The San Diego real estate statistics were released this week for July 2009 and, as expected, San Diego has now experienced six months of upward movement of median home prices. The median price of a home in San Diego bottomed out at $280,000 in January 2009. Prices have risen or remained flat in every month of 2009, with the median price reaching $320,000 in July. This is a 14.2% increase of the median price over the past six months. Compared to the median price of $364,000 in July 2008, the median price is down 12% from a year earlier, but the upward trend over the past six months is clear, and the market has continued to drive forward in August.
The upward pressure on median home prices in San Diego and other major real estate markets is explained by three factors. First, prospective home buyers who had been waiting for prices to decline have switched gears. The herd mentality has taken over, and the masses are now in buying mode, anxious to buy before prices rise further. First-time buyers in particular are in a rush to take advantage of the $8,000 federal tax credit which expires at the end of November 2008.
Second, there is a genuine shortage of homes for sale in San Diego. There are fewer than 9,000 homes listed for sale on the San Diego MLS, compared with just over 13,000 in June, down from nearly 22,000 in August 2007. With 3,809 homes purchased in July 2009, there is less than a 2 ½ month of supply of homes for sale. A 6-month supply is considered a “normal” market.
The third factor that explains the rising prices is a slight shift toward more expensive homes. In the past two years the majority of home buyers were looking for the lowest-priced bargain properties. In San Diego these were primarily foreclosure properties in lower-priced neighborhoods. But in July 27.9 percent of the homes purchased in the county were priced over $500,000, a dramatic rise in the distribution from a low of just 17.5 percent of the total sales in January 2009.
The jumbo loan market (in San Diego, loans over $697,500) remains tight, so sales of San Diego luxury homes have not played a major factor in the median price increase. The majority of the sales activity is still taking place in the under-$500,000 segment, so the rising prices are genuinely related to increased demand and decreased supply. Bidding wars for “entry-level” $300,000 and $400,000 houses are commonplace, with the typical entry-level home for sale in San Diego attracting a dozen or more offers in the first week. The ultra-discounted bargains at the low end are disappearing for the time being as prices are being bid up.
Moving forward, the banks still hold the keys to the real estate market’s fate. For months there has been talk about a rising “shadow inventory” of San Diego foreclosure properties. Local Realtors are all asking the same question: “So where are they?” The consensus in the rumor mill says that the banks will be releasing more foreclosures in September and October. Whether their reluctance to release the foreclosures has been a policy decision or just a bottleneck in foreclosure processing is up for debate. Perhaps the banks have been withholding inventory in an attempt to prop up prices. If so, the policy has been effective. But others say that the banks have been re-staffing and training their loss mitigation departments, and that they will suddenly dump their pent-up foreclosure inventory. That policy sounds much less effective. But clearly there is enough demand at present to absorb a whole lot more inventory of homes for sale in San Diego.