San Diego Real Estate Market Recovery Interview with Inman News
June 6th, 2008 Categories: Real Estate News
Recently, I received a request by Glenn Roberts of Inman News to do an interview with him in regard to the San Diego Real Estate market and its recovery. The following are his questions and my answers as to how we’re doing and what we can expect in the weeks and months ahead.
The article will be featured in a series that is taking a look at the 
housing market’s recovery.
Some questions:
1) How do you define real estate bubbles?
A bubble is a periodic rapid increase in real estate values that sustains itself until such time as the market will not support further prices increases. Bubbles are invariably followed by severe price decreases over a relatively short period of time.
2) Does San Diego’s market rise and fall reflect this definition of a real
estate bubble? Explain.
Yes and no. Over a five year period from 2003 through 2007, San Diego real estate values soared to record levels, followed by significant price adjustments in certain areas of the county. Inland San Diego County and the South Bay reflect this definition of a bubble; however Coastal areas from Downtown North have not exhibited a decline as severe.
3) What led to the rise in San Diego’s market, and what triggered the
beginning of the downturn?
Many factors led to the rise. Location, demand, low interest rates coupled with a lack of sound underwriting practices by lenders and the expectation of future profits by investor oriented individuals. What triggered the beginning of the downturn was demand was satisfied and supply began to rise, subprime mortgage money became much harder to obtain, and negative financial news began to dominate the headlines causing loss of consumer confidence in the housing market.
4) What stage of the market cycle is San Diego now in? 
We believe San Diego is at or approaching the bottom of the cycle. A recent Wall Street Journal article states that the boom made housing unaffordable for many families, especially first time homebuyers. Recent statistics reveal that the affordability index has now risen from a low of 14% to over 33%. In April of 2008, single family home sales are a mere 3.55% below the April 2007 levels and indications are that this turnaround will soon result in sales exceeding comparable 2007 levels. (See attached chart 2004-2008 SFD Closed Through MLS.)
5) What makes San Diego’s real estate market unique when compared to other
markets that saw rapid rises and then declines in home prices: such as Las
Vegas and Miami?
San Diego is unique. We live in a paradise with perfect weather and geographical boundaries that naturally limit our growth, thus making San Diego even more coveted. Our economy here is sound, not dependent on any one industry or huge employer. Every year we have a net gain of people moving here from all over the world, and buying real estate. Although we have standing inventory of condo’s and new homes, this nventory doesn’t compare with the numbers in Miami or Las Vegas.
6) Are such market cycles in San Diego inevitable? And bound to happen
again? Any lessons learned from the latest run-up and downturn?
Absolutely! They are bound to happen again as real estate markets historically show us. I guess the lesson taken from our recent experience is how rapidly things can change.
7) What segments of the San Diego real estate market were most impacted by the
run-up and the downturn? Entry-level homes? Luxury homes? Single-family
homes? Condos? And why?
The most impacted segment has been the low end, entry level single family detached homes and condos. During the run-up, first time buyers were being priced out of the market. The market adjustment has caused those same first time buyers to be locked out of the market due to the lending changes that have taken place over the past couple of years.
What are important signs to watch for in signaling a recovery of the San
Diego real estate market? Any of these signs present already?
The factors that signal the recovery of the market is that we are not seeing an overabundance of new inventory and we are starting to see the investor buyer coming back into the market. Furthermore, we are seeing a mild stabilization in home sales prices. Lastly, buyer activity levels have significantly increased over the past few weeks.
9) What is the current state of the market in terms of year-over-year sales,
prices, inventory, days on market, foreclosures and short sales?
The current state of the market is that today, homes are selling for significantly less in 2008 versus 2006. Fewer units are being sold, and more of the transactions fall into the category of “short sales” and foreclosures. We are currently experiencing a “flattening” of inventory; no significant increase or decrease of units on the market. We anticipate that the number of foreclosure listings will increase throughout 2008. Based on most of the “bubble transactions” pre 2006 which had loans that are now being recast in 2008. It is that bubble that we are dealing with today. According to most experts, this bubble should wash through our San Diego market by late 2008 or early 2009.
10) What percentage did prices rise during the run-up and how long was this
period, and what percentage have prices fallen during the downturn and how
long has this period been?
Most of us feel that the five year run up from 2001 through 2006 was the greatest single appreciating market in history. Statistics vary by area, but in San Diego County we saw homes double or even triple in value over this period. Declining home price trends have now been common in many areas of the county for a year or more, with the hardest hit areas in inland North County and the South Bay declining by 25 to 30 per cent.
11) What is the outlook for demand? What is the state of consumer
confidence, buyer and seller behavior, and buyer psychology in the San Diego
market?
We feel the demand in San Diego County has always been, and will remain high. The buyer mentality to date has been cautious and looking for the “bargain”. The seller mentality to date has been, “I’m going to sell if I have to sell”. Most seller’s who don’t have a specific reason to sell, i.e. recasting their loan, relocation or simply outgrowing their home have by and large made the decision to wait. Consumer confidence in San Diego County, like most places is driven by our economy at large; and therefore still remains somewhat weak. The factors that will start to turn consumer confidence will be the stabilization of home prices, job stability, and overall “good news”.
12) Are there any myths, misperceptions about the current state of the San
Diego market?
Perhaps. Consumer perception becomes reality. Due to extensive inventory, the decline in prices and historically low interest rates, today’s home buyer is in the best position they have been in many years. The misconception is that the buyer can wait and prices will continue to decline. Reality tells us that you can never time the lowest point of a market.
13) When will it be clear that the San Diego market has fully recovered from
the downturn? How far away is that, in your opinion?
The clearest signal that the downturn is over is when inventory has decreased and prices start to rise again. When will this happen? This is virtually impossible to predict. We believe we at or near the bottom now. Throughout 2008 we will go through a period of adjustment and believe that in 2009 the market will start to swing back in the other direction.
We thank Inman News for contacting us and for using HotOnSanDiego as a source for San Diego Real Estate news and information.
