Rising home prices have sparked concerns of another housing bubble. But while San Diego housing is unusually expensive, it hasn’t reached bubble-like extremes in two key areas.
While San Diego homes are unusually expensive, low rates have been keeping a lid on monthly mortgage payments. But low rates don’t assure high home prices — the two have actually had a very inconsistent relationship in the past.
A good approach to measuring the “expensiveness” of San Diego housing is to compare home prices with local rents and incomes, which together encompass the most important drivers of home prices. This shows homes to be unusually pricey right now, though nowhere near levels reached during the bubble.
The San Diego housing market has achieved a somewhat troubling milestone: Homes are now more expensive than they’ve been at any recent time outside of the prior decade’s enormous bubble.
From the 2009 home-price low right through the end of last year, cheaper homes have made much bigger price gains — the mirror image of the losses incurred during the housing crash.
San Diego homes are now about as expensive as they were at 1979 and 1990 valuation peaks. Valuations are still well below the levels reached during the last decade, however, and San Diego housing doesn’t appear to qualify as a “bubble.”
The big news in the local market was in prices: They went up. A lot.
Right now, home price-to-income and home price-to-rent ratios are telling us that – bidding wars notwithstanding — there is no bubble to be seen in San Diego housing.
If the typical relationship between months of supply and home prices remains intact, we can expect further upward price pressure in the months immediately ahead.
Home prices had a strong year in 2012.