It’s hard to make good decisions about the San Diego real estate market without good information to work from. Nationally, newspapers are recently reporting that an end to the market downturn could be near. For example, the pending home sales index maintained by the National Association of Realtors rose 3.2% in March. The numbers of home sales have increased dramatically in recent months, and the inventory of unsold homes is shrinking in some markets. Here in San Diego prospective home buyers are competing for low-priced short sales and REO listings. Discounted entry-level foreclosure houses in San Diego (prices under $400,000) are in short supply. The banks are receiving multiple offers and overbids within the first few days of putting these discounted homes on the market.
Still, there is ongoing concern over the number of property foreclosures now and in the near future. What will the inventory of San Diego foreclosure properties look like in 6 months or a year from now? Will distress sales continue to drive down home prices?
On Wednesday, May 6 the Wall Street Journal (page A3) ran an article entitled “House-Price Drops Leave More Underwater.” The article relied upon Zillow.com research data. Zillow researchers were reporting that at the end of the 1st quarter 2009, more than 26.9 million home mortgage borrowers (roughly 30% of all home owners in the United States) owe more on their home mortgages than their homes are worth. That’s a shocking number. They said that this is up from 16.3 million at the end of the 4th Quarter 2008. So in other words, Zillow claims that nationwide the number of home owners with the highest probability of default on their home loans rose more than 65% in just three months!
The problem is that the very next day, in a very small paragraph in the “Corrections” section of WSJ page A-2, the Wall Street Journal retracted the primary facts in the prior day’s article. They say that Zillow provided “incorrect information.” Zillow now says that the number of borrowers who owe more than their homes are worth was only 20.4 million at the end of the 1st Quarter. So rather than increasing 65%, Zillow now says the number of “underwater borrowers” actually rose 25%. Would you trade $650 for $250? They are saying that they missed the mark by 160%! That’s not a small error, yet the Wall Street Journal did not do much to correct their faulty reporting.
Further commentary in the WSJ article of 5/6/09 pointed out that “variations” in the estimates of current home prices in different markets make a big difference in this calculation. At Economy.com, the respected economists at Moody’s stated that 19% of single-family home owners (14.8 million of 78.2 million owner-occupied houses) were underwater on their loans at the end of the 1st Quarter 2009. That’s more than 5 ½ MILLION FEWER than reported by Zillow. How can this be? Well, Zillow fails to calculate ANY reduction of principal on the loan since the house was purchased. Get real! Most people still pay their mortgages, and the loan principal is paid down over time.
Let’s face it… news about home owners in distress sells newspapers… or so believe the editors and reporters who work for newspapers. (Just ask the San Diego Union Tribune’s Roger Showley, who has practically made a career out of doom-and-gloom reports about the San Diego housing market over the past 10 years). National reports about the condition of the housing market will not tell you what’s going to happen to San Diego real estate. For that you’ll need to ask a qualified San Diego Realtor.