The economics blog Calculated Risk put up a very interesting graph last week that showed the relationship between housing inventory and home prices at a national level. It was so interesting, in fact, that I decided to “borrow” the concept and recreate the graph for San Diego County.
It is below, but it requires some explanation. The orange line indicates the number of months’ worth of San Diego housing inventory. This is simply the number of homes for sale in a given month divided by the number of sales that same month, and it allows us to measure the supply of homes in terms of how much demand there is for that supply. I only had supply data going back to 2006 so the graph is not as far-reaching as the one on Calculated Risk.
The red line indicates price changes according to the San Diego Case-Shiller index. (The index is only current through April, hence the missing data point at the end). Prices are measured in terms of the monthly change, but they are annualized (multiplied by 12) to put in perspective for us folks who are used to looking at annual rates of change. Now, this part is important: the price change is inverted, meaning that prices are falling when the red line is high and rising when the red line is low. The reason for this inversion is to show how high inventory tends to correlate to price declines and low inventory to price increases.
OK, with that exposition behind us, you are allowed to actually look at the graph: