The Morning Report
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Monday, Mar. 17, 2008 | The gloomy housing market hasn’t sapped the spring sun of its sparkle on the waves crashing ashore in Pacific Beach, nor, seemingly, has it dampened the spirits of the sunbathers on Mission Beach.
In the housing markets near those beaches — the coastal neighborhoods south of La Jolla and west of Interstate 5 — the water is trump. A lot with a water view might go for $4 million, while its next-door neighbor, one house removed from the beach, goes for $2 million. Here, the water seems to be the factor homeowners and real estate agents cling to, hoping to find salvation from the value and sales drops hitting parts of the county.
Of course, most of the homes in PB and Mission aren’t actually on the beach. And so the beaches are a tale of multiple markets. Where dozens of oceanfront lots in south Mission have been snapped up, their cottages scraped and new gleaming condos built in their place, prices are rising. But where overzealous homebuyers bid up homes on busy streets a dozen blocks from the beach a couple of years ago, it’s difficult to sell for anywhere near what they paid.
Median prices for detached homes here have only fallen 3 percent from the peak, but the disparity between the slippage for an oceanfront home versus a home on a busy street somewhere inland PB has grown.
With the recent booze ban on the beach, some agents argue the oceanfront property just got a lot more lucrative. The 97 detached and 204 condos or townhomes on the market as of Thursday range in price from $219,000 to $4.695 million.
Although tentacles of housing trouble have slithered into nearly every neighborhood in the county, regional measures of housing health are vague, encompassing beaches and deserts and everything in between. When examined on a county level, a housing market is nearly impossible to diagnose with much precision. Road conditions and noise and proximity to the grocery store can attract or repel buyers, many of whom care only about the price performance of one house: the one they’re buying.
An attempt to figure out the market here includes examining a cast of characters as varied as the architecture along the gem-named thoroughfares of PB — all-cash oceanfront buyers, fence-sitters, renovators, desperate sellers and bargain-hunters from the likes of Canada and Sweden.
Despite the beaches’ reputation as a youngsters’ party haven, the community is ringed by luxury homes. Here, the beach is the great equalizer; renters and homeowners bathe under the same sun. But when the sun goes down, the rich walk a shorter distance to reach their pads, while middle-class families and students have been pushed by rising property values and rents further and further from the water.
What causes a foreclosure east of Interstate 5 causes one here, too.
The foreclosure activity is more “on the condo side,” said area real estate agent Rustin Rulenz. “Basically it’s all kind of the same thing as anywhere else, people who bought 100 percent financing.”
For condos and townhomes, the median price rose from $260,000 in 2000 to $575,000 in 2005, a 121 percent increase. It fell to $500,000 in 2007, a 13 percent decline from the peak.
The median price for a single-family detached home on the resale market here rose from $441,500 in 2000 to $877,500 in 2005 — a 98 percent increase, according to DataQuick Information Systems. It fell to $850,000 in 2007, a 3 percent decline from the peak.
For area real estate pros, the boom market meant sometimes selling houses within three hours of putting them on the market, other times collecting more than a dozen offers on a property before letting it go to the highest bidder.
“People had this anxiety,” said Karen Dodge, a veteran real estate agent in PB. “I gotta get a piece of Pacific Beach! I gotta get a piece of Pacific Beach! They were just buying anything.”
But the community has its home-buying turnoffs. Noise, traffic, a party culture and summer weekend influxes of hundreds of thousands of residents keep some homebuyers away. Still, people clamor to live here, to buy properties to rent out here, to scrape old homes and develop two or three in their place here.
Some activity here is contributed by buyers from other countries whose currencies have seen a recent bump up compared to the U.S. dollar. Rulenz estimated about 35 to 40 percent of his buyers right now are investors from out of the area, from places like Sweden, Canada and Mexico.
And, Rulenz said, buyers are coming from Washington State, where the housing market still tempts homeowners to withdraw equity from their homes to buy second homes. They’re coming to San Diego, he said.
“In the back of my mind, I’m feeling like I’m working with a lot more investors than people who are actually going to live in it — there’s a lot more buzz right now among investors,” he said.
As anywhere in San Diego, the clientele for the oceanfront property is deep-pocketed. The bottom story of a new bayside duplex in south Mission Beach is a one-bedroom, 1,002-square-foot unit. The builder used gleaming Brazilian hardwood for some features and covered a back patio with fossil-embedded stone slabs. The unit’s backyard — the beach — hosts volleyball games a few steps away.
Its asking price: $2.595 million, steep even for this coastal spot where price was barely a question in recent years, the Dodges say. And for that price, the buyer doesn’t get a garage — just two-car tandem parking. Still, even now, a buyer might snap it up, maybe even with cash.
“That’s the volatile part about our market,” Dodge said. “Some people have so much money they don’t care if it has exactly what they want.”
The top floor of that duplex is a three-bedroom, four-bath unit with a four-car garage lift — one car drives in, a mechanized lift elevates that car, and another drives in under it. Its asking price is $4.695 million, the most expensive condo on the market.
Up the hill in north PB, $2 and $3 million homes with views of the community and the ocean are nestled on quiet streets, mixed with some cottages and apartments.
“A lot of people over here are as successful as the people who live in La Jolla,” said Karen’s husband and partner, Mike Dodge, pointing to the expansive homes on a recent afternoon drive through the community. “But they live here because they don’t want to deal with the traffic over there.”
But sellers of homes in bad spots — on busy streets, far from the beach — fall into trouble in the uncertain market.
One such home in PB was listed in 2005 for more than $1 million and sold for $829,421 in June of that year. Last August, the owners listed it for $699,000, and it didn’t sell. They took it off the market in the last month, the Dodges said.
Fix-and-flip investors are largely gone from PB and Mission, but the scuttlebutt among the market’s investors and would-be buyers surrounds the trend of buying a rundown oceanfront cottage, scraping it to dirt, and rebuilding an awe-striking house or duplex. The zoning is bizarre in these neighborhoods; some lots are regulated by the city, some by the state. Some lots that look just big enough for a cottage have been bulldozed by a savvy developer who knew the lot was zoned for four residences and has now built a towering fourplex in the cottage’s stead.
One company, Ocean Pacific Properties, has construction signs on a number of lots under construction in Mission Beach. Its notable elements are glass and steel accoutrements and modern, curved architecture, that have dramatically changed the feel of Mission Beach.
Another price factor is schools. Some homeowners as far south as Mission Beach, as long as they’re west of Mission Blvd., can send their kids to schools that feed into La Jolla High.
“You can almost tack $15K on homes that go into those schools,” Mike Dodge said.
A community kerfuffle arose with the recent beach booze ban. The Dodges say at first they were against the ban — they’re advocates for keeping “as many of our freedoms as possible,” they said. But they’re beginning to see some merits.
“Everything used to smell like pee on the boardwalk” before the ban was enacted, Karen said. “Well, you don’t smell the pee anymore. And it’s really nice.”
Rulenz, though, theorized the ban could be bad for some business.
“I do have someone who bought a vacation rental in Mission Beach in September (before the ban) and they were pretty disappointed in it,” he said. “They’re Arizonans, and they love to have a cocktail on the beach. It would probably have prevented that sale.”
The area’s 300 active real estate agents — joined by another 150 or so many in the Mission Bay Real Estate Association — are friendly with each other, Mike Dodge said. About 20 percent of the activity in the community is handled by outside agents whose brother-in-law or best friend wants to buy or sell in PB or Mission.
Every once in a while, one of those outside agents lists something for $200,000 lower than the locals think the market could handle, and one of the Dodges or their friends jump on the phone to their clients, or snap up the property themselves.
“What better place to live?” Karen Dodge said.
“If you’re 70, you can dye your hair blue and get on rollerblades and go down the boardwalk — it’s OK,” Mike Dodge said.