all June closing late-reporters. Apparent stabilization in several neighborhoods in June charts was a statistical fluke.

San Diego HPI - June '08

2008-07-01T00:03:00.000-07:00

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

Bay Area

2008-06-16T11:48:00.000-07:00

"880": Pleasanton, Dublin, San Ramon, Walnut Creek, Pleasant Hill
"SE": Fremont, Milpitas, northernmost San Jose

"Ghetto" zip codes (e.g. Concord, Union City) are excluded.

Trulia's resale database is very limited, so 3 month resolution with a lot of noise is the best I can do. I planned to add a series for SW (Cupertino, Palo Alto & such) but there was not enough data, and the resulting chart was too erratic. It does appear that southwest Bay Area is still stuck at 2005 pricing.

Three suburbs

2008-06-10T23:39:00.000-07:00

I looked and looked at today's post on BMIT and in the end I decided that it could use some hard HPI data.

And here it is.

I basically took HPI profiles for three suburbs and scaled them using known sale prices of those three houses.

Some thoughts. (Read the original post to understand what's going on)

The Temecula house is slightly above median for Temecula-Murrieta area, and it's the nicest of all three. Notice the 10k sf lot and the fact that it has no HOA or Mello-Roos. It is aggressively priced and should not have much trouble selling.

The 4S house is well below median for 4S. It's an 'economy' house. In 4S Ranch and Carmel Valley, everyone and their mother has 3000 sq.ft., and that's not the factor that determines value of the house. The key factor is lot size. BMIT post incorrectly says that 17004 Ralphs Ranch Rd. has 8276 sq.ft. lot. 'Economy' 4S houses never have lots that big. It's really 5300 sf. There may be something wrong with interior and upgrades. Here's a good example of a 'median' 4S house:

15161 Cross Stone Dr, San Diego CA 92127

4 beds, 2.5 baths, 3,031 sq ft, 6,720 sf. Sold for $812,500 on 03/20/2008. 17004 Ralphs Ranch was already listed, and the buyer of 15161 Cross Stone surely must have looked at it before committing to pay 130K more for a different house.

The CV house is below median (it's also on a postage stamp lot). At 920k, it's somewhat overpriced. In today's market, it would have a better chance of selling at 860k.

If CV and 4S were deflated to the same level as Temecula, 17004 Ralphs Ranch would be worth 500k, and 13854 Kerry would be worth 650k.

Temecula & Murrieta

2008-06-08T14:54:00.000-07:00

This was on my back burner for a long time. There's no equivalent of SDLookup or San Diego County Real Estate Information in Riverside County (as far as I know), so it's harder to get the data. In the end I went with Trulia - they have about 9 months' worth of complete sales records and historical data for everything sold during this 9 month window.

As of May '08, Temecula and Murrieta are 40% off the peak, with no indications of slowing down.

SDHPI vs. Case-Shiller

2008-06-06T21:30:00.000-07:00

Case-Shiller is shifted back one month: the most recent point ("March 2008", published May 25) is plotted in February on the chart.

The agreement seems to be quite good, SDHPI is a bit more "bearish" than C-S, possibly because C-S assigns higher weights to expensive houses and SDHPI weighs everyone equally.

Even better agreement in low and middle tiers, clear discrepancy in the high tier. It's mainly because SDHPI's high tier is geographical and C-S's high tier is price based. Larger properties from middle and even low SDHPI tiers occasionally end up in C-S's high tier. Clearly, price stability has more to do with geographic factors (schools, crime, demographics) than with absolute price values.

May

2008-06-02T00:36:00.000-07:00

City average: 31.2% off the peak, July 2003
Top tier: 11.9% off the peak, April 2004
Middle tier: 32.5% off the peak, June 2003
Bottom tier: 39.6% off the peak, February 2003

Slight change of zone definitions: "north of 78" is defined as 92056,92057,92083,92084. San Marcos North (92069) fares slightly better and 92078 fares better yet. Escondido is very heterogeneous and "railroad tracks" do not match with zip code boundaries.

Is this the bottom?

2008-05-19T21:00:00.000-07:00

San Diego Union Tribune ran an article claiming that San Diego county housing is bottoming. A couple of weeks ago WSJ made a similar claim: "...it is very likely that April 2008 will mark the bottom of the U.S. housing market."

Is it, or is it not?

* April is not a likely month to mark the bottom. Barring major interest rate moves or bailouts (which we did not have), typical seasonal patterns suggest that the bottom (as observed by a HPI) should occur in January or February. If you use Case-Shiller, you'll see it in February or March because its results are delayed by one month. Seasonal bounce can temporarily override the correction. It did that every year during the 90's bust. But, if it does not manage to do that till April, the correction is probably not over.

90's San Diego "false bottoms":
1993: May
1994: February
1995: February
True bottom: February of 1996

* Housing price uptick is only seen in median prices, not in this HPI. Median prices are notorious for their high noise levels. Whether we see an uptick in May, remains to be seen.

* Low and middle tier are close to fundamentals, but we're going through never-before-seen numbers of foreclosures (dwarfing anything recorded during the 90's bust) and those are likely to maintain some downward pressure on prices.
* High tier is nowhere close to fundamentals and '04-'05 vintage neg-ams are yet to reset to fully amortizing.

Based on current dynamics, I expect low and middle tiers to bottom in February '09. High tier will take longer.

P.S. closings through 5/22 suggest that the city is on track to shed at least another 1% off the peak in May. So much for the bottom. (That's another 4 billion dollars of "paper wealth" lost in one county, in one month)

Million dollar houses

2008-05-02T21:29:00.000-07:00

There are approximately 50,000 houses in San Diego County with current market values above 1 million dollars.

As you could imagine, San Diego multimillionaires tend to stick together. Half of these 50,000 are in only 5 zip codes.

92037 (La Jolla): 14%
92130 (Carmel Valley): 12%
92067 (Rancho Santa Fe): 9%
92024 (Encinitas): 8%
92014 (Del Mar): 6%
92118 (Coronado): 6%
92064 (Poway): 5%
92009 (Carlsbad SE): 5%
92127 (Santaluz, 4S, Del Sur): 4%
92011 (Carlsbad SW): 3%

April

2008-05-01T01:28:00.000-07:00

City average: 30.2% off the peak, August '03
Top tier: 12.6% off the peak, May '04
Middle tier: 31.4% off the peak, July '03
Bottom tier: 37.4% off the peak, April '03

Definite signs of (temporary?) stabilization everywhere except the very low end. Clairemont/Mira Mesa and Carmel Valley/4S are up slightly. Eastlake/Otay Ranch only lost 0.5%. Still a lot of hurt in deep subprime land: southwest (west Chula Vista, Imperial Beach) and 54-94 corridor are down another 3% month to month. A typical house bought in 54-94 corridor (National City, Logan Heights, Encanto) at the peak in April '06 is now worth less than 58% of its purchase price.

This is how house values are distributed

For example, a house valued at $600,000 is worth more than 75% of all detached houses in the county.

Note: this graph does not account for new construction (it assumes that all houses have been around forever).

March

2008-04-01T00:18:00.000-07:00

City average 28.3% off the peak (back to October '03). February city average was
revised to 26.9% off.

Top tier ("fortress"): 11.8% off the peak, May '04
Middle tier ("boundary"): 29.8% off the peak, September '03
Bottom tier ("subprime land"): 35.3% off the peak, July '03

There are some indications of slowing aka "spring bounce", some of it is seasonal, some of it is the consequence of low interest rates of second half of January.

February HPI

2008-03-01T18:20:00.000-08:00

City average 27.3% off the peak.

Here's a different perspective.

Definitions of "fortress" and "undesirables" are fairly subjective. "Fortress" areas (25% of the housing stock) are generally expensive, have low crime levels and good schools. "Undesirables" (also around 25%) have problems with crime, poor schools, or both. For the purposes of constructing this graph, they are defined as follows.

Maps are generated using http://www.usnaviguide.com/zipunion.htm.

Constructing a HPI

2008-02-06T20:57:00.000-08:00

Like Case-Shiller or OFHEO HPI, this index is based on repeat sales of same properties. I restrict my attention to detached single-family houses and exclude condos. (Condo prices may have very different dynamics from SFRs in the same area, and it's less work to do only SFRs. Also, Case-Shiller only includes single-family housing, and I like to be able to check against their numbers.)

First we need some resale data. MLS has everything we want, but one needs to be a realtor to access it directly. (Any friendly realtors out there?) Fortunately for San Diego County, there's a site with a lot of sale records going back to 1997:

http://users.ixpres.com/~gtriphan

It isn't perfect (incomplete, lots of misspellings), but it's better than nothing. We supplement it with another site where we can get recent closings:

http://www.sdlookup.com

We can write a script that pulls web pages from those two sites and parses them to extract resale entries. Extracted data needs to be scrubbed a little bit. For example, the same property might be present in our data as "123 10th st", "123 tenth st" and "123 tenth street".

Next step is to identify resale pairs. For every unique property for which two or more resale entries are recorded, we sort them by date. Our data probably still contains a lot of junk (incorrectly entered sales prices, non-arms-length transactions), so it is a good idea to apply some filters. We also want to exclude "flips" or any other resale pairs involving a substantial change in the condition of the property. A possible set of filters:

* Exclude all resale pairs separated by less than 6 months
* Exclude all resale pairs where either one of two resale prices is absurdly low (<$2000) or extremely high (>$10,000,000)
* Exclude all resale pairs with price change of more than 2x in either direction in less than 12 months
* Exclude all resale pairs with average annual appreciation/depreciation rate of 50%/year

The specific choice of filters won't significantly affect the outcome, but proper filters will reduce the noise level in our HPI.

Resale pairs are grouped into areas. The idea is that homes in the same area will experience similar rates of appreciation and depreciation. Also, running the algorithm on individual zip codes typically results in too much noise because of insufficient amount of data. The more data we have, the better the quality of our final HPI. This step requires some knowledge of different neighborhoods. For example, it makes sense to put zip codes 91913 and 91915 into the same group, but their neighboring 91911 has very different demographics and housing stock and it may evolve differently.

Finally we take resale pairs in each area and try to approximate them with a single index using a modification of the weighted least squares algorithm.

I might expand on this later; for now, here's a code snippet:

// "vn1" and "vn2" - dates of first and second sale
// "price1" and "price2" - recorded prices
// "nmax" - the number of months for which we construct the index (if we're working with 1999-2007, nmax=108)
// "sol" - logarithm of our final HPI
int N = nmax-1;
double* matrix = new double[N*N];
double* rh = new double[N];
double* sol = new double[N+1];
sol[N] = 0;

memset(matrix, 0, N*N*sizeof(double));
memset(rh, 0, N*sizeof(double));

for(i=0; i<nPairs; i++)
{
double weight = 1;
// use lower weights when sales are separated by long periods of time
weight *= 1 - 0.4 * abs(vn2[i]-vn1[i]) / 120.;

double ratio = log((double)prices2[i] / (double)prices1[i]);
// make the index smoother by creating extra "copies" of every resale, shifted one month back and one month forward
for(int delta=-1; delta<=1; delta++)
{
  j = vn1[i] + delta;
  int k = vn2[i] + delta;
  if(j<0 || k<0)
   continue;
  if(j>N || k>N)
   continue;
  if(vn1[i]==N-1 && j==N)
   continue;
  if(vn2[i]==N-1 && k==N)
   continue;
  matrix[j+j*N] += weight;
  if(k<N)
   matrix[k+j*N] -= weight;
  rh[j] -= ratio*weight;
  if(k<N)
  {
   matrix[k+k*N] += weight;
   if(j<N)
    matrix[j+k*N] -= weight;
   rh[k] += ratio*weight;
  }
}
}

/** Solve the system of equations **/

for(j=0; j<N; j++)
{
double x = matrix[j + j * N];
if(fabs(x) < 1e-8)
{
  for(i=0; i<N; i++)
   matrix[i + j*N] = 0;
  x = matrix[j + j*N] = 1;
  rh[j] = 0;
}
for(i=0; i<N; i++)
  matrix[i+j*N] /= x;
rh[j] /= x;
for(i=j+1; i<N; i++)
{
  int k;
  double mul = matrix[j+i*N];
  for(k=0; k<N; k++)
   matrix[k+i*N] -= mul * matrix[k+j*N];
  rh[i] -= mul*rh[j];
}
}

for(j=N-1; j>=0; j--)
{
sol[j] = rh[j] / matrix[j+j*N];
for(i=j-1; i>=0; i--)
{
  rh[i] -= sol[j] * matrix[j+i*N];
  matrix[j+i*N] = 0;
}
}

January '08 - preliminary

2008-02-02T21:22:00.000-08:00

Rock-bottom interest rates are contributing to some degree of stabilization in middle-class areas. Many other parts of the city continue to decline.

New developments

2008-01-26T01:44:00.000-08:00

This is a look at three major new developments in the county: 4S Ranch (with its older sibling Bernardo Springs), San Elijo Hills/Old Creek Ranch, and Eastlake/Otay Ranch.

Take these graphs with a grain of salt. There's a lot of noise due to insufficient data: less than 200 resale pairs are available for 4S Ranch and San Elijo Hills. I'm surprised that graphs came out as nice as they are.

Notice the periodic structure of the 4S Ranch chart. Seasonal variations are fairly common but they are far stronger in 4S than anywhere else. (Has something to do with Poway school district, maybe?)

Affordability - 12/2007

2008-01-22T02:05:00.001-08:00

"Affordability" is basically an inflation-adjusted mortgage payment for a median house, normalized so that July 2000 = 100%. To measure inflation, I use CPI. (Actual incomes are good too, but incomes in San Diego county got artificially inflated due to all the bubble money flowing in.)

Some assumptions that go into this model:
* Average conventional mortgage rate as published by St Louis Fed
* Coast and RB/RP/4S etc. require jumbo mortgages (1% premium over conventional rate, starting in August 2007)
* Down payment equal to 20% of July 2000 median house price, adjusted for inflation
* To simplify things, it's assumed that the entire balance is financed using the aforementioned rate (although in reality, the amount borrowed would be above 80% of purchase price, so a 2nd mortgage with higher interest rate would be required)
* Property tax equal to 1% of purchase price

Things are rapidly normalizing, partly because of falling prices, partly because of low mortgage interest rates.

December 2007 data

2008-01-20T09:53:00.000-08:00

Countywide, as of December, we're 22.5% off the peak:

My numbers are 3 months ahead of Case-Shiller. The official Case-Shiller for October is 13.1% off the peak and it really reflects the situation as of September, because their October numbers are averages of August through October. We had a 9% decline in 3 months.

Not every area is 22% down, though:

This plot will help explain why. It shows relative appreciation vs. July of 2000.

This is not to say that "Coast" and other upscale areas don't need to fall. Of the two causes of the housing bubble (speculative/investment buying and subprime) they were spared one and it kept prices relatively sane. Yet, a 15-20% drop is warranted just to get prices back to 2003 levels (most other areas are already closing in on 2003 levels fast). Besides, jumbo mortgages are more expensive and harder to come by than in 2003.

Area definitions:

"Southeast": Bonita (91902), Eastlake, Otay Ranch (91913, 91914, 91915)
"Southwest": old Chula Vista (91910, 91911), Nestor (92154), Imperial Beach (91932), San Ysidro (92173)
"Coast": all coastal towns from Coronado to Oceanside, UTC, Pacific Beach, Ocean Beach.