Tuesday, July 17, 2007 | Last summer, year-over-year home prices dropped for the first time in a decade. And new data released Monday marked the 12th straight month of such drops in San Diego County’s home prices.
Those 12 months have driven a stake between the current, slumping market, and those memories of extreme price appreciation and rapid sales rates enjoyed by many in the region for years at the start of the decade.
Now, parts of the changing real estate landscape are starting to look familiar as the market continues to slump from month to month, tracked by statistics from DataQuick Information Systems. The 19,184 homes sold in the first six months of this year mark the slowest first six months of any year in almost a decade. An increase in sales is seasonally expected between January and mid-year, and the first six months of 2007 followed that usual line. But this year, home sales were down 45 percent from the same period three years ago.
“At this point, you can kind of start saying, ‘What’s it going to mean for the whole year?’” said Peter Dennehy, local real estate analyst with the Sullivan Group. “We’re kind of bumping along, with maybe a slight seasonal trend.”
The overall median price, which bounded up by double digits for years, now wobbles from month to month within a small range, landing at $495,500 last month among the 3,510 homes that sold. That was about a 2 percent dip from June of last year.
The median measures the midpoint in price among homes sold. Andrew LePage, analyst with DataQuick, said increased activity in the sections of the market at the high and low ends kept the median prices from falling more than they did. But he cautioned against using one indicator to diagnose the market’s vitality.
“When you add it all up, you’ve got a market that has hardly plunged off the price cliff as some have long predicted,” he said. “That might be coming, but [DataQuick is] not in the long-term prediction market.”
The county saw three times as much foreclosure activity in June as it did in the same month a year ago, according to data from RealtyTrac. Last month, foreclosure filings in all stages of foreclosure measured 2,564 in the county, compared to 842 in June 2006. And in June 2005, there were 317 such filings.
LePage said trouble with mortgages could continue to exacerbate the county’s housing slump. The two- or three-year introductory low-payment period on many mortgages is ending, or resetting, and could be bad news if homeowners can’t handle the adjustment.
“If foreclosures are going to stay at elevated levels — and some people are saying the resets have only just begun — we’ll know the problems are deeper than many ever thought,” LePage said.
Analysts have said that much of the frenzy near the end of the boom was caused by first-time homebuyers’ desire to not miss their chance to get into the housing market.
“What this is largely about is a bunch of demand that’s missing because it played out prematurely in early 2005,” LePage said. “People were worried about missing out, losing out. We stole demand from the future back then.”
The biggest chunk of the market is resale detached homes. The median for the 2,001 homes in that category last month was $565,000, a slight increase from May but a 0.4 percent dip from June 2006. LePage said buyers of such homes paid $321 per square foot, 7.1 percent less than in June last year. Because smaller homes usually sell for more per square foot, LePage concluded that fewer smaller homes are selling.
Resale condos, with a median of $397,500, sold for nearly 3 percent more than they did in June 2006. Last month, 812 condos sold on the resale market, down about 15 percent from the same month last year.
And nearly 42 percent fewer new homes — including condo conversions — sold last month as in June 2006. Among those 697 sales, the median was $400,000, down 5.2 percent from June a year earlier.
Dennehy said the median and sales rates give a good picture of what’s going on in the market — in general, feast-or-famine terms — but the price indicators hide much of the actual state of the market, where homes are selling for as much as 20 percent less than they once were.
“If there was a home bought in 2004, and you’re seeing it sell again in 2007, you’re going to see a substantial decline,” he said.
David Cabot, president of the San Diego Association of Realtors, said he doesn’t see anything dramatic in these data. If anything, he said, the low sales numbers are good for buyers, as sellers must keep their prices competitive.
“It’s one of the better times in the past 18 months for the buyer’s market,” Cabot said.
But LePage cautioned buyers against buying with hopes of a turnaround sooner rather than later.
“You wouldn’t want to bank on appreciation, especially in the next year or two,” he said. “You could get lucky, and probably there are some people getting lucky right now, but those are the one-of-a-kind properties.”
In several ways, the housing market’s strife has started to seep into the rest of the economy, said University of San Diego economics professor Alan Gin. In his most recent economic index, he noticed significant drop-offs in job growth in such real estate-related industries as construction, real estate and finance. As the market cools, the industry adjusts, he said.
“In the past, economists have viewed the economy as affecting the housing market,” he said. “Now it seems to be the other way around this time around.”
LePage said the bottom may be closer in San Diego than other parts of the state such as the Inland Empire and the Central Valley, as long as the economy staves off a recession and mortgage rates don’t spike. But those are two major question marks, he said.
Even Gin, who has, until recently, dismissed any thought of a potential recession, said he’s not ruling it out. Rising interest rates are a “significant possibility,” he said, as the Federal Reserve seeks to curb inflation.
“Although I don’t think that there is going to be a recession, it’s not out of the realm of possibility,” he said. “So that is a little more negative than I’ve been thinking.”
Indeed, said LePage: “The San Diego market is on this real precarious perch right now.”