In response to last week’s article on historical home sales, a reader requested charts expressing the sales data in terms of dollars’ worth of homes sold instead of just the number of homes sold.
I had to cobble a few things together to make these charts. (Non-nerds may skip the rest of this paragraph). Ideally, the dollar volume of homes sold would be calculated by either just adding up individual prices of every sale or multiplying the average price times the number of units sold, which would both come out to a precise total of dollar volume. But I didn’t have historical average prices. What I did have historical data on was the Case-Shiller index, which I rebased to the median price for all homes sold in San Diego in August 2009. This isn’t exactly the same as the average price for any given month, for various reasons, but I suspect it will be close enough to get a general idea of what’s going on.
Okay, everybody back? Here is the chart of existing home sales in terms of dollars since 1990, with the requisite 12-month average to smooth out the seasonal ups and downs:
Given the declines in both prices and volume since the height of the boom, it should not be surprising that the dollar volume of homes sold since that time has dropped hard. The twelve-month average dollar volume hit its bubble-peak high in June 2005 at over $1.83 billion per month of activity. At the low point in August 2008, the twelve-month average had swan-dived by a full billion dollars, falling to $.83 billion per month. The average monthly dollar volume has since rebounded to $.98 billion, but as one would expect this is still substantially below peak levels.
There are a couple of reasons why we really can’t use the above chart to make valid comparisons to the more distant past. (Incoming — more nerdy stuff). One was discussed in the prior article: since San Diego population and housing supply has been growing that whole time, one would expect sales to increase accordingly. The use of dollars as a measuring stick induces another problem. As a result of inflation, the dollar’s purchasing power has been steadily eroded away since the start of the data in 1990 (and long before that, of course).
A proper comparison of today’s dollar volume with that of times past must account for both San Diego’s population growth and the declining purchasing power of the dollar. For a single data series that encompasses both effects and is available going back to 1990, I chose total San Diego income. This is not the per-capita income I often use to compare with home prices, but rather the total income earned by all San Diegans in a given year. This number will rise both with inflation and with the increasing San Diego population, so we can adjust for those two elements by calculating home sale dollar volume as a percent of total income.
For those who are still awake, here is the resulting chart:
There is still a mighty plunge from the bubble days, of course. But home sale dollar volume as a percent of income looks to be right in the middle of the range that prevailed throughout the 1990s. Notably, it is not far below the volume that took place during the healthy, post-bust but pre-bubble market of the late 1990s.
What does it all mean? Well, it’s a little late on a sunny Friday afternoon to think too hard about such things. The main thing that jumps out to me is that the housing market’s share of the economy as a whole isn’t really very low in an absolute sense, but just in comparison to the go-go bubble years where all things housing-related (prices, volume, employment, and cocktail-party chatter, to name a few) grew unsustainably oversized. The trauma since then has largely resulted from things getting back to normal.
But that’s not really anything we didn’t know already.