Unsold home inventory builds
By: DAVE DOWNEY - Staff Writer | ∞
For sale signs dot the yards on Vista Way in Oceanside on Tuesday. Experts say the number of homes for sale in the county has skyrocketed.
HAYNE PALMOUR IV Staff Photographer
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NORTH COUNTY ---- In one of the strongest signs yet that the housing market is cooling, San Diego County's inventory of unsold existing homes is fast approaching 16,000 ---- twice the total one year ago and five times the number in March 2004, a local real estate agent said Tuesday.
Dennis Smith, a Realtor with Taylor Place Real Estate in Carlsbad who tracks inventory, said the number of unsold single-family houses and condominiums on the market reached 15,842 late Tuesday afternoon. Smith said that figure compared with an inventory of 8,449 on March 8, 2005, and 3,020 on March 15, 2004.
"We've gone up by 400 properties in the last five days," he said. "That's 80 properties a day."
At the same time, sales are declining sharply.
Still, analysts say the sales decline and inventory buildup do not signal a crash. They say it was inevitable that the market would chill following the its red-hot performance of recent years.
The inventory buildup comes on the heels of reports that countywide sales for January fell below 2,000 for the first time in years. The total of 1,876 sales for that month was down sharply from 2,297 in January 2005 and 2,599 in January 2004, according to the real estate listing service Sandicor.com. In January of each of the three previous years, sales totals exceeded 2,300.
In North County, sales of existing homes also fell sharply early this year, as the January total of 533 sales was 27 percent off the 2005 pace of 732, Cal State San Marcos economics professor Robert Brown reported last month. Brown compiles the North San Diego County HomeDex, a monthly index of housing prices.
The median January price in North County was $625,000, a modest appreciation of 5.9 percent from the year before. The previous January recorded a 20 percent year-over-year increase.
Analysts from around the region provided mixed views of what the growing inventory signals in the months ahead.
"We are just experiencing a soft correction," said Nicole McAllister, executive director of development for the University of Southern California's Lusk Center for Real Estate, noting she does not consider the buildup to be alarming.
"I don't think (the market) is headed for any catastrophic burst," McAllister said. "We're going to gradually see sellers adjust and soften their prices a bit. I don't think it's going to turn around and tomorrow everybody is going to get all these great deals."
Agreeing with the assessment that no sudden crash is about to occur, Christopher Thornberg, senior economist with the widely quoted UCLA Anderson Forecast, said one must keep in mind that inventories are rising from historically low levels.
"This is still just the beginning of a cooling trend in real estate," Thornberg said.
On the other hand, he said, it remains to be seen if prices will fall at some point or flatten out for several years. Thornberg is one who subscribes to the theory that Southern California is in a "housing bubble," a term used to describe a market where home prices inflate beyond what incomes can sustain.
Given today's low interest rates, Thornberg suggests a healthy ratio of housing prices to income levels is 8- or 9-to-1. "Right now we are at 12-to-1 ---- and counting," he said.
Thornberg suggests homes are overvalued by 25 percent to 30 percent.
"There are two sets of people out there," he said. "One set is saying, 'The sky is falling! The sky is falling!' That's not true. The second set is saying, 'We now know the soft landing is here.' They're wrong, too. We don't know yet."
For his part, Smith said the buildup is "absolutely going to keep a cap on prices. ... I don't expect the bubble to burst, but the air has been let out of the bubble."
For now, prices are holding steady, Smith said, noting that preliminary reports suggest prices were about the same in February as they were in January.
"A lot of sellers are standing firm, saying, 'My neighbor got $700,000 for his house, I should be able to get $700,000 for mine also," Smith said.
The buildup of unsold homes does offer an advantage to those looking for a home, Smith said.
"It's great news for buyers because now they have the time to shop around and a much larger inventory to choose from," he said. "It's becoming more and more of a buyer's market. But there are pockets where it is not."
An example of the latter, he said, is the Laguna Del Mar area of Carlsbad. Just four of the 112 properties in the coveted neighborhood east of the town's lagoon have come on the market in the last 18 months, and every time one does it attracts much attention.
"There is a pent-up demand for properties in that neighborhood, therefore multiple offers still happen there," Smith said.
But, he said, Oceanside's Quail Ridge is illustrative of an emerging trend. There, one of his clients who is trying to sell a two-bedroom, two-bath, 1,152-square-foot condo is offering it for a range, between $294,000 and $324,000, rather than a fixed price. And Smith said the owner is offering to pay the first six months of principal and interest ---- roughly $11,000 ---- to any buyer willing to pay in the high end of that range.
Contact staff writer Dave Downey at (760) 740-5442 or ddowney@nctimes.com.
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jeff wrote on Mar 8, 2006 6:10 AM:I geuss this breaks the myth that a surplus of real estate units available for sale will bring affordable housing.
Dennis wrote on Mar 8, 2006 7:28 AM:Most of the housing that is coming down in price was overpriced anyway..and the remainder of the inventory that was priced right is just going to take a little longer to sell..don't panic..if you were smart enough to listen to your R.E coach/mgr and stayed in touch with "ALL" of your past clients your clientele base will carry you through these tough times.
Beth wrote on Mar 8, 2006 7:36 AM:I'm sorry folks - I'm afraid this will become far worse - not a soft landing but a huge drop. Time to sell before it goes down further.
HEAD wrote on Mar 8, 2006 7:39 AM:i think the market is about to crash i own two homes one i live in and the other is rented out. on my rental i have to pay $2800 a month but i can only rent it out for $1600 i have to come up with $1200 a month to cover it. the prices around san diego are way too high and the bubble is about to burst.
J.P. wrote on Mar 8, 2006 10:07 AM:Good observation Jeff, I guess the smartest man in the world, Michael D. Pattinson isn't so smart afterall.
just for laffs wrote on Mar 8, 2006 1:49 PM:Here's a wake up call for speculators, because its sure to get worse before it gets...and it will..get better. If you buy a house to raise a family, or simply to call home, over time, you will not be disappointed. If you entered the real estate market just to make a killing in the short run, well, you get what you deserve.
Daniel wrote on Mar 8, 2006 3:01 PM:Greenspan very directly and very clearly said, "do not rely on the equity in your home for anything important" just last November. He said this in explaining specifically that the FED considered the housing bubble to be a potential threat to the stability of the economy and that the FED was going to do what they could to reverse it. Certainly they are not trying to crash it, but the top guy from the FED already said that they were going to work to reverse some of the gains made. They have the power, the message was clear. Why is there even any debate on whether or not it is going to happen?
Tom wrote on Mar 8, 2006 3:03 PM:Real Estate cycles always move up and down. NYT article showed over hundreds of years that prices had not really changed much on average -- less than one percent up per year. So corrects have always been part of real estate. Times like these appear to be bubbles --this one may be, yet it may not be either...time will tell.
Nate wrote on Mar 8, 2006 5:03 PM:The slow down in sales is great for the families that are so desperately trying to purchase a home since the decline should result in price adjustment to a more affordable price for the average or above average family. It may be profitable to sell two homes to make the profit of one than sell no home and make the profit of selling none if your an agent. Sellers, your profit and move on. REal Estate is not a get rich quick plan.
Next Step wrote on Mar 8, 2006 5:48 PM:Bring in more industry that will attract higher earning, college educated people into North County to counteract a down turn. These guys like Pattinson are way off when it comes to housing and just want to continue to fill their pockets. Empty houses do not provide any revenue for the city. People provide revenue for the city. Instead of having to deal with traffic going into San Diego, people can travel locally to a job/company. In comparison, housing prices in San Diego County are low compared to OC,LA,SF but what those counties have are jobs in diverse industries that support the communities and the cities.
Anonymous wrote on Mar 8, 2006 6:55 PM:Are you kidding? Check ZipRealty.com. As of 3-8-06 at 6:54pm there was 17,654 and that doesn't even count the thousands of FSBO's. Google the phrase "housing Bubble" in quotes and check a few sites that have feeds all over the country on this topic. The crash is well under way. Also check Piggington.com for proof
Bruce wrote on Mar 9, 2006 12:02 AM:In the last couple years, people are willing to pay these high prices because they expect to get in and get out quick because of their expectations on continuing double digit appreciations. The question now is, are they still willing to pay these high prices once they realize that the real estate market is stalling and prices are starting to drop, and if they think that by buying now they are going to be stuck for 10-20 years? If you answer is "Yes", then we may have a soft landing. Otherwise, based on our medium household income, prepare for crash of up to 50% or more in CA.
david wrote on Mar 9, 2006 3:06 AM:Where were the UCLA and USC economists 5 years ago to tell me prices were too low, that inventory was too small and that there was going to be a shortage for an expaning economy and prices would double in the next 5 years. These guys missed the rise up, and now I am suppossed to listen to them on the ride down.
JAMES wrote on Mar 9, 2006 7:55 AM:INTEREST RATES ARE GOING UP! DEMOGRAPHIC TRENDS IN HOME BUYING HAVE PEEKED, PER HARRY S. DENT. 25% OF ALL HOMES PURCHASED LAST YEAR WERE FOR INVESTMENT PURPOSES, NOW THIS DEMAND IS MOSTLY GONE(SMART MONEY AT LEAST). THUS DEMAND IS SLOWING, INVENTORIES ARE RISING. ECONOMICS 101 WOULD INDICATE PRICES SHOULD FALL. CHECK MLS DATA FOR A 944 SQ.FT. CONDO IN 92130; PRICES IN THE SUMMER OF 2005 WERE AS HIGH AS $440,000. CURRENT PRICES $387,000 TO $400,000. SEVERAL OF THESE BUYERS ARE UPSIDE DOWN, THEIR BUBBLE HAS ALREADY POPPED AND THEY ARE NOT MOVING UP TO A LARGER HOME ANYTIME SOON.
Jay wrote on Mar 9, 2006 9:16 AM:The reason why there is even a debate is the RE, lending, and building industries don't make money on the reversal, the longer they can talk things up, the more money they'll make. People's actions are lead by their incentives. Anecdotal story- my pops and friend just sold property. Guess who bought it? RE agents- they got into the biz to sell houses and ended up buying their own hype. The correction is the neccesary unwinding of the preceding expansion. BTW, an asset that doesn't keep up with inflation is still a loss, a loss that you'll be taxed on.
Jay wrote on Mar 9, 2006 9:34 AM:David said-"Where were the UCLA and USC economists 5 years ago to tell me prices were too low..." They prices were about right 5 years ago, they couldn't predict that the Fed, in an effort to correct a different asset bubble, would push short term interest rates below the real inflation rate and cause an unprecidented credit expansion collecting mainly in residential real estate. These guys speak up when things are out of whack, not when they're normal. And BTW, the USC person sounds like a RE hack with the "soft landing" talk. When an expert says "don't panic", thats when you panic.
Jim wrote on Mar 9, 2006 9:51 AM:I sold my home and am about to sign a lease on a house for about half the monthly payment of a mortgage on a similar home - and that doesn't include taxes or HOA fees. I just can't understand why anyone would want to buy right now. Even if there's no crash, there's little possibility of a decent return over the next 5 years. I'd rather hold cash, precious metals and inflation adjusted bonds. Unless your ego simply won't allow you to rent, get out while you still can.
Mike wrote on Mar 9, 2006 9:52 AM:So Dennis, isn't that the definition of a bubble: that appreciation accelerates until houses are over priced, demand decreases as a result of the median income being priced further and further out of the market and than they have to come down? When did they become overpriced? I am sure the run up in prices wasn't realtor driven...heaven forbide!! We should have listened to those smart realtors! Yes, Jeff the law of supply and demand, if I am not mistaken has not been repealed. I bought my first house at 19 and I am 54. I have seen this happen 3 times. This is #4. This one will be especially bad because the run up of prices was so out of whack. If your smart, you have a strategy for making money in a bad market.
Tom wrote on Mar 9, 2006 6:04 PM:I read the comments and everybody pretty much summed it up with the exception that interest rates on the treasury bonds are being held down artificially low from foreign investors pouring there dollars into American assets. After 14 Fed increases, rates on 15 and 30 year mortgages have bearly moved 3/4 of a point. When our asian neighbors stop trying to control the yen down so that their imports are worth more watch what happens to interest rates. Sky is the limit.
chris wrote on Mar 9, 2006 10:06 PM:I find it mind boggling that anyone could deny the housing bubble. I subscribed to it years ago and have been watching it slowly gain acceptance. This is a real estate bubble like no other, there's no doubt about it. Simple facts: the median (or average) prices are at multiples of income never seen before along with gross rent multiples; interest rates and CREDIT AVAILABILITY are at levels of accomodation never seen before thanks to the fed and the banking system whereby banks don't assume loan risk anymore (Fannie Mae and YOU do); much of the 'organic demand' is nothing more than speculation; and the demographics are shifting as the TRAILING EDGE of the baby boom buying frenzy approaches. Fasten your seat belts, folks.
Brianne wrote on Mar 10, 2006 6:25 AM:I sold my house in Carmel Valley (92130) last year for a little over a million dollars. Why did I sell, because the greedy bastards at Pardee were building two huge developments (they own all of the 92130) of new homes very close to mine and I found out the prices would be LOWER than what I bought my home for. When the builders can keep coming in and vomiting 500 more homes in your town, you have problems. What will kill San Diego this year and next year is the continuation of new construction. When inventory keeps climbing, and the towns and cities do absolutely NOTHING to restrict building or preserve open space, existing homeowners are toast. San Diego won't go back up in value until the building slows like in Orange County and the only reason building has slowed there, finally, is because they have literally built out 90% of ALL USABLE LAND. San Diego will look the same in the next 15 years. No open space, just tract and traffic. Kind of a bummer, but the towns and cities don't care.
xobjectx wrote on Mar 10, 2006 9:31 AM:Surplus housing will bring affordable housing. If sellers want to get out, they'll have to beat the prices on the market. To beat the prices, they'll have to undercut their competition. When other people see that someone is trying to list their house for less than theirs, they'll drop their house to make it sell ASAP. This will cause a panic and a crash. It is a proven fact that fear sets in 3 times faster than excitement/greed. If you want proof of this, take a look at a stock that has received bad news. The down slope will be 3x as steep as the up slope.
FRED wrote on Mar 15, 2006 9:13 PM:I am a mortgage borker and I see many clients who up-side down in their mortgages, if that is Not a bubble than I am crazy. Neg Am, ARM all these creative mortgages + the over inflated housing prices will cause such a BIGGGGGG burst in real estate unlike any other on the past. Get out while you can.
Gary Anderson wrote on Mar 28, 2006 6:52 PM:Be patient Jeff. Eventually the prices must come down, or else your wages would have to rise to offset the rise in prices. Since there is a global downward pressure on wages worldwide, you may see prices that exist now being the all time high for many years to come.
seth wrote on May 8, 2006 2:51 PM:everything in san diego is overpriced! This means nothing. give it time and it will all come crashing. ask anyone you know what they plan to do at the end of there interest only term that they can barley afford as it is, what they plan to do.
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