So far, the data show little indication that we're close. The widely followed Standard & Poor's/Case-Shiller Home Price Index yesterday showed prices in San Diego County down 25.8 percent in August from a year earlier, and prices nationwide down 17.7 percent.
From July to August, San Diego prices dropped 2.3 percent, fourth-highest of the 20 cities the index tracks.
To forecast when the declines might stop, economists are scrutinizing leading indicators, including the inventory of unsold homes, foreclosures and general economic conditions such as unemployment and gross domestic product.
The most important metric is sales volume. As sales increase and more buyers feel comfortable getting off the fence, they compete with one another for desirable properties and prices begin to rise.
Robert Kleinhenz, economist at the California Association of Realtors, said sales are already rising – though nearly half of the transactions are low-priced foreclosure properties.
“As far as we're concerned, San Diego and California have already turned the corner in terms of sales activity compared to last year,” he said.
San Diego sales in the past three months were up on a year-over-year basis after a nonstop 48-month slide, according to the latest MDA DataQuick figures, though sales for the year through September were still about 10 percent below year-ago levels.
“This is the first and necessary step before anything else stabilizes,” said Lawrence Yun, chief economist of the National Association of Realtors. “If buyers come back, then the inventory (of unsold homes) will begin to shrink; and with the shrinking, days on the market will begin to shorten, and soon afterward we'll see some price stabilization.”
“I keep feeling we're approaching the bottom,” said Bernard Markstein at the National Association of Home Builders. “The problem is we keep getting hit with problems on the financial market side.”
He was referring to the gyrating stock market and tight credit markets, which have led to massive bailouts and rescue plans by the federal government and central banks around the world.
Patrick Nugent, U.S. economist for IHS Global Insight, said the market is still treacherous. “So, bad as the latest Case-Shiller numbers appear to be, they are bound to get much worse,” Nugent said.
Nationally, only Boston and Cleveland showed price increases from July to August among the markets Case-Shiller tracks. Western markets showed the biggest one-month drops, led by San Francisco, Phoenix and Las Vegas. The figures are based on a three-month moving average of same-home sales prices.
“As seen throughout 2008, the Sun Belt markets are being hit the most,” said David M. Blitzer, S&P index committee chairman.
While Case-Shiller's latest numbers are for August, a reading of September prices in San Diego County from MDA DataQuick found that median prices dropped to $328,000 last month, down from $350,000 in August and 30.2 percent below September 2007's $470,000.
Most observers are sticking to forecasts that San Diego prices will keep falling into next year, level out by the second or third quarter, and then start rising slowly in 2010.
What's clouding the future is the backlog of distressed properties for sale. In September, the proportion of all homes sold that were foreclosed in the previous 12 months hit a record 47.3 percent, more than double the September 2007 level.
As long as low-cost distressed properties keep entering the market at an increasing rate, prices are unlikely to stabilize, the experts say.
“Anytime foreclosures are not declining, we have a softening market,” University of San Diego housing specialist Norm Miller said. “They have to decline, but they're still rising. We don't have a history on this.”
Miller has projected San Diego's possible price trajectories to 2016 and does not see them passing the 2005 peak of $517,500.
Recently the trend line for foreclosures has shown improvement, with two straight month-over-month declines in new foreclosures, as reported by MDA DataQuick. Defaults have been dropping for five consecutive months.
Kleinhenz, the California realty association economist, said if default notices have peaked, foreclosures should subside substantially by spring.
The inventory of homes for sale is another indicator the experts are watching. The San Diego Association of Realtors has reported six straight months with a declining number of active listings, suggesting that demand is starting to eat into supply.
In some neighborhoods where defaults and foreclosures have been relatively few, such as University City, some buyers are offering more than the asking price on properties.
Meanwhile, in the hardest-hit areas, investors are reportedly scooping up dozens of foreclosure properties, a sign that some professionals believe the bottom may be near.
One other indicator on the watch list is housing permits. They have fallen dramatically in recent years as demand faltered and distressed property prices made new-home prices uncompetitive.
For San Diego County, the Construction Industry Research Board said local jurisdictions have approved 4,454 houses, condos and apartments for the first nine months of the year, the slowest pace since the 1990s recession.
The low level of permit activity explains the low level of builder confidence reported to the National Association of Home Builders. Western builders reported a confidence level this month of 10 on a scale of 100, tying the all-time low set in August. A level of 50 is considered normal.
More general economic measurements could help set the stage for a housing turnaround, but so far they are not promising, locally or nationally.
The gross domestic product rose 2.8 percent in the second quarter on an annualized basis, an improvement from the first quarter but down from 4.8 percent a year earlier. Many economists believe the United States has entered a recession and will experience negative growth into 2009.
“I am worried about the weakening economy dampening any sense of a housing recovery in 2009,” Kleinhenz said.
Job losses threaten any housing recovery because people who have lost their jobs don't buy homes. San Diego's unemployment rate was 6.4 percent last month, up from 4.8 percent in September 2007, according to state data.
Other indicators are affordability and interest rates – as prices or rates fall, more people can afford homes and enter the market.
For San Diego, the Housing Opportunity Index, issued by the home builders and Wells Fargo, reached 31.1 in the second quarter of the year, meaning 31.1 percent of homes for sale were affordable to median-income households. That compared with 9.6 a year earlier.
“If buyers start coming back and people absorb the inventory,” Yun said at the National Association of Realtors, “that will be one shining light that begins to show other sectors of the economy can now begin to grow.”