The San Diego Union-Tribune - November 17, 2009
Overall median posts first increase since June 2006
San Diego County marked an economic milestone last month when home prices exceeded year-ago levels for the first time in 40 months, MDA DataQuick reported yesterday.
The increase was small — less than a percentage point — and it might be temporary.
But industry observers said the symbolism was important.
“It’s a reflection of a market that has stabilized in many areas,” DataQuick analyst Andrew LePage said.
The overall median of $325,000 was unchanged from August and September, but it was $1,500 higher than the $323,500 reported in October 2008. It was the first annual increase since June 2006.
That follows a near free-fall in price drops, when for 13 straight months — from May last year to May this year — year-over-year declines exceeded 20 percent; January’s was the biggest, down 34.7 percent. Economists focus on year-over-year changes to eliminate seasonal differences. The median price over that period plummeted from $380,000 to $280,000 before starting to rise again.
What changed?
“Government has a lot to do with stabilizing a lot of the market,” LePage said.
He cited low mortgage rates, at or below 5 percent, with helping to make affordability the best in years.
When lenders nearly collapsed under the weight of subprime mortgage defaults, the Federal Housing Administration stepped in to insure loans, whose ceilings were raised to cover most loans in most areas. Meanwhile, the U.S. Treasury took over Freddie Mac and Fannie Mae, the two federally chartered companies that buy loans and sell to them to investors.
Finally, Congress approved and recently extended and expanded homebuyers’ tax credits to nudge shoppers off the fence.
“If something rocks the boat here — a rate spike, tougher qualifying standards for the FHA because it’s had some problems, new waves of foreclosures — then there goes your price stability,” LePage said. “So the market is on this precarious perch again. A lot of things that have been driving sales may not be here next year.”
Peter Dennehy, senior vice president at the Sullivan Group Real Estate Advisors market analysis firm, said sales tell more about the market than prices.
There were 3,671 sales in October, up 6.3 percent from September and 2 percent higher than a year ago. It was the most active October since 2006. October sales are often less than in September.
“Overall prices are up a little and volume for the year is higher,” Dennehy said. “That’s probably a good thing.”
He said a monthly sales pace of 3,500 homes is healthy, but what is not normal is the dominance of first-time buyers and investors, who are often bidding against each other on low-cost foreclosure homes. Of all resales last month, 34.5 percent involved homes foreclosed on in the previous 12 months, DataQuick said.
“We are in a sellers’ market for certain types of product and certain locations,” Dennehy said. “Quite clearly, when you have a market where there are 30 to 40 offers per house like you do in some parts of the county, that’s a sellers’ market.”
What needs to happen now to achieve a real housing recovery, he said, is more sales activity in higher-priced neighborhoods. Transactions have remained low because buyers often cannot get financing and sellers have not reduced prices enough.
“It’s still a very fragmented market recovery and a market that needs to have broad-based participation,” Dennehy said.
At the neighborhood level, there is no clear trend. Low-priced areas are not necessarily rising in value in response to overbidding demand, and high-priced ones aren’t necessarily falling because of lackluster demand.
For example, high-priced Mission Hills/Hillcrest and Cardiff saw increases, up 32.2 percent to $750,000 and 20.9 percent to $665,000, respectively.
Similarly, low-priced Golden Hill was down 23 percent to $180,000 on 13 home sales, and City Heights was off 18.8 percent to $195,000 on 25 homes.
Robert Brown, an economist at Cal State San Marcos, focused on the inventory of distressed properties — foreclosure, bank-owned and short-sales, which involve sellers and their lender selling for less than the mortgage balance.
“The number of distressed properties, while still high, seems to be sustained a bit, leveling off and even falling in some ZIPs,” Brown said.
The figures from the San Diego Association of Realtors suggest a coming shortage with 8,291 active listings yesterday and 6,350 in pending status. The total is down 13 percent from year-ago levels.
But observers said they cannot predict the future if a new wave of foreclosures floods the market because distressed owners cannot get their loans modified. That would send prices lower again.
“There’s still pain in the housing market, as far as people being upside-down in their loans and mortgages,” said Kelly Cunningham, economist at the National University System Institute for Policy Research.
But the overall housing picture appears to be turning around.
“We’ve been looking for that for some time,” he said. “Certainly, it does show solid evidence that the market has started to turn a corner. It’s not getting worse and it even shows some improvement.”
As he has warned in recent months, Cunningham said concerns should now be turning to the long-term supply of housing, if construction continues to remain as low as it has been this year. Through September, single-family housing permits totaled 1,323, one-third of the comparable figure in 2006.
“At some point, when we’re building so little new construction, that suggests we’ll have in a few years a severe housing shortage because of so little in the pipeline,” Cunningham said.
