San Diego Peaked?
Some localities show housing price decline
By Roger M. Showley
STAFF WRITER
January 2, 2004
San Diego County housing prices may be way up from a year ago but some neighborhoods have witnessed a sizable decline from their all-time highs of 2004, according to a close reading of figures from locally based DataQuick Information Systems.
The biggest loser appears to be Rancho Bernardo west of Interstate 15, where the median price tumbled more than 24 percent from its all-time peak reached in July.
The other four areas experiencing the most significant declines were La Mesa, down 19.8 percent; Carmel Valley, off 16.7 percent; La Jolla, down 15.2 percent; and Poway, down 13.8 percent.
DataQuick issues monthly home price reports that include comparisons to the same month a year before. On that basis, San Diego single-family resale houses rose more than 23 percent in November, compared to November 2003. Resale houses represent about half of all sales in the county, followed by resale condos and a group including newly built houses and condos and condo conversions.
But looked at on a month-by-month basis, the picture is quite different. Half of the county's 48 ZIP code areas that had at least 20 resale transactions in November reached their peak in the first half of 2004 and have since fallen back. The overall county peak of $515,000 was down 1.9 percent from the all-time high of $525,000 in August.
And this isn't true only in San Diego, said DataQuick analyst John Karevoll.
"We had a statewide surge of very expensive homes (sold) and then it receded," Karevoll said. That change in market mix, he explained, helped push the median down from its record levels in many neighborhoods.
Karevoll offered a second way to analyze trends: Look at the price per square foot to eliminate differences among the sizes of homes sold in the same neighborhood.
Island low
By that measure, Coronado came in with the biggest drop, down 23.3 percent from its peak $754.14 per square foot in July to $578.60 in November. The other four largest drops occurred in Old Town-Morena, down 14.5 percent; La Jolla, down 14.3 percent; Encinitas, down 13.9 percent; and Golden Hill, down 11 percent.
Whether looked at by price or price per square foot, the declines do not necessarily herald the popping of the suspected "real estate bubble," detected by many economists. Many housing experts believe the market is merely cooling off from its overheated state and returning to "normal."
But the neighborhood-level declines do provide further evidence for an overall slowing in San Diego's housing market and a shift in the direction of buyers, who should be able to drive harder bargains with sellers. Other signs have included many more homes listed for sale and much longer times on the market before escrow closes.
Looking at the situation in trend-setting neighborhoods, Rancho Bernardo's 92127 ZIP code area, located west of Interstate 15, set a record median of $810,000 in July and then dropped back by 24.1 percent to $616,000 in November. Meanwhile, the neighborhood's price per square foot set a record $315.11 in November.
Stephen McClure, an agent in McMillin Realty's Rancho Bernardo office, said there have been fewer sales of high-end properties in recent months. In RB's 92128 ZIP code area east of the freeway, he said the 8.3 percent drop from the $632,500 peak reached in June was more typical of what he has noticed. That area's price per square foot dropped 6.9 percent from the peak in October.
"There's a lot of homes on the market but they've been on the market for the last three months," McClure said. "They simply haven't sold because the market is not nearly as strong as it was."
La Mesa-Mount Helix not only saw a large decline from its all-time peak of $557,500 in April but it was one of the first areas to start dropping, DataQuick figures show. At the same time, its price per square foot has risen in fits and starts over the last two years to hit a record $384.17 in November.
High or low?
Vickie Fageol, an agent in a Re/Max La Mesa office, said her clients believe either prices have dropped for good or that they have leveled off and will rise again soon.
"The mind-set (among buyers) has been changed," she said. "They no longer are offering more than the asking price or dying to get an offer in as soon as they see a property. They know they have a little more time."
As for sellers, Fageol said they are bracing for a wait of 60 days or more before they get an offer and many are dropping prices within two weeks or a month if they aren't getting any action.
"We have to educate them that it's not like the spring, where they sell in three hours and have bidding wars," she said.
Scripps Ranch, the first neighborhood to reach its peak, $742,500 in March, plummeted to $615,000 in April and rose again to $732,500 in July before ending at $700,000 in November. December prices and annual totals will be available later this month. Scripps' record $351.84 price per square foot in September dropped 8.8 percent by November.
Market analysts often advise looking at prices on a year-over-year basis rather than month-by-month because of seasonal fluctuations.
In Scripps Ranch, there may have been another factor at work. Lynn Hamilton of One Source GMAC Real Estate said the early peak may have occurred because owners who lost their homes in the October 2003 firestorm used insurance payments to buy replacement homes in a tight, competitive market in the spring. Since then, the number of listings has increased and buyers have been less pressured to move fast.
"People, now when they look at homes, they figure, and their agents, too, that there's a little negotiating room in the price," Hamilton said.
Ginni Field in Prudential California's Carmel Valley office said sellers can no longer automatically get 5 percent to 10 percent more than their neighbor did six months ago.
If the Carmel Valley median dropped by 16.7 percent from a record $1,082,500 in August to $902,000 in November, perhaps that's the adjustment a current seller should make, she said. On the other hand, the price per square foot in November was only 1.8 percent off the record peak of $377.76 in July.
"Many want to wait and see in January if we'll have another insanity market like we had the beginning of last year," she said. "I don't know. I think we'll have a nice, solid market. I'm not a bubble believer. I believe we'll have a strong, comfortable market."
In less hectic markets, buyers often have waited until after the Super Bowl before getting serious about moving. This year, football may play an even bigger factor if the Chargers' winning ways continue.
While many places set record prices months ago, six neighborhoods with at least 20 resales in November recorded all-time highs that month – San Carlos 92119; El Cajon 92020; Oceanside 92057; Golden Hill 92102; City Heights 92105; and Logan Heights 92113 – and it is possible others may rise to all-time peaks in 2005.
On a price-per-square-foot basis, there were five records set in November besides western Rancho Bernardo and La Mesa-Mount Helix: northern Chula Vista, Encanto, Linda Vista, northern El Cajon and San Carlos.
Real estate graduate students at the University of San Diego believe overall resale home prices will increase by 12.2 percent this year, reaching a record $616,222 by December.
In a summary of their analyses issued last month, Kevin Truglio, one of those in the university's master's degree program, said factors driving prices upward include continued demand and relatively low interest rates.
He and other students based their predictions on DataQuick reports going back to 1990 and assume past trends will remain unchanged, according to their faculty adviser, Joan B. Anderson.
Many economists feel 30-year, fixed-rate-mortgage interest rates will rise this year to 7 percent from the sub-6 percent level of most of 2004. Demand in San Diego will largely depend on job creation, which USD economist Alan Gin predicts will equal or exceed 2004's estimated level at 15,800.
Tony Farrow of Tri-City Funding in Carlsbad said he advises his clients who are trying to sell their homes without a real estate agent to consider offering better terms rather than lower prices to buyers. For example, a buyer might prefer a second trust deed.
"Lowering the price might not necessarily be the way to sell because sometimes the borrower is short on cash," Farrow said.
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