HOUSING: Prices down, sales up in muddy real estate market

Future of foreclosures unknown as defaults increase, bailout plans proliferate

By ZACH FOX - Staff Writer | Tuesday, November 11, 2008 7:08 PM PST ∞

North County's real estate market showed relative strength in October amid great uncertainty in the overall economy ---- providing little indication of where the market is headed.

House sales across the region strengthened significantly, increasing 98 percent from a year ago and reaching the highest level for October since 2005, according to a monthly report called Homedex released Tuesday by the North San Diego County Association of Realtors.

However, housing prices locally were not on the rebound. The region was still mired in the worst real estate recession on record, with prices down 32 percent from a November 2005 peak and foreclosures dictating the market.

Further, recent stock market volatility might not have shown up yet in house sales because it typically takes 30 to 45 days to close on a mortgage.

"I think the real guesswork is what's going to happen to all those listings that aren't selling. One hundred percent of the buyers are looking at 5 percent of the market," said Jim Klinge, a Carlsbad real estate agent. "It'll be muddied waters for a long time to come."

Almost all regions posted an increase in sales last month. Previously, higher-end coastal regions saw sales plummet while foreclosure clusters inland posted booming sales. In October, only Del Mar, Poway and one part of Carlsbad had fewer sales than a year earlier.

Even though sales have jumped recently, prices continued to drop. In October, the median price for a house declined to $408,000, down 30 percent from a year ago, according to the monthly report. Of the 30 ZIP codes that posted a sale last month in North County, 25 had a lower median price than last year.

Also, the huge year-over-year increase in sales is somewhat misleading because 2007 was one of the worst sales years on record for the county, going back to 1988. Compared to 2006, October sales were up 28 percent.

Looking at all the indicators, North County's real estate market is in a time of uncertainty unlike any other over the last decade.

Buyers have jumped back into the market, pushing up sales numbers and entering bidding wars on properties. But while buyer activity points to a recovery, the overall economy has weakened, with unemployment numbers increasing and forward-looking indicators predicting more job losses in the immediate future.

That might contribute to even more mortgage defaults, which have increased of late ---- suggesting more bank-owned properties that tend to drive down prices. However, lenders such as JP Morgan, Countrywide and Citi have announced major loan modification plans over the last month in an aim to hold back the wave of foreclosures.

But Sean O'Toole, founder of ForeclosureRadar, said the loan modification programs would only delay a recovery for the housing market by keeping house prices too high. Further, he said, it only pushes problems into the future by giving defaulting homeowners artificially low interest rates that will increase in the future.

"It was predatory lending back then and now we're making the same types of loans," he said. "The difference is before it was some unwitting investor backing those loans who didn't understand they were getting hosed. And now it's the taxpayer and we know we're going to get hosed. That's the only thing that's changed."

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