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San Diego County home prices rose again in October, continuing a streak of monthly price gains that began in the spring.

Why the price increases? Can they and will they continue? These are the questions buyers, sellers, real estate pros, economists and homeowners here are asking as a decade of unprecedented housing madness draws to a close.

Tuesday’s release of the latest Standard & Poor’s/Case-Shiller home price index showed San Diego County prices rose 0.4 percent in October from September. Home-buying activity usually slows down in the autumn and winter months. But this October, even a version of the numbers tabulated to account for seasonal trends showed a more dramatic increase –1.1 percent. October marked the fifth straight month of increases for that seasonally adjusted index.

There’s a common player in many of the factors linked to the increased players: the federal government.

A Federal Reserve program has lowered interest rates to decades-low levels. This means buyers can stretch to buy more expensive houses with the same income. A tax credit given to homebuyers had been ready to expire in November — sparking a frenzy of activity this fall. The Federal Housing Administration has backed nearly 30 percent of the loans taken out for San Diego properties in recent months.

Some of the buyer enticement is even easier to explain: Prices have fallen, a lot. Compared to the market peak in 2005, overall home prices in San Diego County were 37.9 percent lower in October. Lower-priced homes have fallen even further. The lowest tier of the market, homes priced lower than $292,617, fell 48.3 percent between a June 2006 peak and October.

But with some understanding of the increases, the question gets thornier: Can and will home prices keep going up?

October’s index seems to indicate the government’s intervention is balancing out the downward pressures in the market — for now.

Unemployment in San Diego tops 10 percent, but interest rates haven’t been this low for decades. A potential backlog of distressed properties that banks haven’t yet relisted for sale still lurks as a threat to prices — commonly known as shadow inventory. Against that shadow, government incentives encourage people to buy the houses that are on the market.

And despite the increasing prices, a sizable number of San Diego homeowners have to grapple with the fact that they owe more than they could sell their homes for. In September, 32.5 percent of all San Diego County borrowers were upside-down, according to First American CoreLogic.

“For every positive effect on the housing market you’re going to have a negative effect,” said Maureen Maitland, S&P vice president for index services. “At this point, no one is ready to say ‘Sustained recovery for the next five years.’”

Some of these factors even spark worries of a double dip for a market that has already seen a steep decline. The Fed’s mortgage-buying program is supposed to expire in the spring. Though the homebuyers’ incentive was extended and expanded, that too is due to expire in April.

“What’s moving the market now are stimuli and supports,” said Mark Goldman, local mortgage broker and real estate lecturer at San Diego State University. “What’s going to move the market in general over time is going to be jobs and income.”

Jed Kolko, research fellow at the Public Policy Institute of California, said it’s not possible to conclude the housing market wouldn’t be turning around on its own two feet without the government boosts.

“Reports about the housing market suggests that we’re still sort of either bottoming out or prices are increasing slightly,” Kolko said. “We can’t see what would’ve happened to the housing market without these programs or these credits.”

Broken into tiers, prices across the board showed increases from September to October, the seasonally adjusted version of the index indicated:

  • Low tier (under $290,244): Up 2.1 percent from September
  • Middle tier ($290,244 to $445,540): Up 1.1 percent from September
  • High tier (over $445,540): Up 0.8 percent from September

The current supply and demand balance contains bidding wars for properties and a general frenzy that is pushing prices up.

But there’s a backlog of distressed properties that could tip that balance — commonly referred to as the shadow inventory.

As of Tuesday, there were 8,801 homes that had received notices of default — the first stage of foreclosure — within the last four months that had not yet progressed to the next stage, according to ForeclosureRadar, a California-based foreclosure data firm.

And there’s an even bigger backlog in the second stage. ForeclosureRadar said 10,652 properties in the county are actively scheduled for foreclosure sale — Notice of Trustee Sale, the second stage of foreclosure — but haven’t yet been sold or canceled.

Those combined 19,453 active foreclosures total more than twice as many homes are currently on the market. Only about 8,600 properties are currently listed for sale on the Multiple Listing Service, according to a search Tuesday of online property search site ZipRealty.com

Kolko sounded a cautionary note about San Diego residents who bought their homes in the last several years.

“How many mortgages have adjustable rates that reset in 2010?” he said. “Many borrowers took out … loans that haven’t reset yet and when they do, there may be people who can’t afford the payments.”

Those resets are the biggest question for many San Diego homeowners.

Jonathan Heller bought a three-bedroom house in Tierrasanta in 2006, placing a down payment of $35,000. Now he thinks the house he paid $480,000 for is worth about $427,000.

“If you look at it that way I’m definitely in the deep end,” he said.

Heller, public relations director for Southwest Strategies, has no problem making his payments. But his five-year loan term is up in 2011, at which point his interest rate will begin to fluctuate in line with whatever rates are doing then.

Enticed by the low interest rates, Heller tried to refinance his loan this year. His mortgage lender said no because he is underwater. So did two other banks.

Heller said he wishes the banks would allow him to switch his loan to a more stable rate.

But walking away is out of the question, he said.

“That just seems to scream against everything I’ve ever been taught in my life,” he said. “But it’s kind of a trapped feeling.”

More than most of the so-called Sun Belt cities and states, California has shown the most dramatic turnaround in the last several months — a potentially sustainable shift, or a “glimmer of hope,” Maitland said.

“It’s just, along with everything else, it’s just the location that’s going to indicate whether April of 2009 was the trough in the market or whether we still have a little bit more to work off.”

Please contact Kelly Bennett directly at kelly.bennett@voiceofsandiego.org with your thoughts, ideas, personal stories or tips. Follow her on Twitter: twitter.com/kellyrbennett.

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