It’s not that we have anything against downtown.

By all accounts, Downtown San Diego is a great place to live, and my wife and I have several times contemplated moving there. But when talk turns to the housing market (and doesn’t it always?) downtown is just too easy a target. We real estate observers can’t help but take a few shots.

Not so long ago, downtown was, both literally and metaphorically, prime real estate. Condos for sale were hard to find and prices absolutely soared. Units were often bought and sold multiple times before even being built, each iteration allowing sellers to net six-figure profits without ever seeing the objects of their speculation. Those profits were often leveraged up to purchase even more condos, sending demand up even further.

Those days are behind us.

The inventory of downtown condos for sale has increased more than tenfold since the glory days of early 2004. And it shows no sign of stopping: condo inventory has doubled in the past year. Given that inventory usually increases dramatically in the spring, the number of downtown condos should quickly blow through 600 and beyond.

But wait, there’s more. As fellow Voicer Will Carless recently learned, there are 11,000 more units planned or under construction for downtown alone. Some of those projects will doubtless be shelved, but downtown’s ubiquity of cranes and construction sites makes it clear that many are already underway. That inventory number looks set to grow for some time to come.

Unfortunately, the buyers are not showing up to the party. According to Sandicor, downtown registered a meager 39 condo sales in February, down 20 percent from February 2005.

Sandicor’s data indicates that 92101 condo sales over the past year have averaged 58 per month. Assuming that this sales rate holds up – an optimistic assumption, considering San Diego’s well-documented trend towards weaker sales activity – there is now about 10 months’ worth of inventory waiting to be resold.

Ten months’ worth of inventory seems like a lot. It is a lot. But this figure does not truly express the imbalance between supply and demand. For one thing, Sandicor’s inventory figure does not include units that are being sold directly by developers. More importantly, it does not include the onslaught of new projects slated to hit the market in the future.

Like I said, we housing writers have nothing against downtown. We think it’s delightful. But this article is not about quality of life. It is about supply and demand, specifically the robust growth of the former vis-à-vis the frailty of the latter.

We can’t really be blamed for focusing our attention on 92101. Downtown was the belle of the speculative ball during the wildest days of the housing bubble. And now that the bubble is beginning to deflate, it appears to be the market in the greatest peril.

Carless once referred to downtown San Diego as the “tip of the spear.” I think it’s an apt metaphor. The extreme nature of downtown’s condo market suggests that whatever is going to happen will happen there first. Events in downtown may portend of things to come, to a lesser or greater degree, for all San Diegans.

So, for better or for worse, we’re going to keep talking about it.

Rich Toscano is an independent real estate analyst residing in Hillcrest and working in La Jolla. He writes extensively about San Diego housing at Piggington’s Econo-Almanac. Or submit a letter to the editor here.

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