One of These Rallies is Not Like the Others

Summer may be winding down, but the summer rally in the size-adjusted median price of San Diego homes continued another month. From July to August, the median price per square foot rose .7 percent for detached homes, 1.3 percent for condos, and .8 percent in aggregate.

This was not much of a month, relatively speaking, but it turns out that the mid-2009 rally as a whole has been unusually powerful.

A while back I wrote about the fact that spring-summer price rallies tend to take place even during multi-year price declines. As the following graph from that article shows, a spring or summer increase in home prices doesn’t rule out the possibility that a longer-term price decline is still underway:

What’s interesting is that the price increase that’s taken place since earlier this year has been unusually strong compared to spring rallies past.

The chart directly above utilizes the Case-Shiller index, a measure of aggregate home prices that is superior to the size-adjusted median price (not to mention available all the way back through the last housing bust). Comparing apples to apples, the Case-Shiller index has risen by 2.0 percent from its low point in April of this year. This is on par with, though not quite as big as, the largest spring rallies of the 1990s.

But because the Case-Shiller index is only available through June, that 2 percent increase ignores whatever price rises may have occurred in July and August. To address that issue, I have attempted to estimate the July and August Case-Shiller readings based on changes to the three-month average of the detached home median price per square foot. If the movements in the size-adjusted median are pretty much in line with changes to actual home prices, this should provide a decent idea of what the July and August values for the index will be.

According to this technique, the Case-Shiller index will show an increase 6.8 percent between April and August of this year:

That increase is nearly three times as large as any spring rally that took place during the 1990s. We will see how accurate my little estimation technique turns out to be, but for now it’s looking like this rally is substantially more powerful than anything we saw during the last bust.

— RICH TOSCANO

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