San Diego's Housing Market vs. The Rest of the Country

A blog I read this morning on www.kbps.org discusses the dichotomy in the San Diego housing market, and while there seem to be a few positive signs, most experts seem to agree that the downturn has been unprecedented and is perhaps just the beginning. Check out what KBPS has to say about how San Diego compares to the rest of the country in their blog below.

The most recent good news comes from a report that shows home values grew on a monthly basis for the first time in three years. Prior to May, home prices had been in steady decline since July 2006.

The bad news is it only grew by 0.4 percent, and the housing market usually has some sort of upswing in the spring or summer.

“I think we’re skipping along the bottom of the market right now,” said Gary H. London, a strategic consultant and real estate economist. “We’re seeing an uptick in housing prices and home sales. I’m not sure whether or not that’s a false indicator, but I think it’s safe to say we’re bumping along the bottom right now. I’m not exactly sure if we’ve entered the bottom or we’re already there -- but we’re definitely near the bottom.”

London said during the boom-and-bust real estate cycle in the 1990s, the San Diego market peaked in 1989 and didn’t start to recover until 1996.

“To me this feels like 1992. The worst is over, or at least almost over, but even as things improve it’s going to be a long slog,” he said.

Another positive sign is that median home price has increased for three consecutive months, finally topping out at $314,250. That’s the highest it’s been since October, and up more than $30,000 from the low in January 2009. Perhaps the biggest reason for the increase is that there are just fewer, starter homes on the market to drive the price down. In fact, the county's median price rose $19,250 from May to June -- 6.5% -- the biggest one-month percentage gain recorded by MDA DataQuick since it began keeping records in 1988.

“This is my fourth time on this merry-go-round and I’ve never seen it this bad,” said Mark Goldman, a finance lecturer at SDSU and mortgage broker with Cobalt Financial.

“I think we’re getting near the bottom,” he said. “Entry-level pricing is a very hot market and as the cost-to-own per month is approaching what it costs to rent, then I think we’ll be near the bottom of where the value is going to be.”

Goldman said the market may see a 35-40% correction before getting back on track. Despite having increased in San Diego for three months in a row, the median price had been in free-fall the previous 30 months. In 2008, the median home price was $359,000, a loss of more than 25% from 2007.

“Right now there is a dichotomy in the market,” said Shane Pliskin, lead sales associate with Prudential California Realty. “If you look at the market below $500,000 and especially below $400,000, things are flying off the shelves. It’s not uncommon to get 10 to 15 and upwards of 25 offers per home. The inventory is depleted, it’s the lowest the inventory has been in years.

Pliskin said his office has a personal record of 33 offers on one property. In North County, he read about one property that fielded 80 offers. There’s less than six months inventory for entry-level homes, compared to 15 months or more of inventory for pricier homes. Aside from a huge $23 million sale in La Jolla, Pliskin said, no one is buying at the higher end.

“Above $600,000, and especially above $800,000, they’re dead and they’re not going to move because there are no loan products at that level. Banks are pulling back on (real-estate owned) assets,” he said.

Pliskin also said that Fannie Mae alone has 600,000 assets nationwide they’re sitting on and not putting on the market. Countrywide Financial, he said, has the largest private “shadow” inventory due to the company’s absorption of many of the liar loans left after the sub-prime crash.

“I believe banks aren’t reporting the depth of their inventory out there,” he said.

Banks, Pliskin said, are in serious trouble and trying to shore up their bottom line before the end of the fiscal year, which typically ends in June, July or August.

Starting Aug. 15, he said, banks are going to open up their offers and by end of the third quarter 2009 there will be a huge influx of real estate owned products.

That will mean, instead of the typical pattern of low sales in January and a peak in May or June, there will be a “W-effect” in 2010, Pliskin said, with sales up in the beginning, middle and end of the year with slight valleys between.

“Most first-time home buyers are benefiting from the $8,000 credit and there are some huge investors coming in and taking advantage of a very healthy rental market,” he said.

One of Pliskin’s clients in Northern California is buying as many $100,000 level homes as possible, with the reasoning being there will always be a market for $900/$1,400 rentals from people who can’t afford homes or are new to the area.

“There’s more cash in the market than ever before because of the ability to buy and turn them around,” Pliskin said. “He puts a coat of paint on it and then he can rent it.”