Falling Prices and Rising Sales

In an earlier posting , I said that sharp price reductions have had much to do with the rising volume of home sales in the Bay Area. I should have included this chart with the earlier posting.

Each dot represents one of the nine Bay Area counties. The horizontal axis shows the year-on-year change in the median home price. The vertical axis shows the year-on-year change in the volume of sales. The dashed line is a least-squares fit of the data points.

The theoretical value of the line is dubious, but it does help to illustrate my point. The line intersects the horizontal axis at a value of -30%. That's how far prices had to fall in a typical Bay Area county in order to keep sales at the same level as a year ago. In counties where prices fell further, sales volumes have increased significantly compared to last year's levels. But that clearly shouldn't be taken as an indication of health in the housing market.

San Francisco Apartment Rents Falling Rapidly

Near-term fluctuations in apartment rents have little impact on long-term housing values. But they do offer a useful window into the health of the local economy. The view from that window doesn't look good right now. Take a look at the chart, below, which comes from SFRentStats.

The data comes from Craigslist, and covers the City of San Francisco.

Rents have fallen by about 20% since the spring of 2008. That doesn't mean that the sky is falling. Even after the decline, rents are no lower than they were two years ago, when the economy was generally thought to be on solid footing. As long as rents are falling, however, it will be difficult to argue that the San Francisco economy has turned the corner.