Three suburbs

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

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

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

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?

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).