San Diego Real Estate Market Update Pacific Beach Real Estate - Mission Beach Real Estate San Diego County Real Estate Return to San Diego Real Estate Buyer's Reports From an article I published in my San Diego real estate newsletter in Jan - Feb 2007 - If you are a faithful reader of this newsletter and/or my monthly "Market Trends Report" E-Mail blasts, then you know that I have attempted to keep you up-to-date regarding the current state of the local and national real estate markets. This month, my lead article will accomplish just that. Unless you have been living under a rock, you are well aware that the real estate marketplace has been in transition since approximately the 3rd quarter of 2004. At that time, sales volume (number of closed escrow) began to weaken and the days of quick sales and multiple offers slowly vanished. The inventory of available properties for sale increased and the number of days to sell a home, commonly referred to as "Days on Market" or "Market Time", likewise increased. Then during the latter half of 2005, interest rates began to rise; the pace of unsold inventory quickened; a significant number of sellers, although not motivated to sell out of necessity, decided to put their homes up for sale simply because it seemed like the right time; the media began to inordinately hype the "coming bubble"; speculators left the market; condo conversions continued to come on-line; and, buyers took to the sidelines. Many of the same events or worries that caused sellers to put their homes on the market were the exact same reasons why buyers decided it would be better to wait to purchase until the market sorted itself out. So, that brings us to today. At the moment, experts who do economic projections are expecting that existing home sales (again, closed escrows) may continue to experience a year-over-year decrease during the next 12 months with new home sales taking the greatest hit vs. resales. However, you should take heart because the worst may well be over. As we enter the New Year, further contraction in the housing industry may be limited. The signs are definitely out there. So, what are those signs? Well, for starters, the pace of existing home sales (closed escrows) appears to be close to bottoming out. San Diego County attached and detached resales have hovered around the 1,850 to 2,200 combined units during the past several months yet we´ll need to wait for at least two more months of data before confirming that we have hit bottom. But, year-over-year pending sales (homes now in escrow) for existing homes are improving, from a 16 percent drop in July to a 13 percent drop in August to an 11 percent drop in September. Better yet, the inventory of available homes on the market is also improving with the supply of both existing and new homes falling the past several months. The supply of existing homes appeared to have topped out at 7.3 months while the supply for new homes fell from 7.1 months in July to 6.4 months in September. Here are some numbers you will definitely like: For San Diego County, the inventory of existing (resale) homes for sale across the County has decreased markedly. Just this past July, we had a total of 20,465 detached and attached homes for sale. That number decreased to 19,790 in September and recently, we have just 16,778 homes for sale... a decrease of nearly 3,700 units in four months. Want some more encouraging stats? Well, let´s try reviewing the number of new homes entering the market. In July, we had a total of 6,903 new homes enter the market; in September, 5,757 and for November...4,408. Note: For a complete review of County housing data, please ask me for the chart... "San Diego Real Estate Facts". Other housing measures also suggest that the industry´s downturn may be over. The Mortgage Bankers Association´s index of mortgage purchase applications has stabilized within the 380 to 400 range. Yes, home price appreciation has been flat-lined or slightly negative the past two months. However, while that may sound like bad news, it may actually be a welcome development. It has forced sellers to show some flexibility and brought buyers back into the market. After drifting downward for more than five months--since they hit the year's high on June 28, when the 30-year fixed stood at 6.93% -- mortgage rates have hit the lowest point all year and that has ignited a refinancing boomlet. The benchmark 30-year, fixed-rate mortgage recently fell to 6.11%.That put the 30-year rate at its lowest level since January 19th when it was 6.10%. To put this into total perspective... today´s interest rates are nearly comparable to when everyone was raving about historic lows. Do, with household incomes rising and home prices steady or falling slightly, housing affordability measures are improving. All in all, I think that most folks (less the ever pessimistic media) would agree that lots of choices and lower rates is good news for buyers and the decrease in inventory and stabilizing values is great news for sellers. Certainly a strong national and local economy with increasing jobs and low unemployment is good news for both! So why should the doomsayers of housing... those who are still predicting a prolonged contraction and a tumbling of home prices, believe that the housing contraction is or is almost near its end? The answer lies in the attitudes of households. The current contraction has to do with household confidence, or rather, lack thereof vs previous housing downturns which were driven more by households´ financial wherewithal to purchase a home. For instance, housing contractions in the recent past have almost exclusively occurred against an economic backdrop of job losses, negative GDP growth (recession), and/or double-digit mortgage rates. Simply stated, households did not have the wherewithal to purchase homes, even if they wanted to. Today´s housing contraction has more to do with negative household confidence and home prices rising to unaffordable levels. So, it won´t be surprising to see home sales bottom out after more than a year of slowing. Since the contraction began, affordability measures improved. With every home price decrease, there is a buyer who was standing on the sidelines who is now anxious and willing to get back into the home-buying market. There are also those home buyers who were previously marginally qualified financially who now qualify to purchase a home because of falling prices. Further, our growing economy is creating jobs and wage/income gains. With every job creation and every wage/income gain, housing affordability improves for that waiting-on-the-sidelines home buyer household. So over time, there are market forces that are working to improve affordability, thus permitting households to buy homes. This is why the 2006 housing contraction is or is nearly over. I should point out however, that I would not expect that it´s going to be all roses and sunshine. The length of time for the local market´s correction and how far prices need to fall for that correction to be complete depends in large measure on local economic measures, like local job creation, unemployment, consumer confidence, net migration, affordability, and the re-establishment of second-home buying. Given all that I know at this juncture, I expect most of our local communities to fully correct by the second half of next year. But there may be some communities within our market that may experience contraction well into 2008... especially where we presently have an over-saturation of available inventory made up of resales and condo conversions. In those specific areas, it will take longer to absorb the quantity of homes for sale and restablish the proper balance of supply and demand. So, you should be aware that some of our local communities within the San Diego region will experience the bottom and then a rise sooner than others.  Last, please recall that in typical fashion, the hottest boom markets of the past five years began the "cooling" first, cooled the fastest and should lead the recovery. California, southern and middle Florida, resort locations sprinkled down the east coast, Washington, DC, New York, Boston, Nevada and Arizona all fall into this category. So, what´s the point? Well, for buyers it´s pretty clear. If you wait until the pessimistic media finally rolls over and confirms that the "bubble" never did or will occur and that the correction is behind us, you will have once again lost your best opportunity to purchase near the low. Putting all of this into perspective, let´s just say that the real estate boom of 2002-2005 was unprecedented. The industry flew higher than it ever did and the aviator in me says that the plane needed to land and refuel in order to take off again. |
