Wednesday, Nov. 26, 2008 | The San Diego County housing market is increasingly propelled by foreclosure sales on the low end, while sales on the high end cool. Meanwhile, prices continue to fall across all levels of the price range.

September home prices in San Diego County fell by 26.3 percent from the same month a year earlier, according to the most recent Standard & Poor’s/Case-Shiller index released Tuesday. The index reports housing data with a two-month lag.

That was a 34.4 percent drop from the market’s peak in November 2005; prices rolled back to a level not seen in the region since May 2003.

The further slides logged in September mirror those from earlier months. But they keep coming, and come these days against a background of economic news like the September collapse of Lehman Brothers. That news reverberated through the credit market and foreshadowed startling collapses of several other banks and companies in the two months since then — further crumpling many buyers’ chances of getting a home mortgage.

Getting a loan had already become more difficult as banks and mortgage insurance issuers had drastically tightened their standards for homebuyers, from raising the bar for credit scores to requiring larger down payments.

Still, the availability of government-insured Federal Housing Administration financing for first-time homebuyers, along with emerging investors seeking to pick up rental properties, has heated up sales activity along the bottom rungs of the housing market.

“The vast majority of the sales are going on where there are a ton of foreclosures,” said Leonard Baron, who teaches a graduate real estate investment class at San Diego State University. “That will drag down all of your numbers that you’re looking at.”

Sales totals show that not only are prices falling, but there are more homes selling at the bottom than at the top. In October, 36 percent of resale homes sold for less than $300,000, according to MDA DataQuick. That’s six times more than the number of resale homes in that price range a year earlier.

The $300,000 to $500,000 range captured around 40 percent of the sales in both Octobers. Houses priced between $500,000 and $1 million dropped from 42 percent of sales in October 2007 to 19 percent last month. And while homes priced higher than $1 million constituted 11 percent of October 2007’s sales, such homes only counted for 5 percent of the sales last month.

About 49 percent of homes sold in October were foreclosures at some point in the past year, according to MDA DataQuick. That compares to 20.8 percent of the sales in the same month a year earlier.

Foreclosure filings totaled 4,374 in October, up slightly from October 2007, according to RealtyTrac. Analysts say that number could be artificially low because of a lag in companies becoming compliant with a new state law before they can work through a backlog of troubled mortgages. The impact on foreclosure levels of the mass of loan modification programs presented by banks and governments at all levels also remains to be seen.

The Case-Shiller index assigned a value of 100 to home prices in the year 2000 and has tracked the market’s ascent and descent in relation to that value ever since. By November 2005, the index reached a peak of 250.34, meaning homes measured in the index had appreciated in value by 150 percent in just less than six years.

Now, the index has fallen to 164.12 — that’s a 34 percent drop from the peak, but prices are still about 64 percent higher than they were at the start of the decade.

The economists behind the Case-Shiller index track the sales of detached single-family houses that have sold before in a rolling three month period, contrast them with the price the same house sold for previously, and report the difference as part of the index.

The index is broken into tiers — taking those sales and dividing them into thirds. The prices used to measure the tiers reflect the previous price each house sold for.

In the most recent index, homes in the lowest tier fell 44.3 percent from the tier’s peak in June 2006, and dropped 33.4 percent from the same month a year ago.

The middle tier fell by 34.6 percent from the peak in November 2005 and by 25.4 percent year-over-year.

The high tier fell by 23.9 percent from the peak in June 2006 and by 18 percent year-over-year.

Prices in the highest strata of the housing market have grown weaker. First Republic Bank reported that such homes in San Diego have declined for five straight quarters, when compared both to the previous quarter and to the same quarter a year earlier. The index measures price changes in houses priced at more than $1 million, usually measuring 3,000 to 6,000 square feet and having between three and six bedrooms and bathrooms.

In the three-month period ending in September, the average price of a San Diego-region luxury home fell below the $2 million mark to $1.98 million for the first time in nearly four years. That average peaked 9.6 percent higher at $2.19 million in the second quarter of 2007.

For high-priced homes in areas hard-hit by foreclosures, real estate agent Camille Bruno with McMillin Realty in Bonita has noticed even greater pressure on prices than is reflected in that luxury index. She sells bank-owned homes in the South Bay, and named two sales where homes that previously sold for $1.3 million and $1.5 million sold in recent months in the $700,000 range. She said she’s seen executives looking for a house in Chula Vista because a comparable house in North County costs significantly more.

“They’re like 50 percent off, basically,” she said. “Those same houses haven’t come down in North County as far as they have here yet.”

But Ed Mracek, real estate agent with Willis Allen in La Jolla, said the long-held supposition that the coastal neighborhood would stay untouched by housing trouble is going away and the La Jolla ZIP code is starting to see large price reductions, he said.

He mentioned an oceanfront house that the sellers had listed for more than $25 million before recently lowering their asking price to $18.8 million. They paid $17 million for it, he said.

Another waterfront home was listed for $4.875 million, reduced in September to $4.375 million and finally reduced to $3.995 million last week.

“Sellers need to be realistic — the world kind of changed after the stock market crash,” he said. “Financing’s much more difficult, and some buyers are coming in with all cash but they want a deal since they’re paying all cash.”

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