Home prices dip slightly in San Diego County

By: North County Times wire services

SAN DIEGO - The median price of a single-family home in San Diego in February was $580,860, down .1 percent from January but up 21.1 percent from February 2004's median price of $479,540, a Realtors group reported Wednesday.

Home sales in the county in February were down 3.5 percent from the previous month and declined 13.1 percent from February 2004, according to the Los Angeles-based California Association of Realtors.

"It's not uncommon to see some month-to-month fluctuations at the statewide and regional level," said Robert Kleinhenz, CAR deputy chief economist. "Quite frankly, we are looking at a housing market that is continuing to go strong on top of last year's records. It is premature to talk about bubble bursting."

He said the housing market is on course for another roughly 20 percent annual increase in prices.

In Orange County, the median price of a single-family home was $663,600 in February, up 4.6 percent over the previous month and up 16.5 percent over the previous February.

The median price statewide for a single-family home in February was $471,620 -- down 2.9 percent from January but up 20.4 percent from February 2004.

The median price of a condominium statewide in February was $384,710, up 2.2 percent from January and up 21.5 percent over February 2004.

Home sales in California were down 7.8 percent in February from the previous month, but were up 3.2 percent, compared with figures from a year ago.

Despite the high prices and rising interest rates, the rates remain near historic lows and the state expects stronger job growth this year, which are both "big plus signs" for the housing market, Kleinhenz said.

He also said housing remains a seller's market, with a 3.9-month inventory of unsold homes, up from 1.8 months a year ago, but still well below the long- term average of 6.5 months.

While many people who already own real estate have been able to buy and sell homes, the high prices and rising interest rates are making it more difficult for first-time homebuyers to enter the market.

"The one concern we have right now is that first time homebuyers are finding it increasingly difficult to get into home ownership," he said.

San Diego Housing Market Slowing

By PATRICK HEALD
Voice Guest Columnist
Published March 16, 2005

The white-hot San Diego housing market is showing signs of cooling off -- fast. After a period where the value of many homes doubled in as little as three years, lower sales figures, longer waits to get properties into escrow, and a lack of bidding by buyers are signaling what many analysts said was inevitable -- a slowdown in the San Diego real estate market.

Sales figures of existing homes in the region from the San Diego Association of Realtors show the trend.

In February of this year, 2,144 homes were sold. Compare that to February of 2004, when 2,765 homes closed escrow. Another sign of the slowdown is the time the homes stayed on the market. In February 2004, it took an average of 36 days for a home to enter escrow. In February 2005, that number rose to 57 days, an increase of 41 percent.

For all of 2005, the total number of existing units sold, attached and detached, is off 18 percent, and the time they are staying on the market has increased by one-third.

Bubbling Is Over
Inevitably, after years of double-digit appreciation, slowing sales figures cause some analysts to ask if a housing "bubble" is possible in San Diego. That depends on what definition of a housing bubble is used.

In a 2003 report on housing issues, two economists for the Brookings Institute, Karl E. Case of Wellesley College, and Robert J. Shiller of Yale University, defined a housing bubble as "a situation in which excessive public expectations for future price increases cause prices to be temporarily elevated."

But Chris Thornberg of the UCLA Anderson Forecast says the economic performance of the housing inventory is also important.

"A bubble is when the underlying fundamentals in no way support the price of the asset," said Thornberg. "Do real estate prices reflect a change in the fundamentals? What has changed in the market to cause 25 percent appreciation over the last year?"

Thornberg points to rental rates as an indicator of a bubble. Unless buyers are walking in with substantial down payments, even as much as 50 percent, they will not be able to cover their mortgage payment if they decide to rent the property. That's because rental prices have not kept pace with the price of housing

Thornberg believes a real estate bubble does exist here in San Diego and most of Southern California. He says it's driven by the low interest rates, expectations of continued rates of high appreciation, consumer spending and a strong job market.

"If the job market stays strong in San Diego, the bubble won't pop, the air will be let out gradually," said Thornberg. "What you (will) really see is asset prices flattening. Then you have a period of flattening until the market stabilizes."

One reason for the drop in sales figures could be the heavy rains in January and February of this year, but a look at the figures shows the slowing trend starting in the summer of 2004.

Truce in the Great Bidding War
Another sign of the slowdown is an end to the bidding wars between buyers that typified shopping for a home in San Diego for the last three years.

"You don't have the kind of silly bidding that you had as late as last summer," said Alan Nevin, the director of economic research for Market Pointe Realty Advisors in San Diego. The company provides market analysis for the real estate industry in Southern California.

"The market has slowed down to the point where [buyers] are no longer receiving multiple offers on properties unless they are priced well," Nevin said.

People who sell houses for a living say the playing field between buyers and sellers has leveled off.

"I would say we have a good balance right now between buyers and sellers," said Linda Artiaga, a local real estate broker who works in central San Diego. "We are not in a situation where either buyers or sellers have an edge."

The slowdown may also signal that appreciation rates of 20 percent per year on homes are a thing of the past.

"I see a 5 to 10 percent appreciation rate every year," said San Diego County Assessor Gregory Smith. "I think things are going to go more moderate."

Smith, who has worked in San Diego since 1972, noted the last time housing prices tanked in San Diego was about the time of the savings and loan crisis of the early 1990s.

"From 1990 to 1995 housing prices decreased 20 percent to 25 percent. Since then, it's just shot up because there is not enough supply of housing," said Smith.

In January 2002, according to figures from the California Association of Realtors, the median price of a detached, single-family home in the San Diego Area was $304,160. In January, 2005 that figure is $580,220. That's a 91 percent increase.

No Shortage Here?
A housing shortage is the popular reason many cite for the runaway appreciation rates of the last three years. But Thornberg says there is no shortage of housing here, and points to recent statistics on apartment rentals to prove it.

Apartment vacancy rates in San Diego are rising and the rate of rent increases has slowed. Figures from MarketPointe show on average rents increased 6 percent in 2002. Last year, they only rose 3 percent. The apartment vacancy rate is 3.8 percent, according to the San Diego Housing Commission. U.S. census figures show the total number of rental units in the county at 440,479. That means there are over 16,500 vacant apartments, houses, townhomes and mobile homes available for rent in the county.

"There is no housing shortage in San Diego," said Thornberg. "What there is, is a shortage of homes in the higher income brackets for people who can afford them."

Nevin says signs point to a strong market for the rest of 2005. Others say the long-term picture may not be so rosy.

"I think interest rates are going up. They are at historic lows," said Dr. Stephen Cauley, the research director for the Richard S. Ziman Center for Real Estate at UCLA. "If interest rates go up, the value of homes goes down."
Cauley says the x-factor in the Southern California housing market is adjustable-rate mortgages and real estate speculation. Many first-time buyers used adjustable-rate mortgages to get into the housing market. If interest rates go up, so will their mortgage payments.

New-home market stays the course

By: BRADLEY J. FIKES - Staff Writer

While existing home sales have dropped in North County as the supply has risen, demand and prices remain steady for the limited number of new homes reaching the market, say builders and other local real estate experts.

The biggest obstacle to the new home market at the moment, they say, is this winter's unusually rainy weather, which has delayed construction schedules.

North County new home sales had fallen to 949 in the fourth quarter of 2004 compared to 1,327 in the same period of 2003, said Russ Valone, president of MarketPointe Realty Advisors, a San Diego firm that tracks new housing construction.

But even with that drop, the quarter had the fifth-highest number of new home sales in North County history, he said.

Sales appear to be increasing in the new year, said Peter F. Dennehy, senior vice president of Carmel Valley-based Sullivan Group real Estate Advisors.

"What I hear from builders is that sales activity in North County has been steadily picking up in 2005 and traffic and sales levels are actually pretty good and getting better," Dennehy said. "Prices appear to be stable in most areas."

Dennehy said he did not yet have exact numbers for January sales.

Michael D. Pattinson, president of Barratt American, a Carlsbad-based developer spoke optimistically about the year 2005. Barratt American is building throughout San Diego County in communities such as Bressi Ranch in Carlsbad, with 632 houses, and Paramount Town Homes in Escondido, with 122 attached houses.

"We haven't seen any significant slowdown in the market," said Pattinson, who was president of the California Building Industry Association in 2002. "There's an opinion that the pendulum is swinging toward the tipping point and going the other way (to a buyer's market), but I just haven't seen it," Pattinson said.

Confident that long-term demand will be strong, builders such as Barratt American are putting more staff into North County.

More new homes ---- at the moment

Carlsbad officials said homebuilding activity is up so far in the 2005 fiscal year, which began July 1, 2004. Developers have activated, or "pulled" permits for 826 new homes, 97 of them in January. In the same seven months a year earlier, developers pulled 543 permits, 38 of them in January 2004. And in the entire 2003 fiscal year, just 591 houses were built in Carlsbad.

Permits are used in a two-stage process. Builders first get approval to get permits, then they actually pull them. Pulling permits is considered a better gauge of building activity than approvals. That's because building fees are paid when the permits are pulled. The fees can cost thousands of dollars per home, so builders usually don't pull them until they're ready to begin construction.

Although the numbers are up for the first part of the year in Carlsbad, the current pace of construction is expected to slow in a few months, said Scott Donnell, associate planner for the city. So when measured by calendar year, construction is expected to decline or at best keep even. Donnell said he expects from 1,000 to 1,500 units to be constructed this calendar year, compared to 1,476 in the 2004 calendar year.

This ebb and flow is natural, say builders and city officials, because new developments take years to build. While existing homes enter the market piecemeal, new homes become available in waves.

San Marcos outlook

Housing construction is also expected to decline in San Marcos during the current calendar year. During 2004, 2,321 houses were built, said Carl Blaisdell, the city's building division director. This year, Blaisdell said, he expects construction to decline to about 1,500 to 1,700 units.

The biggest chunk of construction is taking place in the master-planned San Elijo Hills community, which is being built by a number of "guest" builders such as John Laing Homes and Richmond American Homes. When complete, San Elijo Hills will have 3,466 houses, condos and apartments.

Last year, the community's builders pulled 600 permits, an unusually high number that included many multifamily and affordable housing units, said Chuck Noland, San Elijo Hills' general manager. This year, he said, the number will probably drop to 350, mainly single-family homes.

San Elijo Hill's builders limit construction so as not to flood the market and lower prices, Noland said. Instead, the builders look to get what they consider an acceptable margin to repay them for their up-front expenses that they have to pay to the master builder ---- Noland's company ---- along with a profit.

That profit, as measured from the time the builders start paying the bills until they sell the homes, determines the return on investment.

Peaks and troughs

Despite builders' attempts to control supply in each community, there is currently an abundance of new homes in North County, Noland said. That's because several large communities are releasing homes around the same time.

For example, Bressi Ranch held its grand opening two weekends ago. More Carlsbad homes are now entering the market at Calavera Hills, where projects are split between McMillin Homes and Brookfield Communities.

The homes don't go on sale all at once, because communities are completed in stages. Roads, electrical lines and other infrastructure ---- along with the actual construction of houses ----- has to be put in before the homes can be sold. However, sometimes, as in the case of Calavera Hills, homes are "presold," while still under construction. This ensures that builders don't get stuck with unsold inventory.

McMillin's Montara project at Calavera Hills, with a total of 102 homes when completed, has put 71 on the market. Six of the homes are still available for sale, said Pattie Walker, McMillin's vice president of new home sales.

Montara held its grand opening, with three model homes, in January 2004.

The 115-home Ravinia project at Calavera Hills, which went on the market in December, is "temporarily sold out," Walker said, with 29 homes sold.

Calavera Hills is halfway to completion, with 268 houses put on the market out of a total of 583 in the community. Of those 268 homes released for sale, 73 have completed escrow, 187 are in escrow, and eight have not been sold.

Starting prices at Calavera Hills range from $427,000 for Brookfield's Mystic Point project to $615,000 for the Montara project.

Gearing up for the future

The fluctuation of new home sales from year to year is strictly a short-term issue, say developers and real estate experts such as Valone. The most important fact over the long term, he said, is that the supply of housing in San Diego County, (as well as the entire state), has not kept pace with the rising demand for housing.

That supply-demand imbalance is the major reason housing prices are so high in the county, Valone said And in turn, that means developers are getting more interested in the county, even while the supply of available raw land diminishes.

John Laing Homes, D.R. Horton, Barratt American and Greystone-Lennar have recently added staff and increased their office space in Carlsbad, where developers active in North County and even Southwest Riverside County have clustered.

For example, Barratt American plans to increase its staff of 135 by about 10 percent over the next year, Pattinson said. John Laing Homes expanded its offices from 3,200 square feet to 15,000 square feet.

The growing popularity of attached housing is a major reason for the expansion, along with North County's emergence as a major population center, real estate experts say.

Condos and townhouses are less expensive than single-family homes and take up less space, both desirable attributes for a populous, expensive market such as San Diego County. But different skills are needed for their construction than for single-family homes, Valone said.

"It's a different technology. It's a different business," Valone said.

Last year, attached housing made up 9,686 of the 15,670 units sold in San Diego County, Valone said, a percentage that will increase as more raw land is depleted by homebuilders. That means the builders have to start adapting now.

"If they wait until all the developable land is gone, they're going to be too far behind the eight ball," Valone said.