San Diego房地產泡沫的證據(ZT)

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A Bubble Primer, Volume 1:
Evidence of a Residential Real Estate Bubble in San Diego

Conventional wisdom goes that San Diego is experiencing a severe housing crisis with no end in sight. The recent runup in home prices is completely appropriate due to the supply and demand imbalance caused by a lack of developable land, years of underbuilding, and a huge surge in population due to San Diego's desirability as a place to live. Adding fuel to the fire is the fact that San Diego's wealth has grown significantly due to its robust and diverse economy.

Sounds pretty convincing! The only problem is that it's entirely false. There is no housing crisis. There has been no population boom. Local incomes have not even kept pace with inflation. And while San Diego may be a nice place to live, it was also nice 5 years ago, when homes cost half as much as they do today.

Population and Housing

Let's start with that population boom and commensurate housing shortage. From 1999-2004, the period we will be examining in detail, population increased by an annualized 1.7%. While this is hardly the population boom one constantly hears about, the supply of San Diego housing during the same period increased by an even smaller annualized 1.3%. It is absolutely a fact that population growth outpaced housing growth during this period, as is indicated by this chart displaying the change in the ratio of San Diegans per house:

However, before quitting your job to become a condo flipper, consider the magnitude of the change in the population/housing ratio as compared to the change in housing prices themselves:

I guess I'm just not seeing the big crisis. From 1999-2004, the ratio of population per housing unit increased in total by 2.7%. This means that if just 3 out of every 100 people got a roommate or moved in with the folks, there would actually be more housing availability now than there was in 1999. I do not deny that the trend in population vs. housing should have caused home prices to rise somewhat —but did it justify a doubling of homes prices? No way.

The timing of home price increases sheds further doubt on housing supply as a defense of home price appreciation:

If a housing shortage caused the first period of increase (a claim which is itself dubious, as explained above) why did prices increase 42% from 2002-2004, when the ratio was absolutely flat? Why did prices increase 24% from 2004 alone, even as housing supply grew faster than population during that same year? Clearly, price growth during this latter period had little to do with housing supply.

Despite all this, everyone seems convinced that home prices are perfectly reasonable in light of San Diego's severe and intractable housing shortage. I believe that's because there is (or at least was, up until recently) a severe shortage—but it is a shortage of for-sale inventory due to the fact that everyone in San Diego is so hell-bent on owning a home, and in many cases several homes. People have confused tightness of inventory for an actual demography-driven housing crisis, and in so doing they have made the incorrect assumption that prices are being driven by fundamentals rather than by investor sentiment.

The Diverse Economy

While the mythical housing crisis is the crowd favorite, another common defense of home valuations is the assertion that San Diego's "diverse economy" has enriched our citizens to the point where they can afford homes at these prices. This claim is not borne out by reality, as is clear from the fact that since 1999 the median home price has grown 5 times as fast as incomes.

As of this writing, San Diego's CAR Affordability Index indicates that the median-priced San Diego home can be afforded by only the top 10% of San Diego earners. People are only able to keep buying homes at these prices due to "creative financing" and the equity from prior home sales. If either of those props were removed, San Diego incomes would not likely support prices at these levels.

"Everyone Wants to Live Here"

Many people choose to ignore this boring demographic data altogether, focusing on one thought only: "Everyone wants to live in San Diego." This line of reasoning is quite flawed.

First, while it's indeed true that San Diego has a great climate and is a desirable place to live, this is not a situation that suddenly came into being in the late 1990's. San Diego has always had good weather—so how could weather explain the meteoric rise in home prices over the last 5 years? In other words, while San Diego's weather might explain why people pay more to live here than to live in North Dakota, it does not explain why people are paying more to live in San Diego now than they did in the past.

But they are paying more—a lot more. Over time, the median San Diego home price has on average cost 8 times the San Diego per capita income. As the following graph shows, the comparitive expense of San Diego housing is at an all-time high:

The second flaw with the "everyone wants to live here" argument is that whether people want to live here is not the issue. While desire to live in San Diego may be a theoretically unlimited quantity, the means to do so is not. There is an upper limit to how much housing can sustainably cost in relation to income, and it's got nothing to do with the temperature outside.

Rents vs Home Prices

Let's step back and look at the issue of home prices an entirely different way. All of the usual suspects—population, housing supply, income, and the desirability of the city—should affect the price of renting a home as well as buying a home. So rent prices, when compared to sale prices, should indicate whether or not sale prices are too high given the demographic factors. Not surprisingly, they do just that:

Amazingly, growth in rent prices has actually been slowing since 1999, even as sale prices began their parabolic rise. From 1999-2004, sale prices rose over 3 as much as rents, and from 2003-2004 alone sale prices rose a staggering 7 times faster than rents. The declining growth in rents concurrent with a phenomenal increase in sale prices provides yet another indication that those sale prices are not remotely justified by fundamental factors.

Interest Rates

Many people would argue that these high home prices are justified by correspondingly low interest rates. This is a valid idea, to a point, as low rates reduce the monthly payment required for a house at a given price. However, there are a couple of problems with this argument.

For starters, monthly payments have risen steeply even against a backdrop of declining rates. As the following chart shows, the monthly payment on a 30-year mortgage for the median priced San Diego home has risen by 79%, even though the mortgage rate decreased by 22% over that time.

Of course, few people attain fixed-rate loans these days given that adjustable-rate mortgages (ARMs) offer such low payments. However, even the drop in short term rates has not nearly offset the rise in home prices. Since 1999, the rate on a 1-year ARM has dropped 34%—but ARM borrowers still would have seen monthly payments increase by 66%.

To make the most extreme comparison: the monthly payment for a median priced San Diego home using an ARM in 2004 would have been 43% higher than the payment on the same home using a fixed loan in 1999. This, incidentally, coincides with an increase in per capita income of 21.6%, meaning that, even accounting for switching from a fixed loan to an ARM, monthly payments rose twice as fast as incomes during this period.

To my mind, however, an even bigger flaw with the idea that current home prices are justified by low rates involves the implicit assumption that rates will stay this low. This is a very complex topic that will be dealt with in later articles, but suffice it to say that there is a very real possibility that interest rates could rise significantly. It is absolutely possible that rates will remain low for years to come, but it is a mistake to blithely assume that they will remain low, or that they will rise at a smooth, housing-market friendly pace of 100 basis points per year. Should rates rise significantly, or should underwriting standards get back to a point where it is necessary to make a down payment or to assume a non-interest-only loan, monthly carrying costs on homes at current prices will prove impossible for many market participants to handle.

The current environment of low rates and easy lending does not explain away housing prices. Home price increases have already rapidly outstripped any offsetting reduction in interest rates, and the necessarily temporary nature of generational low rates and underwriting standards ensures that neither factor can provide justification that prices are sustainable at this level going forward.

A Classic Speculative Bubble

If current real estate valuations are not driven by population, a housing supply crisis, income growth, or interest rates, what's happened in San Diego to have allowed home prices to get to such lofty heights? Consider the following statistics on San Diego housing activity in 2004:

* 80% of mortgages were adjustable-rate, meaning that many borrowers were speculating that their salaries or home equity would increase faster than their mortgage interest payments.
* 47% of mortgages were interest-only, meaning that many borrowers were speculating that their salaries or home equity would increase faster than their mortgage interest payments and the eventual addition of mortgage principal payments.
* 23% of mortgages involved no down payment, meaning that many borrowers could (and did) use ultra-low rate interest only ARMs with no money down in order to afford far more house than their incomes would typically allow. (This figure is for May 2004 only but there's no reason to assume the rest of the year was significantly different).
* 37% of condo conversion buyers were investors, meaning that, given the comparitively low rents discussed above, the only possibility of these people not losing money is for condo prices to rise enough to cover the current negative cash flow.

And most importantly, as anyone who's read a newspaper or gone to a party knows, it has become a widely accepted fact both in the media and among the San Diego populace that real estate A) never goes down and B) is the place to be if you want to get rich. This entrenched expectation of huge, risk-free equity gains has become priced into the housing market.

San Diego real estate is a market not driven by fundamentals. Home prices have been driven to current levels by ubiquitous optimism, a complete lack of risk avoidance, a staggering amount of debt accrual, low lending standards, an enormous increase in market participation, widespread misconceptions about what drives home prices, and an utter dependency on continued price gains. San Diego is experiencing a classic speculative bubble.