HOUSING: High-end neighborhoods also suffering

Foreclosures rising, prices falling in Rancho Bernardo, Penasquitos

By ZACH FOX - Staff Writer | Saturday, June 21, 2008 4:11 PM PDT ∞

From the start of a housing recession that has sent average real estate prices in North County plummeting, some housing analysts said expensive neighborhoods would persevere, dodging steep declines.

That's no longer true.

Several homes in one of North County's ritzier regions, the San Diego neighborhoods of Rancho Penasquitos and Rancho Bernardo, have tumbled 30 percent in value.

Further, foreclosures are rising, leading some real estate agents to believe the depreciation will spread and worsen.

The two neighborhoods were particularly desirable communities during the housing boom, boasting a central location, with a short commute to either the ocean or downtown San Diego, strong schools and a bevy of brand-new, 4,000 square-foot homes with $1.5 million price tags.

Now, some of those homes are selling for $1 million, if the homeowner is lucky.

The drop in prices has drilled gaping holes into a theory that the higher-end market could be immune to the housing recession.

"All across the board, the market's been hit," said Eric Elegado, a real estate agent based in Mira Mesa. "Homes that sold for a million, they're going for $600,000."

One home in the Rancho Bernardo region sold for $1.5 million in 2005. It has been on the market since January, with a price range of $1 million to $1.1 million and has not sold, according to listing data and property records. At the end of March, the lender filed a notice of default, the first step in the foreclosure process.

San Diego County's housing market enjoyed massive appreciation in the early 2000s, doubling in value in about four years.

But in November 2005, the county entered a real estate recession, and prices are now 26 percent off the peak, according to Standard & Poor's widely respected Case-Shiller Home Price Index.

As a foreclosure crisis gripped the county in late 2007, notices of default in Rancho Bernardo and Rancho Penasquitos were relatively few. But recently, the rate of foreclosures has begun to approach the county average.

In May, notices of default spiked. And the 129 foreclosure filings that month were 45 percent higher than the previous high for the region, set the month before, according to ForeclosureRadar, a tracking service.

The recent jump contrasts with defaults in North County's foreclosure capitals, Oceanside and Escondido, where notices of default have leveled off in recent months.

In all, Rancho Bernardo and Rancho Penasquitos have seen at least one out of every 78 homes fall into foreclosure, according to ForeclosureRadar and the San Diego Association of Governments.

For perspective, one out of every 51 homes in North County is in some stage of foreclosure, according to the same data.

Further, foreclosures throughout the county could persist, and potentially worsen, based on the number of creatively financed loans that will soon see payments jump, according to data from the New York branch of the Federal Reserve, the nation's central bank.

"We're expecting quite a few foreclosures. And personally, I think this is going to continue for another year, year and a half, possibly two," said Myles Weisman, a real estate agent in the area.

With foreclosures mounting and some sellers desperate to unload their properties, real estate agents are calling the Rancho Bernardo market a buyer's utopia.

Still, buyers are hesitant as they anticipate further price declines.

High-end homes in San Diego County, defined as homes sold for more than $588,222, fell 13.3 percent in March from the year before, the latest data available in the Case-Shiller index.

The depreciation is much less severe than the low-end tier, or homes under $392,045, where prices tumbled 28.9 percent year over year, according to the report.

However, the lion's share of depreciation on the high end has come within the last few months of the report, falling more than 10 percent in six months.

Before that fall, a case could be made that the high-end market might be able to stave off the severe depreciation the rest of the market was experiencing: Low-end homes had tumbled 16 percent from the previous year while expensive homes were down just 5 percent.

But now expensive homes have been catching up in price depreciation. And with more foreclosures coming, some housing analysts expect the trend to continue.

Even though home prices are declining, waiting for a cheaper home could be counterproductive for a prospective buyer. If home prices drop further, a rise in interest rates, as some mortgage brokers expect, could wipe out any savings.

Further, a recent federal government economic stimulus package includes an expansion of the loan products backed by state agencies. These programs allow home buyers to put little money down and still qualify for a loan.

"What I'm telling my buyers is ... if you have money to put down, I would wait," Elegado said. "But if your down payment is limited, I would buy now and hold onto it for a long time because real estate will eventually appreciate and it's hard to get a loan now and it could only get harder."

Even as buyers are hesitant to commit, some sellers are reluctant to reduce their asking price, creating an impasse, real estate agents said.

Therefore, the future of home prices in the Rancho Bernardo area will depend on how many sellers wait out the county's housing recession ---- and have the resources to do so.

"It's really hard for people to realize that when they try to sell their house, they're not going to get what their neighbor did in 2005," said Louie Ortiz, a high-end real estate agent based in Carmel Valley. "A lot of people have chosen to rent it out and even take a slight negative cash flow. I talked to one homeowner who said that even if they lost $1,000 a month, it's better than selling now."

Contact staff writer Zach Fox at (760) 740-5412 or zfox@nctimes.com.

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