Is this the bottom?

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

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

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).