Home price index still tumbling in San Diego

San Diego UNION-TRIBUNE - October 29, 2008

Area has fourth-highest plunge among 20 cities

San Diego County's three-year housing slide eventually will hit bottom and turn back up. The questions are when, and how we will know we're there.

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.”

Good News for Real Estate? Largest Monthly Home Sale Percentage Increase in 5 Years Reported

RISMEDIA - Oct. 27, 2008

Due to falling real estate prices and rising foreclosures on the West Coast, sales of existing homes rose to its highest level in 13 months and highest percentage increase in five years, according to a report issued today by the National Association of Realtors (NAR). The increase resulted from buyers responding to improved housing affordability conditions, the organization stated.

Existing-home sales-including single-family, townhomes, condominiums and co-ops-rose 5.5% to a seasonally adjusted annual rate of 5.18 million units in September from a level of 4.91 million in August, and are 1.4% higher than the 5.11 million-unit pace in September 2007.

Lawrence Yun, NAR chief economist, said more markets are seeing year-over-year gains. “The sales turnaround which began in California several months ago is broadening now to Colorado, Kansas, Minnesota, Missouri and Rhode Island,” he said. “The South was hampered by much lower home sales in Houston in the aftermath of Hurricane Ike.”

NAR President Richard F. Gaylord, a broker with RE/MAX Real Estate Specialists in Long Beach, Calif., said low home prices and low interest rates have been attracting buyers. “This is the first time since November 2005 that home sales have been above year-ago levels,” he said. “Credit tightened at the end of September, but the improvement demonstrates that buyers who’ve been on the sidelines want to get into the market to make a long-term investment in their future.”

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to 6.04% in September from 6.48% in August; the rate was 6.38% in September 2007.

Yun said there may be market disruptions. “The credit markets are not settled yet, although the mortgage market stabilized with the government takeover of Fannie Mae and Freddie Mac. Inventory remains high, and price declines are pressuring owners,” he said. “Additional housing stimulus would stabilize prices more quickly, which in turn would bring faster stability to Wall Street. Removing the repayment feature on the first-time buyer tax credit and permanently raising loan limits would bring more buyers into the market and further reduce inventory.”

Total housing inventory at the end of September fell 1.6% to 4.27 million existing homes available for sale, which represents a 9.9-month supply² at the current sales pace, down from a 10.6-month supply in August. This marks two consecutive monthly declines since inventories peaked in July.

The national median existing-home price for all housing types was $191,600 in September, down 9.0% from a year ago when the median was $210,500. “Compared to a fairly small share of foreclosures or short sales a year ago, distressed sales are currently 35 to 40% of transactions. These are pulling the median price down because many are being sold at discounted prices,” Yun explained. “The current market is not being dominated by speculative investors. Rather, 80% of current buyers are purchasing a primary residence, which is a bit higher than historic norms.”

Single-family home sales increased 6.2% to a seasonally adjusted annual rate of 4.62 million in September from a pace of 4.35 million in August, and are 3.8% above the 4.45 million-unit level a year ago. The median existing single-family home price was $190,600 in September, which is 8.6% below September 2007.

Existing condominium and co-op sales were unchanged at a seasonally adjusted annual rate of 560,000 units in September, but are 15.7% below the 664,000-unit pace in September 2007. The median existing condo price4 was $199,400 in September, down 10.2% from a year ago.

Regionally, existing-home sales in the West jumped 16.8% to an annual rate of 1.25 million in September, and are 34.4% higher than September 2007. The median price in the West was $253,600, down 18.5% from a year ago.

In the Midwest, existing-home sales increased 4.4% to an annual pace of 1.19 million in September, but are 2.5% below a year ago. The median price in the Midwest was $152,500, which is 7.9% lower than September 2007.

Existing-home sales in the South rose 2.2% in September to a pace of 1.90 million but remain 7.8% below September 2007. The median price in the South was $167,200, down 4.1% from a year ago.

In the Northeast, existing-home sales slipped 1.2% to an annual pace of 840,000 in September, and are 7.7% lower than a year ago. The median price in the Northeast was $246,800, down 5.4% from September 2007.

Advice for Buyers & Sellers

Buyers: With all the chaos in the financial markets, it’s no surprise to see many people taking advantage of great deals on local real estate. County-wide, San Diego continues to compete as one of the most-undervalued areas in the nation. As median home prices decline due to the large numbers of foreclosures, sales have risen for the third month in a row. If you are sitting on the fence, now might be a good time to get pre-approved so you can be ready to jump on the right home at a great rate. You can view all homes for sale, including foreclosures, online at SanDiegobythesea.com If you know anyone who is thinking about buying, please let me know how I may be of assistance.

Sellers: Competing with bank-owned and short-sale properties is not easy, but inventory of distressed properties in the coming months should start to level out. I expect to see more investors and new homeowners taking the plunge to purchase the majority of these distressed homes. Visit SanDiegobythesea.com to see how we can sell your property. If you know anyone who is thinking about selling, please let me know how I may be of assistance.

Southern California home prices continue to slide

Los Angeles Times - October 21, 2008

The median is down 33% from a year ago. Sales rise 65% amid bargain hunting; half of September's home sales are foreclosures.

Don't count on that housing recovery any time soon.

Southland home prices tumbled again in September, according to data released Monday, continuing a trend that began 14 months ago and bringing median values down 39% below their peak last year.

What's more, the September sales figures reflect many homes that went into escrow in July or August -- before the financial crisis rattled nerves, depleted the investment savings of millions of Americans and cast fresh doubts about the economy's strength.

"Buying a home is a big decision, and it's not one you want to make when you're not sure where prices are headed," said UC Berkeley economist Thomas Davidoff. "Now a lot of people are facing unemployment, so there's the risk they'll lose their income and not be able to make their payments."

The median Southern California home sale price was $308,500 in September, down 7% from August and 33% from a year ago, according to real estate research firm MDA DataQuick.

More homes were trading hands, with last month's sales total 65% higher than a year ago. But MDA DataQuick President John Walsh noted that the figures were recorded "before the dramatic worsening of the nation's economic crisis in recent weeks."

"Over the next few weeks our sales data will begin to show how the meltdown in financial markets this fall has impacted housing demand," Walsh said in a statement.

The increase in sales activity is being driven by bargain hunters scooping up distressed properties. Fully half the homes sold in Southern California last month were foreclosures, MDA DataQuick said.

Before the financial crisis hit full force last month, some observers had predicted that a market bottom might be near -- citing the rise in sales activity.

But now, rising unemployment, weakness in the economy and a jump in mortgage interest rates could cause the market to "overshoot" its natural bottom, loosely defined as the point at which a middle-income person can afford a median-priced home.

The last time Southland home prices were at the level was from late 1996 to early 1999.

"If you're fearful and expecting a weak economy, you're not going to buy a home. That will put downward pressure on prices, which has a cumulative effect as more people start postponing buying a home as they try to wait it out for a better deal," said UCLA economist Edward Leamer.

Falling prices had been making homes more affordable this year. About 15% of Los Angeles-area residents could afford to buy a median-priced house in the second quarter of this year, according to a National Assn. of Home Builders index, up from less than 11% the previous quarter.

Leamer called the rise in September home sales "a very hopeful sign," because he sees rising sales as a leading indicator of a market recovery.

But now, "just as things started to get better, we've frightened everybody to death," Leamer said, singling out government officials he said used fear to sell the federal economic rescue package. "All that fear could make the next quarter very difficult" for housing, "but we'll find out in a few months," he said.

Christopher Thornberg, principal of Beacon Economics, a Los Angeles consulting firm, said the housing market was bound to overshoot its bottom even before this month's economic meltdown. That's because the economy was already in a recession and consumers have been fearful for months, he said.

"The downward momentum occurred before the economic turmoil," he said, although he acknowledged that in the last few weeks the nation had "gone from denial to hysteria."

"The truth is somewhere in the middle. It's bad, but not that bad," he said.

Thornberg is sticking by his prediction that home prices will bottom late next year, with the Southern California median sale price falling to about $250,000, or roughly half the median price at the 2007 peak.

Housing downturn could be approaching bottom

San Diego UNION-TRIBUNE - October 21, 2008

An unusual September jump in home sales, together with the biggest monthly drop yet in prices, could be early signs that San Diego County housing is approaching the bottom of a three-year-old downturn, industry experts and observers said yesterday.

MDA DataQuick reported that the median price for all homes dropped $22,000 from August to stand at $328,000 last month, the lowest since June 2002. The figure represented a 34.6 percent drop from the all-time peak of $517,500 set in November 2005.

Sales jumped 56.4 percent to 3,366 transactions from year ago levels, a reflection of the very low sales completed in September 2007 in reaction to the credit crunch and subprime mortgage crisis.

Though the timing of a recovery will hinge on the course of the overall economy, some observers said the increase in volume suggests that more investors are deciding that prices have fallen to bargain levels and are getting into the market.

Analysts noted that the September sales were up from August in an unusual reversal of the typical seasonal dropoff, though they remained below the average September going back to 1988.

DataQuick analyst Andrew LePage said both the prices and sales reflected the dominance of foreclosure sales, which accounted for a record 47.3 percent of all resales last month, up from 43.2 percent in August and 20 percent a year ago.

“The statistics are telling you a lot more about what is selling and what is not,” LePage said, saying the lack of nondistressed property sales, especially on the coast, makes it difficult to gauge the value of housing as a whole.

Still, the figures were interpreted as good news by Christopher Thornberg, an economist with Beacon Economics, who had been warning of bad housing markets ahead long before many other experts. Thornberg said sales of low-priced properties are attracting investors.

“That's a good thing, because these are the guys who will determine where the bottom is,” Thornberg said. “When they think prices have reached a point where they can buy stuff and rent it out and sell in three or four years and make money, they'll move in. This was never an if, it was always a when, and now it's starting to happen.”

He added, “It's the beginning of a recovery – it's not the recovery . . . There's a bottom ahead, we're not there yet, but it's clear we're coming in for the landing.”

Thornberg said he continues to believe the bottom will occur in mid-2009, followed by “substantial signs of economic growth” in 2010.

Delores Conway at the University of Southern California Lusk Center for Real Estate said the bottom is a “process, never a point in time.

“And we've been seeing that the market has been bottoming and it will continue probably into next year.”

She had been expecting the credit crisis to ease by mid-2009, but now thinks it might be delayed, possibly into 2010 because of the economic turmoil sweeping the globe.

Alan Gin, economist at the University of San Diego, predicts three more quarters of real estate gloom with the bottom occurring sometime in the second half of next year.

San Diego, which was one of the first regions to experience the housing downturn, had much company in the rest of Southern California in September, with sales up 64.6 percent to 20,497 but the median price down 33.2 percent to $308,500.

DataQuick President John Walsh noted that there could be more trouble ahead because the September figures do not reflect the turmoil of the last few weeks.

“Over the next few weeks our sales data will begin to show how the meltdown in financial markets this fall has impacted housing demand,” Walsh said in a statement.

Local real estate agents said for all the concern about the general economy, they are seeing more interest in open houses and multiple offers on homes being sold by banks that acquired properties through foreclosure.

The number of listings is dropping, according to the San Diego Association of Realtors – a sign of a more balanced market between buyers and sellers.

As of yesterday, there were 17,447 active listings, down 16.1 percent from year-ago levels and the lowest since April last year. At the current pace of sales, that represents about 5.6 months of inventory. Typically, a balanced market between buyers and sellers occurs when there is three to six months of unsold inventory.

Lori Staehling, president of the realty association, said that at an open house she held over the weekend in Rancho Bernardo there was never a moment when potential buyers weren't present.

Realtor Gary Kent said owner-occupant buyers outnumber investors and predicted the rest of the year may be more active than usual as buyers race to take advantage of favorable interest rates and conforming loan limits.

“I don't want to sound like a rah-rah agent, but I actually think it's very close to the bottom,” Kent said of the market. “It's hard to tell if the bottom has passed or we're ahead of it.”

Karen Wheeler at Coldwell Banker in Del Mar said the economic uncertainties worldwide are not weighing on everyone, particularly investors who are buying for the long-term.

“I think home buyers are concerned about life here and having a home,” Wheeler said. “That supersedes what they might be thinking worldwide on a more general scale.”