San Diego Real Estate Prices – Done Rising?

Tuesday, November 28, 2006, 0:21 —by sdguy
This item was posted in Real Estate in San Diego category and has 17 Comments so far.

Either way, San Diego real estate is not easy to approach for the average first time home buyer. You’ve seen the “You Can’t Afford to Live Here” link in the sidebar of SanDiegoBlog.com, you’ve probably gasped as you’ve watched Pacific Beach real estate prices start to look more like those of its northern neighbor, La Jolla, and technorati shows that “bubble burst” has been mentioned on blogs well over a hundred times per day throughout 2006.

According to the VoiceofSanDiego.org Foreclosure Counseling has become a new cottage industry to meet the needs of the growing number of (soon to be ex-) homeowners facing foreclosure.

I know we’ve got some informed San Diego realtors as regular readers here, maybe some seasoned RE investors as well. What are your thoughts on the San Diego real estate market? Can we expect that prices will level (have they already?) or decline in 2007?

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17 Responses to “San Diego Real Estate Prices – Done Rising?”

  1. Michael Allen Smith said on Tuesday, November 28, 2006, 7:48

    Home prices have already dropped 4.4% from last year according to VoiceOfSanDiego.

    The last I looked the Case-Schiller Index on the Chicago Mercantile Exchange, a 7% decline in 2007 for San Diego is projected.

    Of course that assumes it’s a rational market on the way down, which it wasn’t on the way up.

    Most homeowners are still unaware that prices have started to retreat.

    Gallup: Homeowners Still Optimistic on Prices

    Another site to check out is San Diego Market Monitor

  2. Sassy said on Tuesday, November 28, 2006, 10:04

    prices have declined minimally in most places, have even continued to rise in others. I think the stat for resale SFH is a decline of 1 or 2 percent, hardly anything for most people to care about.

    There are some good deals out there right now (especially in condos downtown and new tract homes in the burbs) but if this is the ‘crash’ then it’s looking more like a fender-bender to me.

    Houses in my neighborhood (Rolando, 92115) are still selling in the 400-500k range where they have been since 2004. House around the corner from me just sold for 535k.

    VoiceOfSanDiego is doing their best to drum up panic but forum topics about the subject get 4 replies while topics like the Airport get a hundred.

  3. Michael Allen Smith said on Thursday, November 30, 2006, 11:48

    Latest CME numbers project 6.08% decline in San Diego house prices by September 2007.
    For even numbers, if the median home in San Diego is $500,000, then a 6% decline equates to $30,000. Lets say a buyer has a 5% down payment now ($25,000). 1 year CD rates are ~5.5%. That’s $1375 in interest income. If a potential buyer waits 1 year and invests their down payment in a CD, then buyer will have $26,375 and is now able to buy a house worth $527,500 (or $557,500 after price mark down). My 2 cents – wait to buy and monitor the CME numbers.

    As for downtown, wait for the glut of inventory to hit the market and some price stability before determining what is a good deal.

    Here is a zipcode by zipcode breakdown of home price trends in San Diego County.

  4. dan said on Friday, December 1, 2006, 11:33

    icon of san diego condos on 10th avenue

  5. Sassy said on Friday, December 1, 2006, 12:14

    no offense MAS but the only people who care about the CME numbers are shiller and the people who invested in it :-)

  6. Michael Allen Smith said on Saturday, December 2, 2006, 8:15

    It’s true that most people don’t know about the Case-Shiller index. It’s new and lightly traded. It was created so that one day home buyers could buy insurance to hedge any price declines.

    I sited it because it is an impartial source for future price predictions. VoiceOfSanDiego isn’t impartial. They are forecasting a 25% drop. The real dollar loss between 6% and 25% is huge, which is why I cited the more conservative CME number.

    So to answer SDGuy’s original question, my advice as someone that sold a house in North County, has friends in the industry and has watched the markets closely for 2 years – don’t buy now. Save your money. Monitor inventory levels.

  7. Jerry said on Friday, December 22, 2006, 9:43

    Merry Chrismtas
    Last night I attend a small dinner at the ICON’s new condo project. The place looks nice, but the kitchen quality either the develop is blind or buyers are stupid. The quality looks like it will only last about 24 months, its bad quality for a high price condo…

  8. Brian Brady said on Monday, December 25, 2006, 3:34

    The big problem is this affordability index.

    Only 12% of the county can afford a median priced home. Ideally that number would be 50%. San Diego traditionally has a 35-40% affordability index. Are wages going to double? I think not.

    There are $1 trillion in ARMs readjusting this year (2007) causing families to watch their payment increase an average of 30%. If their income rose 15%, they should have no problems. We estimate $20 million a day adjusting in SD alone.

    2007 will be a great time to buy…AFTER price decreases of 15% plus. Let’s hope we get there (the big drop) sooner rather than later

  9. calicat said on Saturday, December 30, 2006, 10:33

    I love these forums! I think SD is one of only a handful of places in the country where real estate speculation is almost laughable when it comes to forecasting. I dont claim to be a real esate agent or analyst by any means. However, the laws of economics will always be the backbone and in terms of “accurate” percentages will always make sense in the long run. Spikes like the run that we had a few years ago were unusual.

    I am a renter downtown and being a non-native San Diegan, it is truly astonishing to see the levels optimism that many real esate preofessionals have towards the idea that prices “can’t deflate in San Diego” because “everyone wants to live here.” Yes I agree that in the long run, appreciation here is without question, but some of hype is a little bit extended beyond a city and county that purely runs on construction labor, tourism, military and small businesses….oh yeah and Qualcomm.

    2007 prediction- Homes will not change much in price, condos will fall considerably in ceratin sectors due to the imbalance in the median price between attached and detatched.
    Remeber that San Diego county is almost the size of some states in this country, so most of the higher prices will remain in areas that have been established near the city as well as the coastal areas. Downtown is where my money will probably go when all the building catches up with itself and the inventory is aplenty.

  10. SD Realtor said on Sunday, January 21, 2007, 1:39

    Lots of good comments here. One of the main problems with making assessments of the housing market is that they are all made off of the median price data which is an unreliable statistic. I am a Realtor and when we enter the sales price of a home on the MLS after the close of escrow we are not required to enter closing cost credits, or any cash rebates to the buyer. The same is true for builders when they sell new housing stock. Furthermore, we are seeing more incidence of mortgage fraud where individuals pay much more then the asking price. This again inflates the median data. The monthly medians calculated by zip codes (and published by the UT) are also subject to statistical problems. For instance the recent Poway numbers displayed an 18% bump in the median for December of 06 compared to Dec of 05. However when I studied the raw data, this was because in Dec of 06 the top 5 listings that sold were much larger and nicer houses then the top 5 listings in Dec of 05 for Poway. Thus the monthly median year over year change for Poway looked great but was not indicative of a true secular rise in the market, just a statistical blip….

    Overall there are better ways to gauge the market then the true median price. Even something as simple as the total number of sales is more accurate. Since June of 06 we have seen the total monthly sales drop close to 30% per month on a year over year comparison. Also looking at the number of cancelled, expired, and withdrawn listings is helpful.

    Pretty much all the comments pegged the true conditions on this thread. Condos have taken a harder hit the detached homes. Certain zips have taken harder hits then others. My personal belief is that we will continue a secular down trend for the next several years. As someone who is RENTING right now, but whose wife REALLY wants him to buy, for the past two years I was convinced waiting is the best way to go.

    However I am starting to get a little edgy. I don’t see the market up again in the near term but I am not so sure the market is going to fall off the cliff like alot of people are saying. Yes there is an immense amount of debt out there ready to convert (reset), however it would not surprise me at all if lenders find a way to make creative offers to distressed homeowners so that these homeowners will not lose the home. Seems to me it makes more sense for the lender to try to keep the people in thier home, continue to service the loan, then foreclose on thousands and thousands of homes.

    So I believe we need a real catalyst to get the market to really roll over. I am VERY surprised that inventory has not shot up yet. We are still in the 15K level (resale) and we should see start pushing up faster then it is. I also am seeing many more pending listings than I would expect given a totally tanking market. Interest rates have starting moving up and it is curious that the 10 year treasury seems to be mimicking last years behavior. It will be interesting to see if it pushes to the same peak as it did last summer. Without some major catalyst I see a flat to slightly negative market this year and for the next several years. However, if we can get some sort of catalyst, heavy foreclosure activity, etc… then we may see a more substantial decline that many buyers want and deserve.

    Oh yeah last tidbit… Another disturbing thing I have seen is that listings that are short sales and REO properties are still being priced at very high prices. It is disappointing.

  11. Bruce Douthit said on Monday, January 22, 2007, 0:24

    Prices in 2007 will continue to decline another 10%, then leveling off in 2008 by another 5%, then stay flat for a year, and begin to rise again in 2010. These are 5-7 year cycles, and there is no getting around it.

  12. The Right time to Sell Real Estate in San Diego said on Wednesday, January 24, 2007, 14:28

    [...] Was reading local San Diego real estate news this morning; I’m thinking about selling my condo. I found some interesting information about international investment in real estate which states that foreign investors ranked San Diego #9 in top US cities to invest in, down from #5 last year. I also read the SanDiegoBlog article about San Diego real estate prices. [...]

  13. San Diego Lasik said on Monday, September 17, 2007, 17:15

    Looks like many San Diego neighborhoods home values are off double digits and we are only about half way through this decline!

    For a good graph showing how Mission Valley condos are down in value over 34% just from July 2006 to July 2007, read:
    San Diego Condo Values Plunge in Many Neighborhoods at:
    http://www.brokerforyou.com/brokerforyou/index.php?paged=2

  14. San Diego home sales said on Saturday, November 10, 2007, 12:55

    With many San Diego homes on the market, motivated sellers, lower interest rates and prices that are off in some areas by 20+%, this is a great time to purchase your dream home!

    Larry R.
    http://www.sandiegorealestatelibrary.info

  15. Gregory Grigoriou said on Sunday, December 23, 2007, 2:10

    It all comes down to income and cost of living.
    San Diegans make very average salaries, yet the cost of a small single family homes even in average suburbs, remains in in the neighbourhood of $500,000.

    you could offer rates of 4% over 30 years, but if the cost of admission for a single family home is anywhere near or over $500k, forget about it trying to sell it right now. Young families are leaving san diego in droves. There is something like a 30 percent exit rate in the 30 something young professional demographic. These are the people who are starting families, and need space.

    Coastal values steps from the beach, and highly desirable neighbourhoods will remain virtually unscathed, since the word is out that San Diego is an amazing place to retire, and relax, but other those properties, expect small homes and condos to decline by a further 20-30 percent in the coming 2 years.

    If a young couple making in excess of 100k, cannot afford even a small home in san diego, expect prices to continue to drop in a big way. thats simple lifestyle demand reality.

    For the average buyer, debt has grown to record levels, personal savings are almost non existant, and as a city, san diego has had no plan in place to remain a viable diverse city to do business in.

  16. Home Prices A Year Later - Who Was Right? - MAS o Menos said on Sunday, March 16, 2008, 10:06

    [...] a year ago, I responded to a question posted on the SanDiegoBlog web site. From San Diego Real Estate Prices – Done Rising?: What are your thoughts on the San Diego real estate market? Can we expect that prices will level [...]

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