This was a big day in the news for San Diego real estate. Standard & Poor’s Case-Schiller Home Price Index was released today for April 2010. The index, which measures resale values of single-family houses, shows sale prices of houses in San Diego rose 11.7 percent between April 2009 and April 2010. Only San Francisco, with an 18 percent increase, rose faster than the San Diego real estate market in the past twelve months.
But rising San Diego home sales figures are not an exception. Thirteen of the twenty metropolitan statistical areas (MSA’s) covered in the index showed price increases from a year earlier. And all twenty MSA’s showed increases from March 2010.
This news, like recent news of San Diego homes sale prices increasing, should be read conservatively, but not ignored. Bad-news reporters and gloomy economists are quick to dismiss the recent real estate price increases as an abnormality in light of continued foreclosures and unemployment numbers. But the fact is, the statistics make sense. They show San Diego houses at roughly the same values that they were at in April 2003. What is the rough value of your stock portfolio right now compared to April 2003?
The conservative caution is not to expect 11.7% increases on San Diego homes every year. The average house appreciates roughly four percent per year. We’ve been in a trough for a while folks; actually well below that annual four percent trend line. Now we’re getting back to the trend line. But there’s nothing wrong with talk of recovery if we’re talking about returning to a normal real estate market.
Here is the list of the 20 Cities and the change in their house value index from April 2009 to April 2010:
San Francisco 17.99%
San Diego 11.74%
Los Angeles 7.79%
New York -1.02%
Las Vegas -8.52%
Still, I think it’s important to get a better idea for the Case-Shiller methodology used to determine the increase in home prices. Here’s a general summary from the Standard & Poor’s Case Shiller website:
The “repeat sales method” used by the Case-Shiller index is considered the “most reliable means to measure housing price movements”. The Office of Federal Housing Enterprise Oversight (OFHEO) uses their same methodology in its reports. This involves looking at homes that have sold at least twice so that a reliable resale price can be determined. New construction is not counted, nor are multiple unit properties such as condos or apartments.
When the resales of existing homes are identified, the Case-Shiller index compiles “matched sale pairs” of homes sold in the month the index is released and in the two prior months. So the index released in April includes sales in February, March, and April. Only arm’s-length transactions are included. For example, transfers between family members would be excluded. Transactions with wildly unrealistic values are excluded as suspected data errors. In an effort to compare homes of constant quality, the index also seeks to exclude properties that have been remodeled or renovated. So any homes that have been bought and sold in the preceding six-month period are excluded as suspected sales by investors “fixing and flipping” the properties.
If you enjoy reading about statistical methodology, click here to read the Case-Shiller Home Price Index Methodology. It’s actually pretty interesting (or maybe I’m just a little strange that way). But the fact is, San Diego real estate has stabilized and is improving. There is heavy demand at the entry level. Luxury home sales in San Diego are also increasing again, albeit at reduced prices. And the mid-range properties priced $700,000 to $1.5 Million are also regaining their footing. Expect more of the same news next month.
It’s hard for many prospective buyers of San Diego homes to believe this, but this really isn’t a traditional “buyer’s market” in many parts of San Diego. This is particularly true for “entry-level homes.” In America’s Finest City the entry level starts at around $350,000 and goes up to about $600,000. And buying a house in this price range isn’t as easy as you may think.
This week I’ve spent a lot of time helping clients who want to buy a newer home with at least four bedrooms. And I want to share with you a bit of our experience. It’s rough out there folks! There is a lot of competition for entry-level homes. There are multiple offers on most San Diego homes for sale in the $400,000 to $600,000 price range. The winning buyers are typically paying over asking price for the houses.
The “newer” homes (built since 2000) in this price range are mainly in South Bay and in parts of North County San Diego. San Diego beach houses are still starting above a million dollars. But for a spacious, four-bedroom house in a newer neighborhood, clean, well-appointed, and priced under $500,000 the choices are really limited to Chula Vista and Eastlake. There are some newer homes that fit this description in Encinitas, Carlsbad, San Marcos, and Oceanside, but the commute to downtown from far North County can be pretty daunting at times. Many people prefer the drive from South Bay.
Of course, some historical perspective is important. Most of the Chula Vista houses that are now priced at $400 to $600,000 have declined in value by as much as 40 and 50 percent over the past few years. So the idea of an “overbid” is relative. These market values are still bargain prices by recent standards. And Chula Vista / Eastlake remains a very attractive neighborhood. It has been recognized as the best master planned community in the United States, and for good reason. It really is a beautiful neighborhood with lots of wonderful amenities.
But back to the point I was making… Below you can see the recent sales of four-plus bedroom houses priced under $500,000 in Chula Vista zip code 92113 over the past six months. Notice the “Price” (i.e. the List Price in the Wide Column) and compare the “SP” (i.e. SOLD Price). You will be hard pressed to find many houses that have sold for under the list price. Practically all of the houses have sold at or above the asking price.
I had to break these screen shots up to accommodate all of the listings, but the overview is sufficient to understand my point.
With an average list price of $403,850 and average sale price of $408,882 it is clear that most 4-plus bedroom houses in this part of San Diego are selling over asking price. So if you’re looking to buy a house in this price range be prepared to get there early and make strong offers.
The good news is that when you have a good agent who is on the ball identifying the best properties as they hit the market, and using best efforts to negotiate on your behalf, you still have a chance to buy a house at a great price. It is important to be pre-approved with a reliable mortgage lender, and have an experienced agent on your side to make sure that your offers are submitted correctly the first time. My clients from this week are now in counter-offer stages and I’m very optimistic!
Let me know if you’d like to see the recent sales statistics in any other San Diego neighborhoods.
More experts are calling a bottom to the San Diego real estate market. On Saturday the San Diego Union Tribune featured a quarterly report by MDA DataQuick which showed price increases in 8 of 56 neighborhoods during Third Quarter 2009. The largest increase was in West Escondido (zip code 92029) where the median price of a single-family house increased to $537,000, up from $467,000 in the third quarter of 2008.
The DataQuick report and numbers were not published in the Union Tribune, so I went to investigate. Unfortunately, no such quarterly report is posted on the MDA DataQuick website. The median sales prices of resale houses and condos, new homes, and all San Diego homes combined are published as the “San Diego Union Tribune Zip Code Chart.” There is also a report dated October 13, 2009 which is entitled “Southern California home sales inch up; median price steady.” Those are the figures that I will consider here.
First, according to the chart of median San Diego home prices by zip code, the median resale price of a detached single-family house increased in four out of five regions in San Diego County. Between September 2008 and September 2009, Central San Diego was up 4.3% (to $386,000), East County up 0.6% (to $316,750), North County Inland up 2.7% (to $380,000), and North County Coastal up 11.5% (to $485,000). Only South Bay remains in the red, with the median price of detached single-family houses down and average of 11% (to $316,000) from September 2008.
In Central San Diego, the median price of La Jolla homes sold in September 2009 jumped 21.7% from a year earlier, to $1,525,000. The median price of Coronado homes also increased substantially, up 17.6% to $1,610,000. The biggest increase along the North County coast was Cardiff by the Sea, where the median house price increased 38.9% from a year earlier, to $722,500. Del Mar homes also got a boost, up 11.6% to $1,350,000. Looking at those numbers, it would be tempting to call a bottom to San Diego luxury homes. However, in North County Inland, Rancho Santa Fe real estate is lagging. There were only 6 Rancho Santa Fe homes that closed escrow in September 2009, and the median price of $1,550,000 was down a whopping 43.6% from a year earlier.
Condominium sales tell an entirely different story. From September 2008 to September 2009, the median price of condos fell in all five regions of San Diego County. And, whereas houses in South Bay registered the largest price declines, the median price of condos in South Bay held steadier than the price of condos in any other region. Central San Diego condos were down 9.3% (to $245,000), East County down 21.2% (to $130,000), North County Inland down 8.2% (to $202,000), North County Coastal down 10.6% (to $316,500), and South Bay down just 1.6% (to $180,000).
New home sales represented only about 10% of the sales in each region. The median price of new homes is down for the year in four out of five San Diego regions. There seems to be little doubt that new home sales continue to be sluggish. Builder incentives may even be understating the level of price declines, as many builder incentives, upgrades, and closing cost credits are not reflected in the final sales prices.
Looking at the final tally of all sales of San Diego homes, the median prices of all homes sold in four out of five regions of San Diego County are just about flat (between 0.2% increase and 1.5% decrease), and South Bay is still in double-digits, down 11.2% from September 2008. But, as always, the median prices don’t tell the whole story. It seems clear that the low inventory of San Diego houses for sale has created upward pressure on prices. But despite the relatively low inventory, San Diego condos continue to experience price reductions. This suggests that the old adage “the value is in the land” is holding true in the current economic environment. And finally, more San Diego luxury homes are selling, so the upper end is seeing median price increases in some neighborhoods, such as La Jolla and Coronado. But there is still a lot of inventory at the upper end, so your San Diego real estate professionals aren’t willing to call a bottom in that sector.
Trulia reported today that 18% of San Diego homes for sale are listed for less that their original asking price. The average price reduction in San Diego is 10% and those price reductions cumulatively total $59 million. But looking at the big picture of the entire country, somehow San Diego does not have it as bad as other cities.
Trulia says that they tracked all price reductions from August 1, 2008 to August 1, 2009 to come to this calculation regarding cumulative price reductions on San Diego homes. However, Trulia reports that foreclosure listings were not included in their statistics, and only listings within the City of San Diego (not the entire San Diego Metro area) were included.
San Diego ranked 45 out of the 50 cities Trulia tracked. The rankings were based upon the percentage of homes with price reductions. Does this mean that San Diego area agents are better at pricing properties than, say, agents in Jacksonville, FL? Jacksonville ranked #1 on the Trulia price reduction list, with 38% of the the Jacksonville property listings priced less than the original asking price. Or does the relative difference in the rankings indicate that there is a LOT of buyer demand and SHORT supply of San Diego homes for sale? This later possibility is more what we would expect, since buyers are competing hand over fist to buy the discounted San Diego foreclosures and other entry-level real estate in San Diego. By the way, the San Diego MLS today shows only 9132 active listings…. compared to over 21,000 in August 2007.
Carmel Valley / East Del Mar
When looking at the upper-end of the San Diego real estate market, one thing is clear. There are lots of homes to choose from. A perfect example is in the Carmel Valley zip code 92130 where there are presently 221 houses for sale. Considering that there are only 5,995 detached homes for sale in all of San Diego County, Carmel Valley accounts for 3.7% of the detached single-family house listings in the San Diego MLS. The number is lower for condos and townhomes. The 62 condos for sale in Carmel Valley represent just 2.1% of the 2,982 condos for sale in San Diego County as a whole.
The absorption rate (approximate time to sell the existing inventory) in Carmel Valley is also larger than in San Diego as a whole. In June 2009, there were only 32 homes sold in Carmel Valley (almost a 7-month supply). This was 18% fewer sales than in June 2008. With the increased inventory and longer market times, the median sales price also slipped in June, far more than other parts of San Diego County where there is arguably a housing recovery underway. The median price of a home in Carmel Valley in June 2009 was 13.5% the June 2009 median price, and 30% below the June 2005 median price. Where there used to be none, there are currently 79 houses for sale in Carmel Valley that are priced under $1 Million.
Until recently, home prices in Carmel Valley had been pretty stable relative to the rest of San Diego. Carmel Valley (East Del Mar) has so many things going for it: top-rated schools, newer housing stock, good proximity to employment centers, freeways, and beaches, superb weather, lots of clean family-friendly parks, etc. And there is a much wider range of housing types in Carmel Valley; much more variety than the neighboring Rancho Penasquitos homes, previously discussed in Part I of the San Diego Real Estate Prices blog post. The most expensive home currently on the market in Carmel Valley is a 10,000+ square foot estate priced at $7,995,000 (this is a reduced price, down from $9,995,000). The lowest priced Carmel Valley house for sale is a 1,348 square foot home priced at $545,000. Due to the large variation of home styles and prices, the median price is a better gauge of market activity than the average price. The average price really becomes skewed whenever the large Carmel Valley luxury homes sell.
It’s hard to say when prices will stabilize in Carmel Valley. There were three times as many homes listed in Carmel Valley in June than were sold. However, there are currently twice as many homes in pending status than were sold in June. So July and August should show some higher median and average price numbers.
When priced right, Carmel Valley homes are still selling. The average time-on-market for the homes that sold in June 2009 was 59 days, and the median time-on-market was just 35 days. In June 2009 there wasn’t a single home that sold over asking price, and only a few homes sold at asking price. So the time is right to negotiate when buying a home in Carmel Valley or in any of the San Diego luxury homes communities.
I cringe when I read the newspaper or hear a report on the TV or radio that gives a median home price or average house price for San Diego County. This is a large and diverse area. San Diego home sales differ between neighborhoods almost as much as the San Diego terrains and microclimates. When we talk about San Diego weather, it can be cool and cloudy at the beach but hot and sunny just a few miles inland. On a few January days, you might be playing golf without a jacket and then later that evening drive up to enjoy a few snowflakes on Mt Laguna.
The same holds true in the San Diego real estate market with the different types of San Diego homes. Inventory is low and moving quickly in some areas and price levels, but still languishing in others.
So what are the hot areas of the San Diego real estate market? Where are the sales still slow? Over the next few days, I’ll update you on activity in several neighborhoods.
Rancho Penasquitos Houses (zip code 92129)
In June 2009, the number of houses sold in Rancho Penasquitos was up 10% from June 2008. That’s not saying much, because only 33 Rancho Penasquitos homes sold in June 2009; which was just 3 more than in June 2008.
The newspapers frequently report based on “median price.” The median price of homes is not a particularly useful number, because median simply means there was an equal number that sold above the median price and below the median price. The median price of homes in Rancho Penasquitos was $548,000 in June 2009. That’s 21.7% below the median reached at the top of the market in June 2005, and just 4.3% lower than the median in June 2008. But in May 2009 the median price in Rancho Penasquitos had spiked to $640,000 from just $520,000 in April 2009. So it takes a deeper analysis to get a feel for what’s going on in the San Diego real estate market.
The median number of days on market for the June 2009 Rancho Penasquitos home sales was just 15 days, which is less than half the time that it took to sell a house in Rancho Penasquitos in June 2008. When evaluating market times the median number of days on market is more instructive than the average market time because short sales linger on the market during the bank approval process. Banks are incredibly slow to respond to short sale applications, with an average response time of 6 months or more. So the median of 15 days means that at least half of the Rancho Penasquitos homes sold in less than 2 weeks. That’s hardly any time at all when it comes to real estate sales.
The “market turnover” figure tells a similar story. In June 2009, 40 homes were listed for sale in PQ. As of today (July 14) 18 of the June listings are already under contract. There currently are 47 active listings of houses in zip code 92129. So, in other words, based upon the June sales volume, there is currently a 1.4 month supply of homes for sale in Rancho Penasquitos. The typical rule of thumb is that anything less than 2 months of inventory is a seller’s market. A 6-month supply of homes is considered to be a “normal” market in equilibrium.
There are an additional 30 house listings in “contingent” status in 92129. A “Contingent” listing is a bank-owned foreclosure (REO) or short sale property that has one or more offers awaiting approval from the bank. The sale is therefore contingent upon bank approval (Pending Bank Approval). Even adding the 30 Contingent Listings to the 47 active listings, there is still only a 2.1 month supply of homes for sale in Rancho Penasquitos.
Overbidding: Many homes sold in PQ during the month of June, particularly those priced under $550,000, received multiple offers. 10 of the 16 houses that were listed below $550,000 sold at or above asking price.
Mortgage Financing: According to the MLS statistics, four-fifths of the homes that sold in PQ during June 2009 were financed with conventional mortgages. Conventional mortgage loan guidelines require a 20% down payment, so the overwhelming majority of Rancho Penasquitos home owners are putting around $100,000 down on their purchases. This bodes well for future stability of the neighborhood. The remaining one-fifth of these Rancho Penasquitos home purchases were financed with FHA or VA loans. There were no all-cash purchases that closed escrow in 92129 during June 2009.
These numbers (along with subjective assessments by Rancho Penasquitos Realtors) indicate that Rancho Penasquitos is likely to see sustained price increases in the coming months. This assumes that there won’t be a major influx of new listings to boost supply beyond demand, and also assumes that interest rates stay at the current low levels (low 5% range for 30-year fixed mortgages).