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

Everyone wants to know when we've hit bottom... and many people, including NAR's chief economist have called bottom much too early.  But, today, I say, "Yes, San Diego has hit bottom" with a few caveats, such as all the shadow inventory we hear that the banks may have is not simply dumped on the market tomorrow or that when the CA moratorium is over that we don't get hit with a ton of foreclosures and this is on a city-wide basis, so there may still be certain zipcodes that suffer a little longer.  (I am getting signed up for the new RETS IDX information so that I can break things down to the zipcode level.)

Why?  Well, let me not answer why we're at the bottom, but rather why I believe it is true.  No, it is not due to listening to any of the talking heads, but instead is based on tracking the statistics and interpreting them as shown in the following chart.  (I'll have to add more charts in later posts.)

We can clearly see in this chart (for San Diego as a whole) spanning from March 1995 to June 2009 the bubble and its popping.  But the key part is the last five months.  March 2009 appears to be our bottom.  Since then is has been sharply upward.  Interestingly, its upward motion shows more of a "V" shape than a "U" which many experts told us to expect.

Now, we naturally have seasonal effects, but the bounce here far exceeds those adjustments.  I expect we'll get leveling or even some decline this fall, but as we are concerned with the overall activity, this sure looks like the bottom.

In my last post, Are San Diego Home Prices Bottoming Out? Moving Averages Say Not Yet we looked at moving averages and the most likely implication. But, we also noted that moving averages are a trailing indicator. If you are going to beat the market, you need leading indicators.

Enter the Moving Average Convergence Divergence. A 30-second high level synopsis can be found here. Although with computer day trading this technique has become less useful for the stock market, I believe real estate moves slow enough that we can still benefit. In the following graph, taking San Diego as a whole, we plot out the MACD(10,20,7).

IF we had been paying closer attention, March 2005 would have served as a serious red flag. Now, looking at the far right, it looks like we are set for another crossover (of the good kind). The only question is whether this will be another false bottom as can be seen toward the fall of 2007.

If the moving averages indicate we are not yet bottoming, but the MACD says it is a possibility, then we certainly need to dig deeper and pay closer attention. I'm going to try this at the zipcode level - may take a while. I suppose how it plays out depends on whether we get another wave of foreclosures.

Thousands upon thousands have made beating the stock market their business and in the process they have developed a few tools that can be applied to our real estate market.  The first is the concept of moving averages.  In the following graph, taking San Diego as a whole, we plot out the 10 and 20-month moving averages for the median priced 3-bedroom / 2-bath home.

We can visually see the crossover occurring in the July 2006 - July 2007 time period.  Like any economist, we can tell you that it happened!  The biggest challenge with the technique in the fast paced world of the stock market is that this crossover is a trailing indicator.  By the time you see it, it is too late.  I would argue that for real estate, there is enough of a time lag that you can see it happening.  With that in mind, do you see it happening on the far right side of the graph?  No... look again... no... neither do I.

As an investor, I look forward to seeing the market do a 180-degree turn, but apparently my rose colored glasses are getting rained on.  If we look at the Jan 2005 -Dec 2006 as a model, turning that frown upside down, it would seem that we likely have another two years before we reach our next crossover.

However, all real estate is local.  San Diego is too big of a market to assign it a single temperature.  So, I am going to take this down to a zipcode level to see if there are any bright spots.  I truly expect there to be some because in certain areas, I don't think the home prices can get much lower.  I'll let you know what I find out.

Yesterday we went through a home inspection on an REO. As you might be able to see in the picture, there is a distinct sag in the roof. The dip, an estimate 6-8 inches had, underlying it, a cracked joist.

In fact, along several spans you can see the same behavior, although none quite so deep. Additionally, there are stress fractures in the stucco above header on each of the windows.

Naturally, my clients called out their contractor. It turns out that the roofing plywood was only 1/2-inch thick when it should have been 3/4-inch.

What does this have to do with wildfires, you ask. Well, our thought is that because we have had the wildfires, everyone became (rightly) paranoid over shake-shingle roofs and even a little concerned with composite shingle roofs. We are guessing some contractor came in and sold the entire neighborhood on tile roofs and simply failed to do a proper job. Yes, each of the 10 homes in the neighborhood have exactly the same problem. The tell-tale clue that makes us believe this was probably not the original developer is the little pile of left-over tiles. (You know, the same kind of excess left behind when someone tiles a floor.) And, I can't really imagine the building inspector letting the original developer get away with such a mess.

Right now we are awaiting a cost estimate to repair to determine if it becomes a deal breaker.

At least it is not as bad of a flub as this.... after all, you _can_ put on a new roof.

The other day I posted a San Diego, Single Family Detached Home, Months of Inventory chart showing that our market can be broken down into a seller's, neutral, or buyer's market by price point. Today's chart takes the San Diego residential real estate market and shows a similar division for single family attached homes.

For attached home prices below $500,000, we actually have a pretty stable market, with an average of 4.5 months of inventory.

For attached home prices above $500,000, it is still a buyer's market, with an average of 14.6 months of inventory.

So, please let your buyers know, that unless their price point is above a half-million, then it's not the great buyer's market the national media projects.