In the blog titled “House Prices: Another Look”, I noted that in Santa Barbara since the Great Recession, condo prices had fallen relative to single family homes. In the first part of this blog, I find the same phenomenon for another coastal city, Monterey, as shown in the following graph. This analysis uses the resale price data from DataQuick, maintained by the UCSB Economic Forecast Project. The UCSB Economic Forecast Project is using its blog on the home page http://www.ucsb-efp.com/ to provide updates on current topics on a regular basis.

The shaded areas in this plot are the recessions, with the timing determined by the National Bureau of Economic Research. Before the Great Recession, the ratio of condo prices to single family homes was significantly higher in Monterey than in Santa Barbara. The effect of the Great Recession was to drop condo prices relative to single family homes in both cities, but to drop the relative price more in Monterey. Now the relative price is similar in the two cities. Since the Great Recession, the price of a condo relative to a single family home is somewhere between 54 and 58 percent. The data for Monterey is more variable or noisy than for Santa Barbara, but the effect of the Great Recession is statistically significant for both cities.

The two previously posted blogs on house prices have examined the real estate data maintained by the UCSB Economic Forecast Project from various sources. The rest of this blog focuses on data from the California Association of Realtors for California, the cities of Santa Barbara and Monterey, and other regions in California. This data in the figure below is for the state, Santa Barbara and Monterey and is not seasonally adjusted.

The median price for single family units for Monterey parallels the experience for Santa Barbara, but fell to lower levels following the Great Recession. Median prices for single family units for Los Angeles closely parallels this series for California as a whole, but the corresponding price for the Riverside/San Bernardino area is much lower.

For the coastal areas of Sothern California, Los Angeles has the lowest median price for single family units, Orange County has the highest, and San Diego is intermediate.

Another perspective on the behavior of median price for single family units can be gained by examining year over year changes in these monthly prices. For example, the next graph shows the price of January 1991 minus January 1990, February 1991 minus February 1990 etc. In economic jargon, this is known as the seasonal difference in monthly data, abbreviated in the next graph as SD. Note that at the time of the Great Recession, these year over year changes in monthly prices do not fall as much for Los Angeles and for Orange County as they do for Santa Barbara and for Monterey. Whether this is affected by the smaller numbers of sales in these smaller cities or some other phenomenon needs to be investigated. Also note that median prices begin to fall before the Great Recession for Los Angeles, Orange County and Monterey, but not for Santa Barbara.

The Case-Shiller Index for home prices for the Los Angeles SMSA, seasonally adjusted, is compared in the next graph to the California Association of Realtors median price for single family units, not seasonally adjusted. Further analysis looking at fractional or percentage changes in these two measures of home prices did not reveal major differences, as shown in the final graph. However, the Case-Shiller Index shows a smaller percentage drop than the California Association of Realtors median price for single family units. This may be because the latter may have had a mix of relatively more high end homes before the Great Recession and a mix of more low end homes, under water, during the Great Recession.

Median home prices can be affected by the mix of homes being sold, i.e. how many high end versus how many low end, a composition effect. The Case-Shiller Index is based on repeat sales of the same homes. Whether this composition effect is more pronounced for Santa Barbara and for Monterey than for Los Angeles and for Orange County is a possibility that is not easy to check since there are fewer sales in the smaller cities and they do not have Case-Shiller indices. However, the percentage drops for Santa Barbara and Monterey are twice as large as the percentage drops for Los Angeles and Orange County and the difference in the percentage drop of the median price index for Los Angeles and the  percentage drop in the Case-Shiller index would only account for about a quarter of the difference in percentage drops that we see for the smaller cities compared to the larger areas.

 Author – Llad Phillips

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