HOUSING: County's prices fall, show no sign of stopping

By ZACH FOX - Staff Writer | Tuesday, September 30, 2008 9:10 PM PDT ∞

San Diego County housing prices declined sharply again in July, dampening hopes that the region's historic real estate depreciation was nearing an end.

Across the county, house prices fell an average of 1.8 percent in July from the previous month and 25 percent from the same month a year ago, according to the Standard & Poor's Case-Shiller Home Price Index released Tuesday.

The county has been mired in a real estate recession that began after house prices peaked in November 2005. Since then, the market has tumbled 31 percent ---- by far the steepest drop since the report began in 1987.

July's numbers, the latest month available, reversed a trend of slowing depreciation. In May and June, the rate of decline had slowed to 1.5 percent per month or less ---- compared with seven straight months of 2.5 percent per month or more from October through April.

If July's numbers had shown an even smaller decline, it might have been a sign that prices in San Diego County were rapidly approaching the lowest point. Instead, the rate of decline increased to 1.8 percent per month.

"It's a little bit encouraging, but it's too soon to tell whether we're bottoming," said Patrick Newport, an economist with Global Insight, an economic analysis firm.

So far, lower-priced houses, where foreclosures have been more prevalent, have slumped the most. July marked the first month that the sector, defined by Case-Shiller as houses priced at $354,157 and less, declined more than 40 percent from the peak.

Higher-priced houses lost plenty of value as well, down 21 percent from the 2005 peak. That eclipsed the national average decline of 19.5 percent for all homes from a 2006 peak.

Further, recent turmoil on Wall Street has raised concerns among analysts that lenders could further cut loan programs, making it impossible for some potential home buyers to qualify for a mortgage.

And if the financial crunch cuts off credit to businesses, San Diego County's real estate slide could reaccelerate. "That could hit our high-tech companies. And if we cut back on consumer spending, that could drive retail losses," said Kelly Cunningham, an economist with the San Diego Institute for Policy Research. "Inevitably, businesses would have to start laying people off, and that could compound the problems all around."

The region's employment picture already has darkened in recent months, with San Diego County posting job losses for five of the last six months, according to the state's Employment Development Department.

But for Newport, the Global Insight economist, foreclosures were the more telling number. Over the last four months, an average of 670 houses were foreclosed upon by banks in North County, according to ForeclosureRadar, a data tracking firm based in Contra Costa County.

That rate is 175 percent higher than the same time a year ago. And notices of default, a leading indicator of foreclosures, have not tapered off, averaging about 1,100 per month over the last four months.

"What's happening in San Diego and across California is there were a lot of foreclosures, and there are still a lot of foreclosures, and that has been depressing prices," Newport said. He said foreclosures should reach a peak by early next year. "Once that happens, prices will start settling down," he said. "But I don't think they're going to appreciate for a while."

Contact staff writer Zach Fox at (760) 740-5412 or zfox@nctimes.com. Read his blog, "On the Realside," at nctimes.com/blogs/minding_your_business.