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Well, that was a pretty wild year for housing.
Here’s a look at what happened with prices, sales, and inventory over the course of 2013.
The big news was in prices: They went up. A lot.
For the year, the median price per square foot rose by 19 percent for single-family homes, 24 percent for condos and 21 percent for both property types combined. The market was pretty much on fire until mortgage rates increased dramatically in mid-year (from from less than 3.4 percent to nearly 4.6 percent in pretty short order), at which point prices began to drift mildly downward.
For a longer-term view, here’s a graph of prices starting at the 2005 bubble peak. While aggregate San Diego prices have made a lot of headway in the past two years, they are still significantly below peak levels.
The recent price increase was driven by strong demand alongside very low supply. The first of these can be seen in this graph (which also shows a deterioration of demand after mortgage rates increased mid-year).
The gold line in the next graph shows how unusually low inventory was at the start of the year. After falling steadily for two years, inventory finally began to rise a bit in the middle of 2013.
The levels of supply and demand can be combined into a single figure by calculating months of housing inventory (the number of homes for sale divided by the number of monthly sales). Months of inventory is a very important statistic, because it provides a good idea of whether prices are experiencing upward or downward pressure. It’s no coincidence that the huge rise in prices over the past two years was accompanied by a low-and-dropping level of months of inventory. This trend culminated in spring 2013, at which point months of inventory was at ridiculously low levels and prices were rising very fast.
This next graph shows the same months of inventory figure as above, but via a single linear series since 2007. Points of interest on this graph include the huge glut of properties during the housing crash in 2007 and 2008, the extremely tight supply in early 2013, and the more recent trend of increasing (but still low) inventory.
The relationship between months of inventory and price changes can be seen on this next graph. Price changes appear in red, and inventory appears in blue (inventory has been inverted to make the correlation between the two more clear).
This shows that last year’s price spike was accompanied by very low (high on the chart) inventory, and that as inventory increased, price changes decelerated and recently even went negative. The trend is clearly toward more inventory, but at this point, the absolute level of inventory is still pretty low. This is supportive of prices in the near term.
And that, in brief, is what happened in 2013. Next up, I will be updating the housing valuation charts found here, and once again weighing in on a question I hear often: Is housing looking bubbly again?