San Diego Real Estate

The New York Times last week carried a story on the tale of two housing markets.

AUSTIN, Tex. — The real estate market these days is a tale of two Americas, and one of them is not doing too badly.

In the America of big-city housing markets, especially on the coasts and in the struggling industrial Midwest, the huge run-up in values in recent years has given way to big drops in prices and sales volume. Millions of people owe more than their houses are worth.

But in the other America, specifically in cities like Austin; Grand Forks, N.D.; Yakima, Wash.; and Salem, Ore., the available evidence suggests the real estate market is holding up. Prices there never boomed as crazily as they did in the big cities, and now, even though volume is down almost everywhere, prices in many of these towns are firm or rising.

We'll leave aside the fact falling prices in the struggling industrial towns and the falling prices on the coast are barely related to each other and focus instead on the last statement.

Are home prices in Austin, Texas indeed holding up? Let's look:

Comparing home price trends in Austin Texas, Phoenix Arizona, and San Diego CA

From our perspective, Austin is indeed holding up better than some of the most bubbly markets, like Phoenix and San Diego.

Keep in mind though that in every market, the answer is: it depends. It depends on your price point, it depends on your neighborhood. In fact if we dive into Austin a little deeper, we find where that even though the prices haven't adjusted deeply, we can see where market demand is indeed cooling.

Days on Market for homes in Austin Texas. Data as of February 15 2008. Each line is a price quartile. First Quartile are the most expense 25% of homes on the market.

Days on market is climbing steadily across all price points. Despite a seasonal improvement in market time, The high end of Austin is on the market for a pretty long time right now. Buyers are in no hurry.

Furthermore, in Austin, when you look at the price quartiles, you can see the top of the market is squeezing but the bottom remains reasonably solid. This often implies, as the Times suggests, that the underlying economy is strong, immigration is positive, and people aren't so worried about their jobs. Here's the chart of home prices in Austin, by quartile. Note the slight squeeze at the top end of the market.

Real Estate Price trends in Austin Texas as of February 15 2008

So I'll conclude with a cautious agreement with the Times. Yes indeed there are markets so far escaping major carnage. Many of these markets didn't have the incredible upside in the past few years, so that stands to reason. Finally though, nearly all markets are showing signs of weakness. The key worry for all these markets is that they're following the economy, not leading it. If a recession evolves into full bloom, I don't see how anyone is spared.

Links:

Austin Real Estate Report

San Diego Real Estate Report

Phoenix Real Estate Report

Last week we published the February editition of our National Housing Market report [PDF download]. I was traveling and forgot to add it to the blog, so here it is. We've expanded the coverage this month and added a few more cities ebyond the initial 20 covered by the Case Shiller Index. We'll add a few more important cities in the upcoming versions of the reports too.

Here are the highlights from this month's report.

• Listing prices declined in 19 of 22 markets during January. Prices only increased in the New York metro area during January and were flat in Dallas and Phoenix.

• The largest monthly decline of 3.6% occurred in San Francisco. Over the three month period, listing prices in San Francisco have fallen by 6.1% from $708,551 to $665,100. The other California markets of Los Angeles and San Diego logged declines of more than 2% for the month of January.

• Property inventories declined in most markets except in the Northwestern markets of Seattle and Portland. Inventories tightened sharply in the Midwestern markets of Cleveland and Detroit with decreases of 10.4% and 5.4% respectively during January. Seasonal declines in listing inventories are typical during the winter months.

• Markets with the longest time-on-market are Miami and Minneapolis at an average of 144 days-on-market. Miami’s days-on-market only increased slightly from the previous month’s 143 days while Minneapolis jumped over 5% from 136 to 144 days. Sixteen of 22 markets had an average days-on-market of over 100.

• Denver led all markets with the fastest rate of inventory turnover at 61 days, followed closely by Dallas and San Diego at 80 days. The sharp decrease in Denver’s days-on-market indicator – almost 39% during the past three months – coupled with an inventory reduction of over 11% during the same period, should be a positive for listing prices in the coming spring selling season.

A paper in the Journal of Emergency Management came across my desk today. Measuring the Efficacy of a Wildfire Education Program in Colorado Springs

Timely, considering the state of Southern California right now and of Tahoe earlier this summer.

The program sounds like a fascinating way to increase awareness of the fire risk (awareness being the key factor in reducing the controllable variables). Preparation for disasters like this is of course subject to the Black Swan effect:

...most people are uncomfortable making risk estimates of uncertain events such as wild fires... They may think, "There has never been a wildfire where I live, so it is very unlikely that there will be one in the future."

So what can public policy do to motivate people to better manage their exposure? In Colorado Springs, they evaluated every parcel, 35,000 of them, and gave each a rating. Now the city can tell me I have a very-high-risk property and get me thinking about trimming the pine boughs back from my cedar-shingle roof. Then they publish that information. When I go to buy a home in the area, I can factor that into my purchase. That's positive.

But is it effective? And how do we measure changes in risk perceptions? The authors of the paper took a novel approach.

Rather than simply measuring changes in risk perceptions, we examine the effect of the program on the housing market. This provides a more complete picture of how the CSFD approach to education affects homeowner attitudes toward wildfire risk.

A market-based approach. Nice. Incent homeowners to fix the easy stuff that makes up most of the wildfire risk. Very cool.

And the results?

Perhaps the most striking result is that pre-assessment home prices and wildfire risk were positively correlated. In other words, houses with higher wildfire risk also had higher sales prices. The reason for this is [otherwise desirable features also increase fire risk]...building on a ridge may increase the wildfire risk, it also provides better views.

In contrast, post-assessment there is no such correlation. Post-assessment wood roofs and wood siding now have a negative impact on price. As a result, people are migrating to safer building materials.

Good stuff. Too bad it's a lesson a bit too late for the disasters this week. We'll keep an eye on the data to see if we can discern any immediate impact on home prices in San Diego from the fires. Will report back soon.

The S&P/Case-Shiller index for March 2007 was released today. The San Francisco Home Price index showed it's first increase in a year and came in at 211.09 vs. 210.78 in February. This increase should come as no surprise to our clients (or readers of this blog for that matter.) We whispered to clients on February 26 that the March numbers looked like they were heading higher.

(For the uninitiated, the Case Shiller index tracks existing single family home prices. The index compares prices now to January 2000 where the index = 100. These indexes are then traded as options and futures on the Chicago Mercantile Exchange.)

Broadly speaking, this is not a big surge in San Francisco Bay Area home prices. No

Tracking Home Prices for the San Francisco Bay Area.

In other notable markets reported today with the S&P Case Shiller Index: Los Angeles, Miami, and San Diego were down the biggest of the 10 major metros that are traded on the Merc. Full data table is here.

Some readers have asked lately about a recent jump in our Days on Market statistic. I thought it makes sense to explain it here. We recently did a methodology change where we increased the look-back window for watching properties.

By making this change, we more accurately reflect the actual total time on market, even for properties that have come on and off the market, especially including those that have been off the market for 30 days before being relisted.

In January 2007 we increased our look-back window. We'll now identify more properties as they've come on and off the market. Thus the big jump in our Days on Market statistic.

What we found was that in some markets, we can find a significant chunk of properties that have really been on the market for long periods and these properties were previously under-reported in our stats. We've seen a notable decline in the number of properties relisted (with the sole intention of "refreshing" a listing) in Silicon Valley since last fall when the local MLS changed its rules. In San Jose California we've observed a drop from nearly 25% of homes on the market having been relisted down to 9%. That's real progress.

Those rules however do not impact a property that for example was on the market all last summer, was pulled off over the holidays and put back on the market in January. A soon-to-be-announced Altos partner calls these properties "stale fish." We've adjusted our nets to catch more stale fish. We're still dolphin-safe though.

This change effected our the trend charts in most communities a little bit. In some areas, though, you might notice a big jump in the DoM stat that week in January 2007. This change is the reason for the jump. Inset is a snapshot of the current Days on Market trend for San Jose Homes.

What does one get for a million bucks these days? That's the question on our mind as we went spelunking through the database today. We grabbed 5 more or less random markets in the Bay Area, San Diego, Los Angeles, Seattle, and Chicago that have a quartile of the market with a median price at $1 million this week. Here's what you can expect if you wanted to drop a mil on a home in those markets.

Some fun things to note:

• The properties in these market chunks all average approximately 4 beds / 3 baths.
• The Chicago zip code 60614 is Lincoln Park, a part of town that has always been among the ritziest. So for around a million bucks, you could live in a very cool single family (detatched) home, in a killer location. Any part of this zip code that wasn't always tony went through massive gentrification in the late '80s and early '90s. I particularly like this place. That's where I'd go if I transplanted my Bay Area mortgage back to Chicago. $1million is the bottom of this zip code.
• For a million bucks in Huntington Beach, however, you'd get a place built in the '70s. This is the lowish side of the market too. So anything scraped and rebuilt in the last 15 years in Huntington is significantly more pricey that our sample for the day. 'Course it is February and that's gotta be worth a premium over Chicago today.
• The Des Moines section of Seattle on the other hand has a wide range of properties. But the nice long stretch on the water provides some great opportunities for the high-end of the market here on the south side of town.
• Santa Rosa is the most exurban of the zips in our sample today. Over 50 miles from San Francisco, the area provides some good opportunity to build on big lots at reasonable (for the Bay Area) prices. Which is great if you work in the wine business or don't mind a mega-commute.