The new home construction market remains moribund in San Diego County (an issue I will deal with in the next article). As a result, the homebuying market has to rely on the resale market to satisfy its ownership appetite. This year, despite the economic malaise, the resale housing market will close escrow on more than 35,000 homes and condominiums. That's about 80 percent of normal (if you exclude the crazy years of 2003 and 2004 when we closed escrow on more than 50,000 existing homes and condominiums).
The heat of today's market is being generated by a routinely declining number of resale listings. A "healthy" supply would be the number of listings that can be absorbed by the market in approximately six months. As the market started to stagnate in 2006 and early 2007, the listings in the market accelerated and was at times more than a 12-month supply.
In the summer of 2006, there were 23,000 homes listed for sale on Sandicor (San Diego's Multiple Listing Service). Simultaneously, home sales were declining from 3,000 a month to half that number. The only economically practical solution to this problem was to have the supply (number of listings) decline to a healthy level along with a simultaneous increase in sales volume -- and this is exactly what has happened since then.
By the end of this summer, total listings were at just over a third of where they were three years earlier. At the end of October 2009, there were only 8,677 Sandicor listings. This in conjunction with a return to a healthy sales volume the last six months to the 2,500+ home sales a month level results in an inventory of three-month supply of homes.
Further, one year ago more than half of the homes sold were foreclosures. Today, that percentage of foreclosures is down to one-third, indicating a willingness of nontroubled homeowners to sell their homes.
As the chart below dictates, home sales have followed the laws of supply and demand and, predictably, home prices have troughed and started an uptick. It is too early in the local recovery period to predict the staying power of this trend, but for now, the San Diego market has the "bottom" in its rear view mirror and a return to a healthy supply and demand of its housing stock.
In conjunction with a return to normal home affordability ratios and historically low mortgage rates, 2009 is turning out to be one of the great "sweet spots" in homebuying opportunity for many.
The underlying fundamentals for a strong housing price recovery have been in progress for the last 15-18 months. The pricing and velocity of home sales from the sell side most strongly relate to the simple economic equilibrium of supply and demand.
From the top of sales price to the bottom, the median decline for single-family and multi-family units combined was almost 50 percent. From the bottom in March 2009 through October 2009 prices have risen 16 percent.
What is missing from that statistic is a "footnote" that says that the 50 percent price decline only applies to homes and condominiums that sold. Thus, in the 2006 to 2008 period, there were a total of some 80,000 units sold, which is barely 10 percent of the county's total ownership housing supply. Therefore, because the units sold were predominantly foreclosures, they do not represent the entire inventory by far.
When I peruse the foreclosures, it is very apparent that the foreclosures were largely concentrated in a few areas. The county has 90 zip codes. The high foreclosure zip codes had 25 times the number of foreclosures as the low foreclosure zip codes. Only 2 percent of the county's foreclosures were in the north coastal area. Conversely, almost half of the foreclosures were in five cities: Chula Vista, Escondido, Oceanside, San Marcos and El Cajon. Similarly, home prices near the Coast barely declined, while the high foreclosure cities saw declines of 50 percent or more.
I leave you with a choice puzzle: If you were to buy a home today in one of the cities that had a massive price decline compared to buying a home along the coast where declines were modest, on which home would you ultimately earn more?
In either case, it is evident that home sales and pricing are recovering nicely and there are not many metropolitan areas that can make that claim.
Nevin is director of economic research for MarketPointe Realty Advisors.
2010 can't come soon enough. What a lousy decade this was.
Eva Meier3:37pmDecember 8, 2009
As a residential real estate consultant who is out there on the streets, in the trenches, so to speak, I would agree that we're definitely experiencing an increase in activity - higher demand and lower supply. A welcome change!
Debra L. Noble11:29amNovember 24, 2009
Looks like things are looking up in the real estate market. 2010 looks like it will be a positive "upswing" New Year.
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Mickey Twotimes 8:21pm December 9, 20092010 can't come soon enough. What a lousy decade this was.
Eva Meier 3:37pm December 8, 2009As a residential real estate consultant who is out there on the streets, in the trenches, so to speak, I would agree that we're definitely experiencing an increase in activity - higher demand and lower supply. A welcome change!
Debra L. Noble 11:29am November 24, 2009Looks like things are looking up in the real estate market. 2010 looks like it will be a positive "upswing" New Year.