San Diego Residential Real Estate in 2009
Friday, December 12th, 2008
In looking ahead to 2009, the San Diego Residential Real Estate market appears to me to be ready to shake off the doldrums of 2007 and 2008. While I do not expect to see 20% appreciation again, my forecast is leaning toward a stabilization of the market and a preparation for a “return to normalcy”. What does that mean?
Well, let’s look at some of the factors that impact residential real estate in San Diego and their current trends…
New home inventories are down dramatically. Builders have stopped building spec homes and are re-tooling their product for today’s cost conscious market. We have had over 2 years of continuous declines in new home inventories and we now stand at levels that are off more than 60% since the beginning of 2006.
Resale inventories are down dramatically. Existing home owners are responding to today’s market realities. If a home owner needs to sell, they are pricing to achieve sale in this down market. If a homeowner does not need to sell, they are not putting their home on the market to “test the waters”. The MLS listings for November 2008 were 15,529. There were 20,599 in November of 2007. That’s a 25% decrease.
Total home sales are up significantly. Total home sales in October 2008 were 3,600. That is the highest monthly total since December of 2006!
Sales of foreclosures exceed additional homes being foreclosed on a monthly basis. Foreclosure home sales were estimated to be 1,760 last month, while homes taken back in foreclosure were 1,112. We are selling foreclosed homes faster than we are adding them to the inventory.
Interest rates are at historic lows. Chase announced a 4.75%, 30 fixed rate today for conforming loan purchases. 4.75%! Bank of America is at 5.2% fixed for 30 years with NO points!
A new administration takes over in January, optimism is rising. Change is the word of the day and change is happening. A honeymoon period usually follows a new presidential inauguration and with control of the House and Senate, there is a real chance for the Democrats to push forward economic legislation to reverse the course of this recession.
First quarter of 2007 and 2008 were very strong quarters for new home sales. We also had very weak fourth quarters in each of those years. The first quarter of 2009 is setting up for another strong quarter of new home sales.
Job loses are mounting, but focused on trade and construction jobs. With 
stimulus packages in the offing, most of which focus on infrastructure and other forms of “construction”, there is a good chance to get America back to work building things. That helps construction numbers and it helps the supporting industries of construction.
Prices are still falling, but at a much lower rate of decrease. The rate of decline in San Diego real estate pricing is slowing. In fact, in new home sales the median pricing has been “going up” the past four months. The overall market median price is flat, but the reality is that resales have finally made the pricing adjustment necessary and the rate of decline fell for resales homes is down to 2.7% month over month. Overall, the median price increased by 1.4% in October for all San Diego home sales, month over month.
Consumer confidence is very low. But, investor confidence in real estate is growing daily. Anecdotal evidence shows many banks are receiving 3 and 4 offers on foreclosed homes over the original asking price. While the consumer is worried about their job and their existing mortgage payment, bottom priced resale homes are getting snapped up and quickly.
What does all this mean? Well, to me it means 2009 will be the “bottom” of the recession for the San Diego real estate market. Prices will stabilize. Absorptions will increase. Confidence will begin to return. Mortgage rates will remain very low. Government incentives will be applied to shore up values. Jobs in construction will return through stimulus packages, which in turn will halt the job loses in other sectors. Inventories will remain low for both new homes and re-sales. Total sales will continue to increase. Foreclosures will decrease. Notices of Default will decrease. Lenders will find a balance for qualifying criteria and loan products will stabilize. Demand will return and supply will be limited. The real estate industry will stabilize and prepare for better days in 2010 and beyond.
I am also an optimist (you have to be in this business) and I believe in Santa Claus. So, what do you believe?
Steve
I enjoyed reading your article. It is an excellent piece with vision based on fact. There is definately a fundamental shift occuring in the San Diego Housing Market with the new pending sales volume up significantly and the decline in the number of listings.
You have me convinced
These stats make a good argument for the San Diego real estate market, it looks like ‘09 may look better.
I hope many of the same things are happening elsewhere and that those jobs come quick…something tells me that the reported 6.7% is a little off. Either way, we’ve got a lot more to be optimistic about in the coming year.
[...] Doyle, President of Brookfield Homes San Diego/Riverside Division, gives 10 reasons why the San Diego real estate market is headed towards a ’09 bottom. Mentions lower interest rates, higher investor confidence, fewer foreclosures, a decrease in [...]
Jayson,
I agree with your concerns, but check out today’s San Diego Daily Transcript, page 1. The article is entitled “SANDAG compiles economic stimulus package for construction industry”. In the article, SANDAG describes $7.2 billion of highway, transportation and public works projects ready to go to bid when a federal stimulus package (like the one President-elect Obama has discussed) is passed. SANDAG estimates the projects will create 95,959 jobs and generate more than $5 billion in wages and $1.8 billion in local, state and federal tax dollars.
That sound like a good start to me!
Steve
Nice! That sounds like a great start and very similar to what I’ve heard (probably the same you mentioned above) Obama is working on nationwide. These programs are overdue, I hope they get the “go ahead” quickly.
Just read an article in Forbes about 100 real estate markets…summary…they don’t see much improvement for ‘09 but I won’t let that get me down
Well said, Allen! There is definitely movement in the market. How strong and for how long will depend on a lot of outside factors. But, shining a little light on the facts can’t hurt anyone! Maybe, a little light will help it grow.
Steve
Right on. Ventura County will be doing the same as will most of California.
The worse is over (I think)and at least for Ventura County it appears that the bottom will be reached.
But who knows…..there may be another that rises up to put things off a bit. What could that be?
State, City and local bail out requirements. Too many of these political levels are knee deep in debt and do not have the capacity to undo things that occurred in the past.
So that will be the unknown in the ointment.
Hi John,
Welcome to the discussion. Some bad news today, but as usual, when you look into the details the numbers in specific areas of California are much better than what the headlines would lead you to believe. We need to make sure our local media pick up the local numbers and don’t bury us in national averages and medians that make the world seem like it is falling apart!
Steve
It is an excellent piece of information.
RH, thanks and welcome. Check out my next post (Feb 11) on where the recovery is headed. You will see that the “experts” are all over the place with their predictions.
Steve
Great analysis. I sell real estate in the San Francisco Bay Area and we are seeing sales up, inventory down, and prices stabilizing. I also agree that 2009 will be the bottom.