Worst Downturn In A Generation For San Diego Real Estate

Below excerpts from an article in the San Diego Union Tribune titled,

Decline ‘is shaping up to be the worst in a generation’

Foreclosures here have been depressing prices, creating home-buying opportunities for some households while robbing others of their homeowner status.

April marked the county’s 37th consecutive month of year-over-year increases in San Diego County foreclosures and notices of default, the start of the foreclosure process, the DataQuick Information Systems research firm reported. There were 1,413 residential foreclosures countywide, a 35 percent increase from March, but a rise of nearly 170 percent over a year earlier.

Home prices have also continued to fall, with the median sale price in San Diego County at $380,000 last month, down from $517,500 at the peak of the market in 2005.

Mark Zandi, chief economist for Moody’s Economy.com, called the current housing downturn the worst in the United States since the Great Depression.

“I think it is going to take another year nationwide for us to work through all of our problems in the housing market, at least to make a significant dent,” Zandi said. “In some parts of the country, the market will remain depressed well into the next decade. It is going to be a slog.

The Housing Crisis Is Over

So what’s going to stop the housing decline? Very simply, the same thing that caused the bust: affordability.

Wow!!! According to the New York times article quoted, it’s official, the United States of America Real Estate debacle is over and April 2008 marks the bottom of the downturn. Now THAT is a bold statement. One I don’t agree with concerning San Diego real estate.

The next question is: Even if home sales pick up, how can home prices stop falling with so many houses vacant and unsold? The flip but true answer: because they always do.

Yes, I agree that home sales will pick up this year (Real Estate is experiencing a Nordsrom-style Half Yearly Sale) and yes property is way more affordable for certain market segments, especially first time home buyers. What I don’t agree with is that we have hit bottom. It will be nearly impossible to hit bottom for San Diego real estate prices with the insane amount of foreclosures and short sales going on at the moment. These distressed sales levy a heavy amount of downward price pressure on the typical retail market. My prediction is that we’ll shed two important things next year in 2009… the number of foreclosures and a president. At least one will be good for the state of the nation, hopefully two.

UCLA Anderson Forecast Outlook for San Diego County Real Estate

As I write this post the economists for the UCLA Anderson report are having breakfast in San Diego at the Marriott. My prediction for these economists is the only thing on the menu at this years breakfast… CROW.

Yes, the UCLA Anderson report authors will have to eat some crow in San Diego today. Last year they predicted San Diego would have a modest downturn in prices or remain relatively stable. What will be the outcome of this years predictions for America’s Finest City?

By 10:30am they will have finished giving the 2008 Outlook for San Diego Real Estate. Again, I can only imagine that once again they have said our local economy is NOT in a recession. I and a few others MAY disagree with them. What’s your opinion.

In an early release by Newswire this morning UCLA Anderson says,

“Our forecast for the next two years looks for real estate weakness to gain the upper hand in the next two quarters, leading to small losses in non-farm payroll employment, a modest spate of increased unemployment, and very weak growth in incomes and local output,” said Ryan Ratcliff, economist, UCLA Anderson Forecast and Alan Gin associate professor, University of San Diego, both authors of the San Diego Forecast report. “By the end of 2008, we should start to see the light at the end of the tunnel, as real estate job losses taper off and the housing market begins to stabilize.”

The economists also noted that we’ve seen somewhere between 7-16% price declines and that it will be mid 2009 before we start to see a Normal Housing Market.

San Diego Real Estate Market Opinion

This post is from my April 2008 Newsletter I send out to clients:

This is a cRaZy market!!! Let me know if historically you’ve ever seen anything like this. Conventional wisdom would suggest that this many foreclosure on the market should mean that interest rates would be historically high – around 12-15%. Completely the opposite is true. Loads of foreclosures and historically LOW interest rates. If that doesn’t signal TIME TO BUY in the next 18 months then what does? What do you think will happen in our San Diego real estate market in 5 years from today?

Anyhow, at the moment we seem to have 2 real estate markets going concurrently, the usual retail market and the foreclosure market. The foreclosure market is picking up speed and continuing to drive retail listing prices down in the areas hardest hit by the sub-prime debacle. Those areas hardest hit by foreclosures in San Diego are the South Bay, North County Inland and East County. The coastal areas of San Diego are holding up quite well amidst the turmoil.

Buyers – It’s shaping up to be a good year for buy and hold investors and home buyers. If the stringent lending standards ease up slightly and interest rates continue with their historically low rates Spring/Summer/Fall will be good for real estate.

Sellers – if you don’t have to sell, Buckle-up and Stay Put. Ride out the next 18 months and possibly look for an investment opportunity, re-fi, or rennovate.