The Morning Report
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Spring is usually a busy time in real estate. As the flowers start to bloom and the days get longer, people begin to think about change. Traditionally, spring is boom-time for home sales. More homes are put on the market. More people buy. Prices crawl out of winter’s grip and economists breathe a sigh of relief.
In 2006, spring has seen record numbers of people lining up to sell their homes, but there’s been no subsequent rise in the rate of sales. Indeed, sales activity in April 2006 was down 30.7 percent from April 2005, despite the existence of almost 20,000 homes for buyers to choose from. That’s the biggest year-on-year decrease in sales rates since April 1995.
While many homes in San Diego have increased in value since this time last year, it is injudicious to say that home prices are still increasing across the board. Indeed, according to figures from DataQuick, a local real estate information service, median prices in the county have actually dropped over the last six months. And they’ve been dropping throughout what is usually the market’s boom season: Spring.
DataQuick’s figures show that the price of all new homes – condos and single family homes combined – in San Diego has decreased 8.8 percent since December 2005. For existing single family homes, the median price has dropped 1.8 percent since November 2005, and for existing condos, the median price has dropped 1.3 percent.
In addition, the discount real estate brokerage ZipRealty said some 33 percent of the San Diego County homes currently listed for sale on its Web site have reduced their prices. The company only recently started tracking price reductions, so they couldn’t comment on how that figure compares historically, but experts said that the reduction of selling prices by homeowners is very significant.
It can be argued that the month-over-month price changes are not as indicative of where the real estate market is headed as the year-on-year price changes. Year-over-year, prices have remained flat for existing homes, and have increased by 11.6 percent for new homes. But the recent price decreases, coming alongside sky-high inventories and plunging sales activity rates, have experts worried.
“It’s clear right now that the housing market has slowed tremendously,” said
Alan Gin, a professor of economics at the University of San Diego’s Burnham-Moores Center for Real Estate.
Home prices – especially median home prices – are the granddaddy of all economic indicators for the real estate market. But those in the industry don’t really start to sweat until prices start coming down significantly. Even then, most analysts don’t see modest price drops as a huge problem. It’s only the threat of a freefall in home values that has economists concerned about the repercussions for the economy as a whole.
That’s clearly not happening yet. Overall, prices in the county have plateaued – if the slight drop over the past few months is ignored – and most analysts agree it’s too early to tell what’s going to happen and whether prices are going to keep on falling.
Raphael Bostic, a real estate analyst at the University of Southern California said it’s too early to say that things are looking particularly bad for the housing market. Despite the drop in sales, the large number of listed homes and the recent drop in prices, Bostic said analysts are still watching to see whether prices actually go into freefall.
Bostic doesn’t see any reason why that should happen. Traditionally, homes in Southern California have only suffered from extended and significant drops in value as the result of factors largely external to the housing market. The most often-cited example is the last real estate slowdown in the early 1990s, which experts agree was largely caused by massive job losses.
But Bostic said one of the vital questions to ask is what will happen to buyers in San Diego who bought their homes using adjustable-rate mortgages. The number of local homebuyers using exotic loans to finance their purchases has risen dramatically over the last few years, and Bostic said he’s worried what will happen when the initial periods of low monthly payments run out on all those loans.
“When I talk about housing markets, there are only a few I worry about, and San Diego’s one of them,” said Bostic.
One thing’s for sure: it’s taking sellers longer and longer to sell their homes.
Greg Speaks, general manager of Champion Signs, which provides most of the For Sale signs seen in the county, said business has been booming in the last few months. That’s not surprising, given the recent spike in inventory, but Speaks said what’s more interesting is that he’s not been getting too many signs back from customers.
The signs may be staying in front yards longer then in previous years.
“I would say we’ve probably got 2,000 to 2,500 more posts outstanding than normal,” Speaks said.
Around the county, the state and the nation, economists, homeowners and investors will be watching to see how many of those signs remain sitting in San Diego’s back yards, and what that will mean for home prices here and elsewhere.