The Morning Report
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Thursday, Oct. 12, 2006 | The overall median home price in the county in September was $22,000 lower than it was last year, dropping 4.42 percent to $476,000, DataQuick Information Systems reported Wednesday.
The drop was the biggest dollar-amount plunge observed year-on-year by DataQuick since it started monitoring the San Diego market in 1988.
The figures didn’t come as a surprise to local analysts. The median price first dipped negative year-on-year in June, one of the first tangible signs the booming housing market was quieting. Even before then, reports of slowing in residential construction staffing and projects, slumping sales rates, soaring unsold inventory levels, spikes in foreclosures and the popularity of risky mortgages had market observers waiting for the median price to catch up with the anecdotal evidence. Some say the market’s going to turn around again soon – but others say the end’s nowhere in sight.
“It is a big drop,” said Peter Dennehy, vice president of the Sullivan Group Realty Advisors, of the median price change. “But sales prices have even come down more than that. The median price is finally coming starting to come down with what we’re seeing on the street.”
Andrew LePage of DataQuick said that based on the data, San Diego is “still in soft landing territory.”
“This market ran up for seven-plus years,” he said. “We’re going to see it wobble around a bit no matter what.”
The next couple of months will likely hold even bigger year-over-year declines, LePage said. Prices were still rising in the fall of 2005, reaching a peak of $518,000 in November. Comparing this year’s numbers to last year’s would look like a hairpin – as they were trending up last year, the current numbers are trending down now.
This year, the September median price logged a 1.24-percent price drop from the price recorded for August.
Both LePage and economist Chris Thornberg of Beacon Economics said it’s misleading to look just at the overall median price, because the only section of the market seeing a dramatic slowdown is new homes. The condo and detached home resale markets saw just 0.8 percent and 0.9 percent declines from last September, respectively. Those contrast sharply with the median price in the new home market, which took a 16.9 percent dive to $414,000 from last year’s $498,000.
“You’ve got to be really cautious,” Thornberg said. “The price of new homes is really driving down your overall median. You don’t know if the quality changed or what.”
But sales activity slowed considerably last month, with home sales overall dropping 35.7 percent from the rate of sales recorded in September 2005. Broken into market categories, the declines measured year-on-year declines of 41.2 percent in the condo resale market, 30.7 percent in the detached resale market and 37.5 percent for new homes.
University of San Diego economist Alan Gin has forecasted a slowdown in the local economy for the end of this year and the beginning of 2007, and the weakening housing market plays into that. So does the employment rate, which could take a big hit if the housing market continues on the path it’s on, Gin said.
“To me, the more serious aspect is the slowing of activity,” he said. “Fewer sales, fewer commissions, fewer loans – that will result in job loss in those industries.”
Real estate advisor Gary London of The London Group said he saw the new data as “a relatively mild price slippage.”
“This is a very minor amount of money relative to the price inflation experience we’ve had over the entire decade,” he said, referring to the median price increase of more than 200 percent between 2000 and 2005.
London pointed out that the data being released now reflects a smaller section of the market – the “need-to-sell subgroup,” he calls it – that doesn’t represent as many people or types of homes which would have been turning over a year ago.
“I’m not an apologist for this industry at all,” he said, “but I don’t see this as a disturbing thing.”
Neither does San Diego Association of Realtors president Charles Jolly, who hailed the DataQuick release as “great news for buyers.” The increased inventory and dropping prices are two indicators of San Diego’s becoming a “buyer’s market,” he said.
Jolly contends that home buyers who purchased a home, even near the end of the boom, with the intent and financial ability to hold onto it for at least five years, shouldn’t be affected too dramatically by these value fluctuations.
“In the long term, it will go up,” he said.
But Thornberg said the market will have to navigate some more tough terrain ahead.
“All this nonsense about us already starting to see the light at the end of the tunnel, we’re not even close,” he said.