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The latest release of the Case-Shiller Home Price Index indicates that San Diego home prices were, in aggregate, still falling as of May. Prices as measured by the HPI were down .4 percent from the prior month, 7.0 percent from May 2006, and 7.4 percent from the November 2005 peak.

As seen on the graph to the right, the divergence between the HPI and the median-based price indicators remained firmly in place. This phenomenon, described elsewhere on this blog in lurid detail, is owed to the declining volume of entry-level home sales in the wake of the rapid tightening in the subprime mortgage lending market.

It is notable that the decline continued uninterrupted despite a seasonal tendency for prices to rise in spring. Even during the much-maligned housing downturn of the 1990s, prices managed to bounce at least a little bit every spring except in 1993. And despite prices per the HPI having put in an all-time high as of November 2005, the graph shows that they managed to rise steadily, if slightly, for the first six months of 2006.

The inability for prices to stem their decline during the strongest time of the year isn’t an encouraging sign. If the traditional seasonal tendencies are at work, then the price adjustment could pick up the pace when we hit the typically weak latter half of the year.

Of course, seasonal trends aren’t the only factors in play. Since May, it has become significantly more difficult for buyers to get their hands on the New Age mortgage products that were crucial to enabling them to pay San Diego prices. There’s a very good chance that it will become yet more difficult in the months ahead. Even as it gets tougher for buyers to qualify for loans, must-sell inventory is piling up at a record-setting pace — a trend that also shows no sign of slowing.

So while short-term market fundamentals were poor in May, they’re worse now, and they could well deteriorate further in the near future. To this fragile situation we can pile on the seasonal tendency for price weakness in the latter half of the year.

Meanwhile, it seems like every housing article I read features a host of commentators touting the stable median price as an indicator that the San Diego housing market is holding up fairly well. It only takes a superficial look behind the numbers to see that this simply isn’t true.

— RICH TOSCANO

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