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Earlier this year, I advanced the case that San Diego home prices had, as a whole, become “reasonable.” For all its seeming lack of ambition, this statement launched a slew of (often slightly combative) emails my way.

Half a year or so later, it’s time once again to check in on how local home prices stack up against incomes and rents.

The first graph compares San Diego-wide home prices, as measured by the Case-Shiller home price index, divided by local income per San Diegan. It turns out that not a whole lot has changed since the last snapshot of this series in December. Prices declined earlier in the year, but a combination of the summer price rally and declining incomes has pushed the ratio back up to a point where it has hardly changed since the beginning of 2009.

The second graph compares prices with San Diego rents as recorded by the inflation-measuring Bureau of Labor Statistics. As with the price-to-income ratio, the relationship between home prices and rents is just about where it was at the beginning of the year.

(Data nerds may wish to note that the 2009 local income figures in the above graph are estimated based on changes to national incomes, and that home prices in both graphs are estimated for the past couple of months based on the size-adjusted median single family home price).

Given the lack of any substantial change to these valuation ratios, I will once again declare aggregate San Diego home prices to be “reasonable” in comparison to their historical relationship with incomes and rents. Homes are no longer overpriced, but they aren’t quite cheap yet, either. (And please note the use of the word “aggregate.” As often discussed here, different areas of San Diego have behaved quite differently, meaning that while the aggregate home price is reasonable compared to the traditional fundamentals, certain areas may be genuinely cheap while other areas may still be quite overvalued.)

San Diego homes do look underpriced, on the surface, if we use monthly payments instead of purchase prices. The payment-to-income and payment-to-rent ratios are just barely above the multi-decade lows set earlier in the year.

However, the low payment-based ratios are less a result of inexpensive homes than they are of rock-bottom mortgage rates. If mortgage rates are to rise in the future (and I believe they will, a lot) then these ratios don’t give such a good read on whether homes are overpriced or underpriced on a longer-term basis. If you’d like to read more about why this is, I went a lot deeper into the topic in the prior entry on monthly payments.

So I’m sticking, still, with “reasonable.” And with that, I’ll wait for the next batch of emails to come in.

— RICH TOSCANO

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