|
At some point in each decade since the 1960s, San Diego has experienced a substantial upward movement in home prices. This upward movement — traditionally known as a "spike" — is a period usually one or two years in duration in which home price increases far exceed the general inflation level.
Each spike brings home prices to a new benchmark or plateau which then serves as a basis for a more traditional market until the next spike occurs. Each spike since the 1960s has had greater dollar intensity, resulting in greater increases in home values.
For instance, in the 1960s, home prices in San Diego County were virtually level from 1960 to 1967. Then in 1967, home prices jumped 7.6 percent and in 1969, 10.6 percent, more than twice the level of inflation.
In the late 1970s, yet another spike surfaced. Between 1977 and 1979, home prices increased 76 percent, more than twice the level of inflation.
And then in the 1980s, after a very calm seven-year period, home prices accelerated dramatically, rising 37 percent in 1988-1989, almost three times the level of inflation.
The bar chart shown here notes the relationship between the increase in resale home prices in San Diego and the consumer price (inflation) index.
Note how each of the spikes gets higher. In the 1960s, home prices rose $4,000 or 18.2 percent in a two-year period. In the 1970s, they rose $50,000 in three years, and in the 1980s super-spiked by $62,000 in two years.
The causes of the spikes were inevitably tied to the overall vibrancy of the economy and the heat of the market.
The spike in the 1980s was given added impetus by the addition of construction moratoria in four of San Diego County's most active cities (San Diego, Escondido, Oceanside and Vista). The moratoria caused a near-instant lot shortage, a situation that doubled the price of improved subdivision lots in a three-year period. And, as the price of new homes ballooned, resale prices followed.
The question now arises: Is it possible — or do we have any right to believe — that the beginning of the spike we are now experiencing will continue on its present course? If you study the bar chart, you will quickly note that the last two spikes concluded on a much higher note than we are seeing in this round of economic recovery. Further, in the Benchmark Level table, our annual price increases so far have not equaled those of the last rounds and the annual percent increase is distinctly less.
After all, mortgage interest rates are lower today than in the last three spikes and employment gains do not appear to be weakening.
It would appear that it may take another year or two to achieve the rates of increase of the previous spikes.
As an economist, about all I can do is follow trends and suggest that history has a strange way of repeating itself. The odds of the spike trend that started in 1997 continuing are infinitely better than winning the lottery and would be far more uniformly rewarding to the state's 7 million home owners.
Pray for a spike!
Alan Nevin is chief economist with Market Profiles, a consultancy providing real estate and demographic statistics, feasibility studies and litigation support to the California land use industry and legal professions.
|
