Despite Rebound, Home Sales Historically Weak

Home sales may have recovered strongly from the depths they plumbed in 2007 and 2008, but they are still anemic when compared to San Diego sales activity over the past couple of decades.

You wouldn’t know it from looking at a chart of historical home sales. The number of sales, indicated by the blue line in the following graph, has recently vaulted up to the upper part of the historical range:

But it’s not quite that simple. (Is it ever?)

The most recent month charted was July, which is typically one of the fastest-paced months for sales. And the spikes up and down in the chart make it pretty clear that seasonal swings in sales activity are pretty huge. So the most recent data point should be compared not to the overall range of the blue line’s ups and downs, but rather to the vicinity of the line’s annual peaks.

Another way to account for the seasonal changes is to use an average of the past twelve months’ sales. Since this moving average will always include all twelve calendar months, seasonal effects have no impact. The twelve-month average is indicated by the orange line in the above chart.

Even the moving average appears to be fairly robust compared to the past range of sales. But there’s another issue to consider. Since 1990, when my data set begins, a lot of people have moved to or been born in San Diego. So to really do a fair comparison of current and past sales, it is necessary to adjust the figures for San Diego’s population. I have done so in the next chart by increasing prior sales in proportion to the subsequent increase in the San Diego labor force (used as a proxy for population because, unlike population data itself, labor force stats are available on a monthly basis like the sales data).

Adjusting for population growth provides a pretty different picture. Recent months appear to comprise one of the lowest peak seasons since the data began. And while the twelve-month average has rebounded in a big way from the unheard-of lows reached in 2008, it is still barely above the levels set during the slowest periods of the 1990s bust.

Here’s one other way to look at it: labor force-adjusted sales during the most recent July were 11 percent lower than the average July sales figure for the entire period.

Sales have certainly come back from the dead to some extent, but they are still pretty weak compared to what could be considered normal. The recent rally seems to have been caused more by limited supply (notwithstanding the shadow inventory of foreclosed properties I’m so fond of writing about) than by robust demand.

— RICH TOSCANO