Wednesday, August 16, 2006

Coyote Valley fiscal analysis already showing flaws

As we reported a while back, San Jose expects to make money off of Coyote Valley development only because it expects housing prices to increase exponentially faster than income, every year for sixty years. We think this reasoning is flawed, and the problems are already showing.

The National Association of Realtors just released its national report on the housing market, and we can check San Jose's assumptions against what is actually happening. San Jose expected housing to increase 3% above inflation, so with inflation at 4%-5%, San Jose is counting on a 7%-8% increase in housing prices. The Excel spreadsheets at the Realtors' site show 0.4% increase for single family homes in the greater San Jose area, and 4% for condos in the San Francisco area.

San Jose's estimates are already off by 5% or more, according to these figures. More importantly, they demonstrate the flaw in San Jose's method of projecting unsustainable trends as something that will last forever.


UPDATE, 8/17: Figures from a different source for all of Santa Clara County show a 7% rise, which just barely keeps up with San Jose's projections (although the decline in sales volume may indicate problems). There's a difference in geographic area and time period, but the range betweeen 0.4% and 7% is so large that I suspect something is wrong with at least one of these estimates.

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