Return to the 90s

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Break out the flannel shirts and re-insert those body piercings, because we're headed back to the early 1990s. The good news: no Judge Ito jokes are forthcoming. The bad: I can't say the same about housing charts.

The idea that San Diego's early-1990s housing bust was caused entirely by local job losses has provided comfort to many a real estate investor in recent years. If job growth can just stay positive, the soothing logic goes, then we can avoid the ugly outcome that took place the last time around. The appeal of this line of thinking, which appears to be almost universally accepted as truth, should be obvious.

But the evidence doesn't support the theory that unemployment was the sole cause of the housing bust. Have a gander at the following chart, which details the monthly changes in San Diego home prices and employment from 1990 through 1997:

As the chart indicates, home prices peaked in July 1990. But after the seasonal dip in that same month (a phenomenon that takes place every July), job growth moved onward and upward for the rest of the year, not peaking until December.

So if job losses caused the housing bust, how is it that the housing bust started five months before the job losses?

The latter stage of the downturn is also damning. If unemployment was indeed the lone cause of the troubles in the housing market, then those troubles should have dissipated once job growth went positive again. Instead, what we see is that after employment bottomed out in January 1993, home prices continued to decline until March 1996.

A huge and illiquid market like residential real estate cannot be expected to turn on a dime; however, three-plus years seems like an awfully long lag time if job growth were the only factor at work.

It's clear that local unemployment exacerbated the last housing bust. But it's equally clear that unemployment was not the only cause of the real estate market woes.

So what else was going on? Don't get those Pearl Jam tattoos lasered off just yet -- we'll be back later this week with more early-90s action.

-- RICH TOSCANO