January Home Prices

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The size-adjusted median price for single family homes and condos each rose by 0.4 percent from the prior month's value.

This is rather a small figure when compared to the magnitude of the overall decline: since peaking in September 2005, the size-adjusted median price has declined by 8.0 percent for single family homes and 9.2 percent for condos. Nonetheless, that 0.4 percent spurt upward represents the most positive price movement we've seen in months.

The "plain vanilla" median price gives a great indication of what the typical homebuyer spent, but not such a good idea of what they got for the money. Because the latter is the more important indicator of pricing power, I focus on the size-adjusted median price, or median price per square foot, in order to attain a somewhat better idea of what buyers are getting for the money. (A more detailed note on the shortcomings of the median price can be found here).

The press and the analytical community largely focus on the plain vanilla median, despite its problems. This forces us to pay attention to it as well because the widely-reported median could be an important factor in determining sentiment.

I bring this all up because the vanilla median has behaved well of late. The detached home median price was up 1.8 percent last month after rising 0.9 percent the month before. And even the downtrodden condo median price blipped up 0.7 percent last month. I will be very surprised if this price behavior, along with the improvement in the supply and demand balance (which I will detail in my next entry), doesn't touch off a new round of people proclaiming that the housing correction is over.

Could it really be over?

During the protracted downturn that followed the late-1980s San Diego housing bubble, home prices staged several multi-month rallies. I imagine that each of these led to a new frenzy of bottom-calling, but the fact is each price bounce was followed by a decline to new lows until prices finally fell to (and, eventually, below) a level that was supported by true economic fundamentals.

Occasional bouts of price strength were not sufficient proof that the 1990s downturn had ended. They're not sufficient proof that this downturn has ended, either. The big picture remains the same: must-sell inventory is on the rise, mortgage lending is tightening up, sentiment has deteriorated, and most important of all, homes remain vastly overpriced compared to rents and incomes. Until these factors change, calling the bottom of the housing market is likely to prove premature.

-- RICH TOSCANO