Home sales may be nearing bottom
By: DAVE DOWNEY - Staff Writer | ∞
San Diego County's sluggish housing market is churning out single-family home sales at a pace barely above the low point of the recessionary 1990s, according to an analysis of regional statistics.
At the height of the recent housing boom, about 4 percent of county homes were being sold every year. Today, a little more than half that are changing hands. And analysts say the market, when it comes to sales, is about to reach bottom in the current downturn.
Analysts also say inventories of unsold homes are higher than normal, a sign of market weakness, and they warn that up to four more years of flat or declining home values could be in store for San Diego County. For now, however, prices have cooled only slightly.
"It's not a full-on buyers' market because a lot of sellers are still holding onto their prices, or coming down only a little bit," said Dennis Smith, a real estate agent in Carlsbad.
After reaching a peak of $604,250 in 2005, the countywide median price declined 0.4 percent to $601,760 in 2006, the California Association of Realtors reports. The median price is the midpoint of the market, where half of homes sell for more and half for less.
In North County, the median was still holding strong at $635,000 in April, just 2.3 percent off the area's all-time high of $650,000 recorded in June 2006, according to the latest HomeDex report prepared by Robert Brown, chairman of the Department of Economics at Cal State San Marcos, for the North San Diego County Association of Realtors.
The recent developments are to be expected, as they reflect long-term trends, said Ed Leamer, director of the closely followed UCLA Anderson Forecast, which issues quarterly predictions about the state's economy.
Leamer said housing markets tend to go up and down, but cycles are different for price than for sales volume. Typically, sales fall first and fast following booms, while prices decline later and drift down slowly.
"The volume cycle has already made a major adjustment," he said. "We may not be on the bottom, but we aren't far off the bottom."
On the other hand, Leamer said, "The price decline is just starting. And we expect that to last for a considerable time."
'A buyers' market' ---- sort of
San Diego County's market is also performing below average when measured by another yardstick ---- but better than it was during the depth of the 1990s.
Leslie Appleton-Young, chief economist for the California Association of Realtors in Los Angeles, said over the long term California tends to have, on average, a seven-month supply of housing, meaning it takes seven months for all homes on the market at a given time to sell.
The supply is a key indicator of the market's strength or weakness. A larger-than-average supply tends to suggest a weak one in which prices are likely to decline.
In April, San Diego County's supply reached 10 months, Appleton-Young said.
That represents a dramatic increase from the record-low, one-month supply posted in March 2004, when homes were selling as fast as they were being listed, analysts say. But the April total is a sign of a healthier market than the one that weathered last decade's recession.
Appleton-Young said San Diego County's supply reached a record 23 months in February 1992.
Today's larger-than-average supply is giving buyers an advantage they didn't enjoy a few years ago, when sellers had the upper hand.
"It's definitely a buyers' market," Leamer said. "By that I mean, if sellers want to move their product they are going to have to do what the builders are doing, which is aggressively price and promote."
But buyers do not hold all the cards.
There aren't many bargains being offered in the resale single-family market, Leamer said.
"If you want a bargain, you have to buy a new home or one that has been foreclosed," he said.
Appleton-Young said buyers also have choices in more affordable inland markets, where overbuilding and foreclosures have softened prices. She said prices, for the most part, have not budged on the coast.
No 'cut-and-run mentality'
Economists and real estate agents say the reason there are few bargains ---- and median prices are holding ---- is because the economy remains strong, with near-record-low unemployment.
"You're not having that cut-and-run mentality like you had in the 1990s in L.A. County when so many people lost their jobs that they had to get out," Appleton-Young said.
During the 1990s, the end of the Cold War led to a significant scale-back of the military, and much of the impact was felt across Southern California. Several bases were closed and thousands of aerospace jobs axed, triggering a six-year-long recession worse than any other the region has had.
In response, home values in the Los Angeles area declined 27 percent, Leamer said.
From 1991 to 1996, the median price in San Diego County ---- which was insulated from the base closures that hammered communities elsewhere ---- fell 9 percent, according to the California Association of Realtors.
Appleton-Young said there is no question prices also are going to pull back from the "unrealistic appreciation in prices" that occurred during the boom of the 2000s.
But Leamer predicted a mild slide this time because of the relative health of the economy.
Carlton Lund, who has watched the ups and downs in his 25-year career as a real estate broker in North County, suggests the San Diego County market will see a price decline of 5 percent to 7 percent.
"We have a good job base in San Diego. And we also have good, affordable interest rates," Lund said, noting unemployment drove the last down cycle and high interest rates ignited one in the early 1980s.
A normal market it is not
However, Robert Campbell, an independent San Diego economist who publishes a newsletter advising people about when to invest in housing, said a strong economy and low interest rates can't eclipse the market's need to return to price levels that more closely reflect the region's income levels. Campbell said he believes the county is in store for a severe price decline, in the neighborhood of 35 percent.
"This boom took prices twice as high as normal cycles," he said. "People talk about high gas prices. But what is really stalling the economy and could actually bring the economy down is overpriced housing. Affordability, of course, hit the wall. The market is just exhausted."
Clearly, said Leamer, the boom market of the recent past was anything but normal.
"In a normal market, people buy homes as places to live," he said. "In abnormal times, people buy homes as investments."
Leamer said he also would not classify the current market as normal, as it is "correcting for the excesses of 2001 through 2006."
Economists and real estate analysts are in agreement that a correcting down cycle is under way. They disagree on how long it will last.
Lund, the broker, predicts 18 more months, while Appleton-Young's crystal ball says 18 to 24 months.
Leamer maintains the cycle will last three more years; Campbell suggests four.
Borrowing a baseball analogy, Campbell said, "We've got innings four through nine to go ---- and that's assuming we don't have extra innings."
Contact staff writer Dave Downey at (760) 740-5442 or ddowney@nctimes.com.
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Not So Fast wrote on Jun 3, 2007 6:38 AM:It's a 7 to 10 year cycle. What's your hurry?
Jeff wrote on Jun 3, 2007 8:00 AM:Let's review the article: 1. Headline: Misleading as it implies something positive is happening in housing. Just not true. 2. Content: "number of sales about to reach botton","inventories of homes higher than normal","the price decline is just starting"."economy remains strong",California Associate of Realtors in Los Angeles economist predicts "a mild slide" in prices, this time, independent economist predicts another 35% slide in prices, because normal cyclical price increase is twice as high as a normal cycle (implies to this reader a minimum 50% price decline, based upon the investment principle of regression to the mean). One glaring factor that is being mentioned here for the first time in any San Diego publication is the ratio of home prices to rents. This ratio is double the long term historic trend and means that either rents must double or home prices must decline 50% or some combination of the two, just to return to the average. In my opinion, a more objective title would tell it like it is and declare "Home sales bottoming, but decline in prices just beginning". Watch out below!
It is all Realtor Nonsense wrote on Jun 3, 2007 9:18 AM:Buyers have become hip to the REaltor greed and the propoganda they put out. Market conditions can not be determined from the median sales price. Got to look at specific property year to year to see what the market is doing. Example, the condos have crashed hard but the median prices do not show that because condos are just not selling. Hang on to your hats folks, this elevator is going down.
to: Jeff wrote on Jun 3, 2007 9:21 AM:You are right to a point, but do not expect prices to slide as much as the last cycles. Economic cycles are always different. This cycle has a different dynamic which is the availability of raw land, particularily on the coast There is almost no more land in SD county to build houses, this is forcing prices up and they will stay up. Compare SD to ARizona, Vegas or riverside, where there is still lots of land.
Liz wrote on Jun 3, 2007 9:21 AM:Agreed - headline is in significant disagreement with the article itself. I love how the cheerleader for Assoc. of Realtors actually used the phrase "cut and run" to say that's not what's happening. What's changed? Is our homebuyers learning? Have we misunderestimated their greed? Good luck to all of you trying to "stay the course" by ignoring that nasty iceberg on the horizon. I'm sure the SUV and boob job you bought with your HELOC had nothing to do with sending it this far south.
Hank wrote on Jun 3, 2007 11:33 AM:There are plenty of people who are hopeful that the housing market will crash and they can capitalize on other's misfortunes. The problem is that the San Diego area has a vibrant economy and as the article points out, people are not desperate to sell. Those who had hoped for some sort of huge price reduction will not get it unless the area slips into a deep recession or some other economic calamity. There are many buyers in the wings desperate to own a house and that was not the case in 1992 and other similar periods.
Michael D. wrote on Jun 3, 2007 11:59 AM:Interesting story and comments, but each ignores facts and credible methodology. For perspective, it's helpful to consider the character of past cycles and their affects, both short-term and long-term, on housing prices. To that end, you'll find absolutely no credible or factual support for Mr. Campbell's chicken-little scenario when applied to the San Diego housing market. Don't forget, Mr. Campbell needs attention to sell his newsletter; "if it bleeds, it leads" As for rules of thumb, like median incomes or rent vs. price, they can be useful indicators for macro assessments relating to long term stabilized averages. They are not, however, reliable current market individual property valuation techniques. A review of the facts reveals that home prices and incomes, or rents, have been out of balance in highly desireable primary urban markets, like San Diego, for decades. Yet home prices just keep on rising. Have you ever been to Manhattan, or San Francisco, or West Los Angeles, or...? Why do you think there is such a thing as "subsidized housing" or "rent control"? Therein lies the most reliable answer to all the hand-wringing and creased brow speculation: as long as southern CA has the jobs, the beach and the climate, home prices, especially along the beach, will be out of reach for most folks because demand from regular folks, second home buyers and other people who don't rely on monthly paychecks to buy a house, will far exceed supply. So don't be mislead by "economists" hawking newsletters or other pundits selling something. If you take the time to really understand markets and drill down through the data, you'll learn just how useless and misleading "averages", "medians", statistics and some "experts" can be. Bottom line: San Diego's housing market is currently experiencing the negative effects of excesses that ran out of support in 2005. The housing market is already "recovering" and in 3 or 4 years, people will be complaining about how quickly prices are going up.
Rent wrote on Jun 3, 2007 1:30 PM:Rent the house for 40% less then owning it with the tax deduction. Why buy? Only Realtors want you too.
Hope for the best... wrote on Jun 3, 2007 1:37 PM:Maintaining current or slightly lower home values depends upon low interest rates (keeping inflation in check) and employment with increasing wage increases. San Diego has always been on the low side of wage increases while inflation will rise to help offset repayment of the huge debt this country has incurred during the past several years (that is how we always pay off national debt with cheaper dollars). I hope for the best but still have to keep my eye on reality.
To Hank wrote on Jun 3, 2007 2:54 PM:You are dead on!!!
Jeff wrote on Jun 3, 2007 4:21 PM:As a longtime buyer and seller of San Diego real estate, I will say that it's feeling a lot like 1991 to me now: we're in for 4 to 5 years of prices grinding downward for a total of about 30% to 40% off the peak (in real terms, accounting for inflation). Also, forget the median -- it's a demand-side number and more accurately reflects the job market (how much house people can buy) rather then the trend in house prices. A better read on house prices is gotten by comparing same-house sales over time (case-schiller, for example). Buyers: either buy foreclosures at a deep discount or hold out until 2010 or 2011 for good deals.
calling BS on michael d wrote on Jun 3, 2007 4:36 PM:I love how Mike D preaches about the "facts" and then says something that is categorically incorrect. Mike D says: "A review of the facts reveals that home prices and incomes, or rents, have been out of balance in highly desireable primary urban markets, like San Diego, for decades." This is nonsense. Yes, it's more expensive to live here than elsewhere (always has been and always will be), but the price to rent ratio and price to income ratios are waaaaayy higher than at any time in history.
A San Diego Resident wrote on Jun 3, 2007 5:11 PM:Interest rate and the lending policies of banks are the key for real estate market.
sf bay area wrote on Jun 3, 2007 6:58 PM: I think it takes a year or two for the same info to filter down to San Diego. All the bay area papers said the same thing about 2yrs ago " the market is crashing and you better get out". They said perdicted 35%-50% declinces, it didnt happen. People stopped buy due to the news, me thinks everyone was waiting to see how low they would go. After two years of the sky is falling and it didn't people are starting to enter the market. I had my house for sale early last yr for 4 months and got 1 low ball offer. i put back on the market last month and got two offers after the first open house and yes i got asking price. I have a co worker who sold in 3 weeks and got over asking (he thinks he left money on the table, who knows). I find it intereasting how much power news has. The local papers don't mention the housing market much anymore, is good news no news? the housing market is stablizing in the bay area but i guess thats not as good as " the market is crashing".
Jeff is correct. wrote on Jun 3, 2007 8:56 PM:My exact thoughts. Time will tell and I plan to buy more R.E. in two to five years once we hit bottom.
Jeff Z wrote on Jun 4, 2007 6:34 AM:How can there be a housing bubble where everyone in S. California is employed with high paying jobs!! Corporations just refuse to layoff people and plan to give everyone a 10% raise just to keep the home prices high. Additionaly there are no foreclosures reported in the region. Wake up now!!
JSten wrote on Jun 4, 2007 6:47 AM:Captain to crew! We must be near the bottom, because we just went below the surface. No need to abandon ship! Stand by! We cant see the botton, but we know its there!
JSten wrote on Jun 4, 2007 6:49 AM:Captain to Crew! Dont worry, we have plenty of water!
Wolf wrote on Jun 4, 2007 7:30 AM:The real question is where will prices go post this correction? In 2015 as an example. I would welcome comments from the other posters.
Will Son wrote on Jun 5, 2007 9:35 AM:I'm calling BS on Mike D also. The rent to buy ratio is way out of whack for THIS area. Unless SD has become twice as good of a place to live in the last 10 years, I think we're in for a significant price affordability improvement. We're just in the early innings on this shakeout don't kid yourself. Even by Mike Ds own advice, don't consider buying anything for 3 years unless you like losing money on your leveraged purchase. Give this market some time to wring out all the fraud and dry rot that easy money has brought in.
lies wrote on Jun 6, 2007 8:57 AM:EVERONE that has sniffed a call for any bottom in sales or price has been wrong so far. Anything else to say?
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