real estate … double-dips
Copyright © 2010
All rights reserved.
The good news is that San Diego home prices
have increased for the past eleven months in a row. A positive
outlook would suggest that the real estate decline bottomed in April
2009 and that housing prices will continue with, at least, modest
Recently a local
news headline noted San Diego real estate price appreciation
outpaced the rest of the nation. Another headline stated that San
Diego County house prices rose 11.7% in April 2010, as compared to
April 2009. This was said to be the fastest rate of annual
appreciation increase in the nation. Plus, San Diego County home
prices have been rebounding for the past year after their 40%
decline from the top of the market in 2005.
In light of the
above news, one would be hard-pressed not to agree with the
consensus opinion that the bottom has been reached in the San Diego
real estate market; the current recovery seems to be outpacing the
In 2005, I wrote an
article entitled “A
trend to go national” where I predicted
that the trends I saw occurring in the San Diego real estate market,
which defined classic irrational exuberance, were not only about to
take down the San Diego market, but I believed, would affect the
entire nation. I was not alone in raising the caution flags about
the real estate market, and those who were caught up in the
exuberance of the market as well as many media outlets, coined the
term bubblehead to myself and others, to imply a certain foolishness
to those who would speak out against such a powerful and (certain to
be) continued annual double-digit real estate appreciation.
It was difficult to
raise the caution flags in 2005. The San Diego real estate market
from 2000 to 2005 appreciated on average approximately 20% per year.
Until the summer of 2005, when the sales volume started to fall but
the prices were still appreciating, there weren't obvious signs of
pending trouble, especially to the layperson. Most did not foresee
a market collapse. Even in the latter part of 2005, while the
slowing market became quite evident, the conventional consensus of
opinion was that it was just a normal pullback. Most optimistic
outlooks touted a strong market and a great opportunity for many to
purchase real estate in San Diego before the upswing resumed.
Now it is July of
2010. Similar though different, market conditions make it again
difficult to go against the conventional trend which is stating that
a bottom has been put in place and we are on an upward rebound. I
recently attended a seminar by a prominent real estate economist who
forecast a slow but steady rise in San Diego home values. His charts
and facts presented at the seminar were quite impressive. Not being
a real estate agent or broker “in the trenches,” I believe his data
was not reflecting the most current conditions, especially after the
expiration of the federal tax credits.
It's hard to say
exactly what effect the $8000 federal tax credit for home buyers had
on the San Diego real estate market. Personally I believe it to be
very similar to the government's cash for clunkers program, whereby,
it pulled buyers from future months into the current program. The
result was an increase in the actual housing demand and values for
people trying to get in before the credit expired. When the cash for
clunkers program ended, auto sales took a nose dive for a number of
months before finally stabilizing.
The federal $8000
credit ended on April 30, 2010. If you had a property in escrow on
or before April 30, and closed it before the end of June (now
extended through September) you would be eligible for the credit if
you qualified. The housing figures now being reported reflect this
activity created by the $8000 credit. As long as the property went
into escrow by April 30, sales could close in May and June which
still affects housing numbers. Housing sales reports are usually
closed sales and unlike the stock market, it takes some time for a
property to go through escrow.
The first housing
numbers to be reported, that don't reflect as much of the effect of
the government’s $8000 tax credit will be sales for July, reported
during August. California instituted its own tax credit which went
into effect on May 1, 2010. Only 100 million was allocated for this
and the California franchise tax Board reported that as of June 15,
80% of this amount had been allocated.
One could speculate
that the current slowdown I’ve seen in San Diego neighborhoods would
not be reflected in reports for closed sales until August. On July
1, the national Association of Realtors reported that sales of
existing homes dropped 30% in May from April. For the Western states
this drop was reported as 20.9%. Though the West obviously was doing
better than the rest of the country, the huge double-digit declines
are a major red flag that cannot be ignored.
Don't be fooled by
the media talking heads’ effervescent housing recovery rhetoric.
Keep in mind that many of their sponsors and advertisers are from
real estate related industries. Plus, many of the same media talking
heads were the same folks who stated there was no real estate bubble
and any slowdown was an opportunity to jump into the market in the
summer of 2005.
As an active San
Diego California real estate broker I could see a marked decline in
real estate activity, in many local areas within San Diego, right
after the April 30 federal tax credit expiration. Homes listed for
sale that just a few weeks earlier would've gotten multiple showings
in one week, are now lucky to be shown once a week. Indications from
local escrow companies and from a major San Diego mortgage company
indicate that this slowing trend is significant and widespread
throughout San Diego County.
troubling, is that the government tax credit was not enough to
jumpstart our local housing market. Plus, the fact that this new
downturn has started in the seasonally adjusted hottest marketing
timeframe, coupled with historically low home mortgage interest
rates, would indicate that as we approach Fall and Winter, this
trend could easily accelerate. Perhaps the culmination in a real San
Diego real estate market bottom will occur in late 2011 or 2012.
San Diego is the
third most real estate dependent area in the country (with Orlando
and Miami being the first and second respectively) the general San
Diego economy should also experience a double-dip until the real
housing market bottom is in place.
I am not an
economist and my predictions come strictly from 30 years of
residential real estate experience. I would like to be wrong about
an impending double-dip for the housing market, but I am not going
to bet against it.
is a Certified Residential Specialist,
San Diego real estate
agent specializing in
San Diego California real estate & co-owner of a
search engine optimization
WebsiteTrafficBuilders.com, specializing in domain name
registration and Internet domain website hosting. Bob received his BBA
majoring in real estate & computer programming. Be sure to visit his popular
San Diego real estate blog
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