One City, Two Markets

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My friend Gary London is hosting the Café today with some observations on the local housing market. Gary begins by noting that most indicators look at the San Diego real estate market in aggregate, lumping together the behaviors of various market segments and potentially ignoring differences between them.

In spite of the fact that I often report on these very indicators, I am in complete agreement with Gary on this particular shortcoming. The more high-end San Diego markets have weathered the post-bubble period far better than their lower priced counterparts. This should not be terribly surprising; the downturn has thus far been driven by tighter financing, so it makes sense that the areas that are more dependent on easy financing would fare more poorly. (That said, I will admit that I did not anticipate such a dramatic bifurcation between different areas of San Diego -- although now that the lending crunch is climbing the creditworthiness ladder, it's possible that the assorted sub-markets may begin to act more alike after all.)

Regardless of why it's happening or whether it will hold up, the fact is that different market segments are behaving in a distinct manner, and Gary's point that the aggregate indicators miss this nuance is well taken. I've been thinking about this very issue lately and the idea I'd come up with was to try to track price and volume changes for two groups of zip codes: a sample of the strongest housing submarkets and a sample of the weakest. The smaller data set size will inevitably make the results more "noisy," of course, and I can only track the size-adjusted median, which as often discussed here is only a rough indicator of how much house people are getting for their money. Nonetheless, I think that separately tracking these two distinct representative market samples could provide some insight that is lacking in the aggregate indicators.

My intent is to get started on this effort after next week's spate of October housing data. If anyone has ideas or feedback on how better to measure San Diego's two markets, please let me know.