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Thursday, June 14, 2007 | That May Gray that hung over San Diego’s coastline last month also extended to the county’s housing market, as the region’s lowest sales of any May in 12 years clouded over the market’s chances for a quick recovery, according to numbers released Wednesday by DataQuick Information Systems.
Though real estate optimists hope for a market recovery by fall 2007, it would take a significant explosion of activity to return sales rates to where they were a year ago. Overall, nearly one-quarter fewer homes sold last month than did in May 2006. New home sales constituted most of that drop, logging 41 percent fewer sales than a year ago. Resale homes and resale condos pulled 19 percent and 16.6 percent fewer sales, respectively, compared to May a year ago.
Though median prices remained relatively stable, a tripling of the region’s foreclosure filings over the year sparked some analysts to forecast more pain to come for the local slumping market.
Andrew LePage, DataQuick analyst, said lower-priced neighborhoods saw the most significant drops in sales throughout the six Southern California counties DataQuick analyzed in its report.
“The more affordable the neighborhood, the more likely you are to see slower sales,” LePage said. Some of those entry-level neighborhoods were the last to heat up in the real estate boom and had retained more of that strength even into 2006, he said.
Now, rising mortgage rates and tightened lending standards for people with thin credit threaten to exacerbate that trend.
Local analyst Peter Dennehy said the data show more of the same for the region’s slumping market.
“Steadily declining sales, certainly off from what it was last year,” he said. “Most people are opting out of the market unless they really have to sell.”
With fewer homes selling at the bottom end of the range, the median price — a midpoint among the prices of all of the homes sold — reached $492,000, up $2,000 from April but down a little more than 1 percent from $500,000 in May 2006.
Just as in any mathematical average, if there are fewer lower-valued items being measured, the average rises. In the same way, fewer homes selling in the lower price ranges means the median price edges higher. But that doesn’t mean the prices on individual homes are rising.
“The trend’s definitely down — the question is, would it be down even more if more of the lower-priced homes were selling?” LePage said. He acknowledged the “statistical quirk” inherent to studying the median price, as that measure examines only the homes that close escrow in a particular month.
Dennehy said that manifests itself in the very slight price declines DataQuick reported, as a cool market has spawned a pool of choosy buyers refusing to pay yesterday’s prices today.
“In a hot market, all homes are created equal,” agreed local Realtor Bob Casagrand. “In a cold market, all homes are not created equal. In a cold market, the distance between the good stuff and the not-so-good stuff widens substantially.”
Dennehy confirmed that the homes that are selling are, for the most part, luxury or high-end homes, or homes that are “priced to sell” (less expensive than they were last year).
“What you can sell your house for two years ago versus today is probably about 15 to 20 percent lower,” he said. “The median is an extremely misleading way of looking at prices, because we all know that the market is now pretty disparate.”
Among resale of detached homes, the median price in May was $557,500, about 3 percent lower than a year ago. Nearly 20 percent fewer of them sold last month than did in May 2006. Resale condos dropped 3.8 percent in price to $385,000 — the same median for the category for three consecutive months — and sales slipped almost 17 percent over the year.
New homes recorded a 41 percent sales drop, with 698 new homes selling last month compared to 1,186 in May 2006. The new home median increased 7.4 percent over the year.
Despite the statistical quirk identified in the median price measure, analysts said it could sustain a larger drop if foreclosure activity continues to heat up month after month. Nearly 3,400 new foreclosure filings were made in San Diego County last month, according to foreclosure tracker RealtyTrac. That’s a nearly 30 percent increase over April’s filings, and is more than three times as many filings as were recorded in May 2006.
“With foreclosure activity on the rise still, that could tug [prices] down,” LePage.
Casagrand said not all sellers are greedy, holding onto dreams of yesterday for that extra $20,000.
“We need to understand: A lot of people now owe almost (as much) or more than they can get for their home, and they’re going to give it the good ol’ college try,” Casagrand said.
But, while he said he understands how sellers arrive at that mindset, it will just harm them down the line.
“It costs them money in the end,” he said. “I believe in numbers, and I think the worst you can do in any business is delude yourself about what’s really going on.”