Wednesday, March 01, 2006 | As the number of existing home sales drops around the nation, San Diego is being hit disproportionately hard. The drop off in the sales rate in America’s Finest City was four times the national average in January, a decline experts said was unexpectedly steep.
In a press release issued Tuesday, the National Association of Realtors said the seasonally adjusted existing home sales rate in January 2006 was 5.2 percent lower than in January 2005. The seasonally adjusted rate is a method analysts use to calculate the number of sales taking place, and which takes into account the fact that certain months are always slow for real estate.
While significant, that figure is tame compared to the statistics for San Diego. Seasonally adjusted existing home sales rates in San Diego County were down 20.2 percent in January 2006 compared to 2005, according to the California Association of Realtors.
None of the local experts seem particularly surprised by the drop-off in sales, though.
“The areas with the highest appreciation are likely to be experiencing the slowdown right now in terms of sales. California, and San Diego in particular, will fit into that category,” said Alan Gin, professor of economics at the University of San Diego’s Burnham-Moores Center for Real Estate.
In California as a whole, the sales rate was 24.2 percent lower in January than at the same time last year, according to Robert Kleinhenz, deputy chief economist at the California Association of Realtors. Kleinhenz admitted that’s a sharper drop that he had expected.
“We expected a statewide decline in sales compared to a year ago probably more like in the high teens – a 16 or a 19 percent decline in sales – but we wound up with a 24 percent decline in sales,” Kleinhenz said.
Even so, he added, there are some legitimate reasons for the weaker-than expected sales figures. Interest rates in the last quarter of 2005 were above 6 percent for the first time in a while, which he said probably had an adverse psychological impact on buyers and led to less sales being completed in January. As the year wears on and buyers get used to the higher interest rates, Kleinhenz expects sales to pick back up somewhat.
The drop in California home sales in January 2005 compared to January 2006 is the highest year-on-year decline since December 1990, when sales dropped 25.2 percent.
But that was a completely different market, said to Russ Valone, president and CEO of Marketpointe Realty Advisors. The sharp drop off in sales in the early 1990s was due largely to job losses and economic shocks outside of the housing sector, he explained.
“What you were probably seeing back then was maybe a drop from a normalized market to a true softening market, whereas what you’re seeing here is a drop from a peak to a normalized market,” Valone said.
Gary London, president of The London Group Realty Advisors in San Diego, agreed with Valone’s assessment. He said the sales figures correlate with data showing a slowdown in home price appreciation within the county, and are simply illustrative of a cooling housing market.
But common sense decrees that a 20 percent seasonally adjusted drop in sales activity shows signs of a greatly weakened housing market. The pool of buyers is starting to dry up in San Diego, and in the past that has spelled bad news for home prices. The county’s homeowners will certainly be watching the sales figures with consternation, but Valone says they’ve got nothing to worry about.
“As the market starts to cool, everybody gets afraid that all of a sudden there’s going to be a freefall, so the market even cools a little bit more, until people recognize the fact that maybe the volume of activity is slowing down, but prices are still increasing.”
And indeed, prices are still increasing.
The same National Association of Realtors press release that admits the sales drops also points out that home prices in the western United States are still up 13 percent from this time last year. Overall, home prices in the United States are up 11.6 percent from January 2005.
Of course, that’s only if you can find a buyer.
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