San Diego, California
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Copyright © 2006 by Bob Schwartz San Diego real estate broker Certified Residential Specialist
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By Bob Schwartz, CRS, GRI, San Diego real estate broker
Last week I was asked about my forecast for the San Diego real estate market. When I receive real estate questions I am asked my real estate opinions, I repeatedly answer the same way. Whether my clients are buying or selling, the only thing they can be guaranteed is that I will get them the best possible price for current market conditions. I have had over three decades of residential real estate experience in New York, New Jersey and California, and since I'm not paid for my opinion on the market or its direction, I'm certainly not afraid to express that opinion.
Truthfully, the San Diego California real estate market hit its high point in the summer of 2005. Since then, the majority of neighborhoods have been in decline! This is a fact and not an opinion! In today's market, many San Diego neighborhoods have had double digit value declines! In line with a local San Diego Union Tribune newspaper dated 3-18-2007, the following resale homes in these neighborhoods have experienced median home value decline since February 2006. La Jolla 15.6%, Pacific Beach 15.8%, North Park 15.8%, Ocean Beach 19.1% and San Carlos 19.1%.
Keep in mind, the average San Diego median home price is over $550,000. This creates a 15% decline and an $82,500 loss! With my experience in San Deigo real estate, I can produce a fair hypothesis on the upcoming future of the market. My take on the background of the current market at hand is that in the immediate future we should experience a seasonal sales pick up in activity. This should last for a few months, and then I believe that the downward trend will re-clarify itself. That trend will not only continue, but is likely to increase as the popular adjustable rate mortgages from the last few years come up for their first adjustments. So, San Diego housing values could effortlessly be down 25 to 30% from their summer 2005 values by the end of 2007.
For the duration of the year ended January 31, there were 13,249 homes in default for foreclosure in San Diego County, as indicated by RealtyTrac in Irvine, California. This was a 192% jump from the previous year and the defaults and foreclosures are up 131% statewide and 42% nationally. Compared with one in 229 homes for last year, one in 79 homes in San Diego County is in default or foreclosure this year.
The average San Diego home increased in value in the region of 20% per year from 2000-2005, or 100% for the five year period. San Diego real estate has continued its buying frenzy for at least two or three years past when it would have normally ceased. It is my belief that this has occurred because of the zero down, stated income, low start rate loans, and the sub prime loans. Now unfortunately, as with any frenzy, it's payback time.
In the beginning, many people thought there was no bubble and that it was always a good time to buy real estate; so how could you ever lose when investing in real estate? Today, many of those same people clearly have changed their opinions. Now the current opinion is that our ‘correction’ in San Diego home values is over and both real estate sales and home values will be growing from here.
Alas, I find it problematical to be in agreement with this majority opinion, bearing in mind that that San Diego was named the piggyback loan capital of the US just a few years back. I must clarify that our existing activity pick up is just seasonal in nature. I believe the complete impact of both the sub-prime loans and all the easy qualifying loans are still a few months off.
It's awesome to be optimistic and when dealing with high net worth people, it's my opinion that you must provide a truthful opinion on the market. This is especially critical when dealing with sellers because being overly optimistic here could be a sure ticket to an expired listing.
To further explain, our local San Diego MLS is full with price reductions, increased commissions and buyer enticements. What can you do when the original price you agreed upon with your a seller ends up being reduced by $20,000, $30,000, or even $50,000? How do you tell them that the market pickup was looking very strong, but now you'll have to reduce their selling price?
A very important fact to remember is that 95% of getting a property sold is correct initial pricing. It is especially imperative to price properties right from the beginning in this market.
So I certainly hope I'm incorrect. I hope that this San Diego up-tick in housing sales is actually the bottom to our market. But if I'm right, having a home sit on this deteriorating market for 3 to 6 months or even longer will begin to make most sellers to lose. They will lose far more in actual cash value than if they would have priced the property accurately from the start.
In conclusion, giving a seller a levelheaded view of the existing real estate market and the essential importance of ‘right-on’ pricing will net more for the seller. Further, proper initial pricing may evade a lengthy listing period, marked by large price reductions, and possibly ending in an expired listing.
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