San Diego Real Estate & Homes for Sale :: Robert T. Boyer, Ph.D.

The San Diego Residential Real Estate Market is down to one month of inventory in most price ranges for single family detached homes and down to three months of inventory for attached homes. Is inventory a "cause" or an "effect" or a little of both?

Anyone who is active in the market already knows that it is a terrible struggle to find a home for everyone from investor to first time homebuyer to move-up buyer looking for a conforming loan. And you may have noticed it has been getting more difficult as the summer wore on. Below is the months of inventory chart from the end of April. Comparing the two charts, you can clearly see how our inventories have shrunk over the last three months.

One thing I find striking about the two charts is that the detached homes up to $600,000 are now in a seller's market whereas three months ago you had to be less than $450K. The slow trickle of REOs has been, in my opinion, too slow. I suppose it would be nice if the rate of release should attempt to keep a stable inventory amount.

From a price bottom, we are clearly there. In fact, based on sales close dates, our bottom was March. If we consider 60-days from offer to closing, then we were really at the bottom in January.

Now... having said all that. You will also notice from the months of inventory chart that we should probably refer to our market in three parts. Below $600K, $600-800K, and $800K+ for detached homes. The $600-800K range is living within a "normal" market behavior at the moment. However, the upper-most end of the market is still clearly suffering (detached properties over $800K and attached over $600K). Not only is their pain not over, but the dooms-and-gloom people are (whether they understand it or not) are referring to this segment of homeowners who are soon (between now and 2012) to have their loans reset. For those with documentable income it won't be too bad, but for the self employed, it is going to be a bear.

Just as we cannot refer to a national temperature or a national housing market behavior, even in San Diego we have multiple components. One part of our market is very active / very strong. Another part is still weak and still expects more pain.

As far as the shadow inventory - it will only hurt us (at this point), if it gets dumped all at once onto our market. Baring that, it looks to me like single family _detached_ homes are going to remain strong at the low end. The attached homes and their HOAs are another discussion entirely.

FYI - I was just referred to a recent San Diego News Network article "Economist Sees Rebound for San Diego Real Estate Market." at: http://www.sdnn.com/sandiego/2009-08-18/business-real-estate/economist-sees-rebound-for-san-diego-real-estate-market

A month ago I posted that San Diego Residential Real Estate Sales Volumes are "Normal". Although accurate (we are within 1-sigma of average sales volumes), it did not address our shrinking inventory. That lack of inventory driving our supply and demand behavior, has pushed prices up. The following charts show that our median home price has been "steadily" increasing. Prices, on average, are about $25-50K higher than in March. In just a short five (5) months, we have seen an increase of10-20% in the median home price.

Admittedly there is a component of this growth which is seasonal. However, last April I posted "Truth" about the San Diego Residential Real Estate Market. which identified the dichotomy between months of inventory at the low end of the price range (under $450K) as compared to higher priced properties. The short of that story is that it is actually a seller's market with less than 3-months of inventory for prices under $450K.

Not only have the prices increased, but the trend as a whole, as evidenced by the trendlines for the above chart, show that we are in for further price increases.

I suspect this trend will continue until one of several things happen. Either a) the foreclosure moratorium ends and we start to see a steady stream or b) homeowners who had been sitting on the sidelines avoiding selling until such time as the market turned around recognize that now is their opportunity.

On the foreclosure angle, my understanding is that for California, we should have had about 11,000 last month and instead only had about 2,500. The reason, I'm told is the processes that have been put in place to help keep people in their homes. I am (cynically) sure that the program did not save 8,500 homes from foreclosure, which means that we are incuring a backlog - along the lines of our national debt. However, the program is surely not going away which means the foreclosures are just going to trickle out, and will be absorbed quickly by a greedy market. (Yes, there is still a chance there will be some massive release of back-up, but I've heard of nothing in the works.)

That leaves homeowners getting back into the selling game. And that, I believe, will not happen for a little while, until the nation as a whole is under the media influence that the downturn is over.

P.S. My belief is not reliant simply on these two charts, but many more that I've been working on and will post in due time.

There are two parts to the market health that we have all been watching, price and quantity of sales. The following chart shows the average number of detached home sales in San Diego, on a per month basis. The error bars indicate +/- 1 standard deviation. We can see that our lowest point, both numerically and relative to the norm was September 2007. Since then we have been climbing back into the normal expected range of sales.

From a quantity of sales perspective, it looks fair to say that San Diego has stabilized (starting about June 2008)

Part 1 of Has the San Diego Housing Market hit bottom? showed the median priced home 15 year trend. It appears as if there is a huge jump in prices in the past several months, since March 2009. Looking only at the large time series chart, I have to wonder whether or not we are just looking at a seasonal fluctuation or if there really is something there. I believe these next two charts will confirm that the San Diego residential real estate housing market has hit bottom.

This first chart shows the last two years for each major bedroom / bathroom configuration and also plots a trendline for the data. Ignoring the specific data and looking only at the trend lines (sorry, couldn't keep the trendlines without the raw data), we can see how the curve appears to have hit a local minimum.

Now, of course, I had to ask the question of whether or not this is just a seasonal fluctuation making it appear that we had hit bottom. So, we take the same chart and pull it back one year - to end June 2008. What stands out is that in this lower chart, we see the downward arching curve whereas up top, we can see that it is upward (well at least clearly neutral).

Are we going to fall back and have a dismal second half of the year. Pulling out my crystal ball... I don't think so (assuming no major national issues).

For all the BPO people and REO brokers, it looks like its time to stop undercutting the market... the free fall has landed. (Now, of course, if the theoretical backlog of foreclosures is let loose, then all bets are off.)

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