County housing market decelerates

Median prices rose at slowest rate in 5 years last month
By Roger M. Showley
UNION-TRIBUNE STAFF WRITER
May 13, 2005

San Diego County's housing market continued cooling off last month, with median home prices rising at their slowest level in five years, locally based DataQuick Information Systems reported yesterday.

The data were released on the same day that real estate agents, meeting in Washington, heard their top economist single out San Diego as being among the nation's most over-valued markets.

The county's overall median price in April was $484,000, up 10.3 percent from a year ago and the lowest year-over-year increase for any month since the 10.1 percent increase recorded in January 2000. The median was $7,000 higher than in March and $45,000 higher than in April 2004.

Single-family resale homes, representing about half the market, rose to a record of $540,000, but they were up only 11.3 percent from a year earlier, the lowest rise since the months following Sept. 11, 2001, when the terrorist attacks briefly unsettled consumer confidence.

Resale condos also hit a record, $395,000, up $15,000 from March and 16.5 percent from a year ago. The new housing median was down 2.5 percent from a year ago and off $7,000 from March – pulled down by the prevalence of low-priced condo conversions which are included with newly built houses and condos.

The median represents the halfway point of all sales with half above and half below that figure. Individual neighborhoods and properties can vary widely from the median due to size, age, location and other factors.

Sales totaled 5,345 last month, up from March as is typical in the spring but down 12.3 percent from the frenzied activity of April 2004, when prices rose 21.7 percent year over year.

DataQuick analyst John Karevoll said he gets more calls about San Diego from East Coast financiers than for any other market he monitors. They ask about loan-to-value ratios, default rates, adjustable-rate-mortgage usage and other factors.

"We're being watched," Karevoll said. "We're under the magnifying glass."

While a big correction or price slump does not appear imminent, Karevoll said appreciation likely will drop into the single digits this summer.

"We're closer to the pain-point," he said. "We're clearly much closer to a point at which buyers are going to shrug their shoulders and turn around and walk away. Many more are doing that now than did a year ago. I definitely think it has to do with the high cost."

That's the attitude of Paul Schroder, 43, an architect who lives with his wife, Mary Ann, in Singing Hills in East County. They thought of moving last winter to San Diego's Kensington neighborhood to be closer to work downtown but didn't like the selection of homes on the market at the time.

"I'm a little concerned because everybody thinks there may be a bubble," Schroder said. "I think there is. We're already seeing all this craziness going on, so we're on hold and trying to see what happens in the next six to eight months, if it continues strong or something really dramatic happens."

Median at $500,000
The San Diego Association of Realtors, meanwhile, reported that its median price for April stood at $500,000, 9 percent higher than a year earlier, and the typical resale home or condo took 49 days to sell, compared with 26 days a year ago.
As another indicator of market activity, the number of homes for sale on the local multiple listing service stood at 9,996, three times what it was a year ago but below the recent high of 10,830 reported last October.

David Lereah, chief economist at the National Association of Realtors, addressed members at their mid-year legislative conference in Washington, D.C., yesterday and tried to reassure brokers and agents that a bubble was not in the offing.

Rising inflation, federal deficits, trade deficits and a slowing economy point to fewer sales, less construction, slower-rising prices and higher interest rates next year, Lereah said, but the good news is that rates haven't risen as fast as earlier thought.

As he was speaking, Freddie Mac reported 30-year, fixed-rate mortgages rose for the first time in six weeks to 5.77 percent from 5.75 percent last week, but they remained, as Lereah put it, near their historic lows for the last 40 years.

However, all is not rosy everywhere, Lereah said, and real estate could soften in areas with declining jobs and population, strong runups in prices, sharp rises in inventories and a quick departure of speculators.

In a slide presentation on regions that are often singled out as being at risk, he included San Diego in a list of the nation's five most overvalued markets, placing it second after San Francisco and ahead of Los Angeles, New York and Honolulu.

And, as if to underscore that dubious honor, the California Association of Realtors' monthly affordability report for March saw San Diego County again sink to its lowest level ever. The association said the affordability rate for the county was 10 percent, which is the percentage of households earning enough money, $137,758, to buy the median-priced home with a 20 percent down payment on a 30-year, fixed-rate loan. Santa Barbara and the Northern California Wine Country had the lowest affordability level of 9 percent.

Optimism persists
Anne Throckmorton, former president of the San Diego Association of Realtors, said from Washington that most real estate professionals remain optimistic.
"We went around our group, asking about each state's market areas, and there wasn't one area where the market was down," she said. "At the very least, it was flat and going up. It was a very ebullient attitude."

Back home, University of San Diego economist Alan Gin was preparing to address a local gathering on the real estate outlook and say that a bursting bubble was unlikely.

"What I think would be necessary for the bubble to be popped is an event," he said. "In the '90s, we had General Dynamics and aerospace go out of town, but I don't see that this time around. You'd have to take several (military) base closures or Qualcomm going out to have that equivalent."

The base-closure scenario could unfold as early as today if the Pentagon releases its proposed list of installations to shut down. However, Defense Secretary Donald Rumsfeld said yesterday he will recommend fewer closures than earlier planned.

Rex Downing, a 26-year San Diego real estate veteran who is working with architect Schroder on a possible home purchase, said the market seems normal to him but "buyers are shakin' in their boots."

Buyers show concern
"They're coming at the market with pessimism, cynicism, negative expectations," Downing said. "When they occasionally walk into a house that is well priced, then they get excited. But, boy, are they ready to be disappointed."
Alan Fine, another veteran real estate watcher who runs the San Diego Real Estate Club to help buyers and sellers get their bearings, said he is concerned with the spreading use of "optional ARMs," a loan with a fixed payment that doesn't cover all interest costs and can lead to increased, rather than decreased loan balances – what the industry calls negative amortization.

"People are naive to think that the market keeps going up," Fine said, "just like how they got caught in the stock market. There is a day when things correct. People have seen real estate go up in San Diego for the last 10 years and a lot of them think there's no end to it."

The Best Condominium in Downtown San Diego Is?

This question was recently asked to 2,000 downtown resident condominium owners in a survey asking them to rank their homes in 13 categories and tell what they like the best and the least. The categories included relaxed feeling of home, views, audible outside noise, security, parking and quality of construction, etc. The survey results show you can purchase a home in one of the top five rated properties for under $450,000.

Topping the list by a very narrow margin was the Meridian, a sleeper of a building downtown but a treasured home for many downtown residents. This condo rose to the top as a result of its complete and full service amenities.

Rounding out the top five downtown condominiums were CityFront Terrace, Citymark at Cortez Hill, Harbor Club, and Discovery. Condos offering the best values as reflected in the high ratings yet available for low prices were Treo and Porto Siena.

Almost all of the survey respondents had positive things to say about living downtown including the convenience of being able to walk to the mall, restaurants, nightclubs, theaters and even work. The residents say their quality of life has improved and many have also seen the value of their home appreciate quite a bit in the last few years.

Mark Mills, a Realtor with RE/MAX Real Estate Consultants in downtown San Diego who conducted the survey, says the purpose of the survey was to provide an education to people shopping for a condominium downtown. There are about 50 condominium buildings to choose from downtown. In the past people bought into a building because it was a landmark or looked appealing and later regretted buying there. These surveys are a resource to help buyers choose the building that’s right for them.

Detailed survey results can be seen on the web at www.LiveAtTheTop.com, downtowns best resource for buyers of condos and lofts. Mark can be reached by phone at (619) 699-1425 or by email at e-mail protected from spam bots.

Spike in property values leads nonprofits to consider moving

Payoff could be huge for those with holdings in central San Diego
By Roger M. Showley

Rapid redevelopment and escalating property values are enriching many nonprofit organizations in central San Diego but at the same time are forcing them to evaluate whether to hold on to properties they have maintained for many years.

Like homeowners who have benefited from San Diego County's explosive real estate market, nonprofits ranging from Father Joe's St. Vincent de Paul Village to a downtown law school are sitting on potential financial windfalls.

Meanwhile, social service agencies such as the local chapter of the American Red Cross and the San Diego Blood Bank have decided the time is ripe to sell long-owned headquarters buildings and move to less expensive or more convenient locations.

Others, particularly organizations that lease space in the path of redevelopment or have outgrown their spaces, find themselves scrambling for new quarters.

The financial pressure that rising real estate values has put on these organizations is most apparent in San Diego's booming downtown and in neighborhoods immediately to the north.

"Nobody expected the kind of development that's occurred," said Jim Jackson, head of the San Diego Rescue Mission, which twice has found itself in the path of redevelopment.

"All over the country, cities are redeveloping and we're having to learn to live with all this diversity in an urban space, but in closer proximity," he said. "This is an enormous challenge for the livability of cities and for redevelopment efforts as a whole."

With a $12 million annual budget to provide temporary housing, feed the homeless and offer drug rehabilitation, the rescue mission has operated from three locations over the past 20 years.

The agency moved in the 1980s from quarters it owned at Fifth and Island avenues to make way for the Moose McGillycuddy's Pub & Cafe as the surrounding skid-row neighborhood, once known as the Stingaree, was transformed into today's upscale Gaslamp Quarter.

The mission's second location, in East Village at 11th Avenue and J Street, worked well from 1984 until 1998, when the city decided to build Petco Park a block away.

Feeling the pressure to move once again, Jackson sold the 11th Avenue facility for a little more than $4 million and bought the former Harborview Hospital at 120 Elm St. for $8 million.

But the overall approval process and moving costs ended up totaling $26 million and left the mission $9 million in debt. The rise in real estate prices was not high enough to cover all of the organization's relocation costs.

Particularly for organizations dealing with social issues such as homelessness or mental illness, the prospect of moving raises the inevitable NIMBY backlash – not in my back yard. For example, to mollify his new Elm Street neighbors who opposed the mission's arrival, Jackson had to drop a feeding program for homeless single men.

"There's a visceral rage about redevelopment dumping its problems on some other neighborhood," he said. "That is not just our phenomenon. That's nationwide."

Added value helps Red Cross
While some nonprofits may feel squeezed by redevelopment, the rise of the real estate market is allowing others to relocate to fulfill strategic goals.

More efficient space and parking were immediate needs that helped the local Red Cross chapter decide to sell its longtime headquarters at 3650 Fifth Ave., a complex of several buildings in Hillcrest where it has been located for 50 years. The agency, which has a budget this year of $10.5 million, plans to move to Kearny Mesa by year's end.

But Red Cross officials said the move also will help rebuild the organization's finances. The old site is being sold to a home builder for $10.5 million and the new location, an existing building, costs only $6.8 million.

"Real estate was part of our strategy to right the Red Cross and get ourselves financially solvent again," said Veronica "Ronne" Froman, the chief executive now leading the chapter.

The Red Cross became engulfed in financial difficulties after depleting most of its emergency-aid funds in the wake of the Alpine fire in 2001. It then lost a great measure of public support because of a highly publicized scandal over its fundraising methods and its former director's spending priorities.

Also planning to relocate is the San Diego Blood Bank, with offices in a four-story building it owns at Fourth Avenue and Upas Street. The blood bank, a $30 million annual operation, has been at the site for 34 years.

"Obviously, we're in a great location here in Hillcrest," spokeswoman Mary Walker Brown said. "We want to make sure we use as much leverage as possible. Right now, our greatest concern is finding the right location to move to."

Some nonprofits such as Goodwill Industries hope their real estate holdings, if sold, will provide greater flexibility for their programs.

Goodwill, which trains the disabled by having them work in its thrift stores, considers the rising value of its downtown store as so much money in the bank. The organization has a $14 million annual budget.

CEO Mike Rowan said Goodwill's downtown store at 16th Street and Broadway is now worth eight times the $14-per-square-foot value when the site was purchased seven years ago.

"It's sort of a real estate reserve," he said. "If we had to trade that one we could, but we'll probably stay there until development grows a little closer to us."

Values underrated
A look at the $6.6 billion in value placed by the county assessor on properties held by nonprofit organizations, ranging from churches to arts groups, does not tell the story of what the tax-exempt holdings are worth.
That's because the assessment rolls for nearly all the organizations do not carry current market values, but instead reflect Proposition 13 valuations. The 1978 statewide tax-reform initiative established a base value at the time of purchase, which can be increased by no more than 2 percent annually. So the market value of most of these holdings may be several times the assessed value.

Like the Rescue Mission, one of the largest social service agencies in the region is again facing a tide of nearby redevelopment.

St. Vincent de Paul, a Catholic charity that started locally in 1950 by distributing free peanut butter sandwiches to the needy, has grown into a multifaceted agency under the direction of Father Joe Carroll.

With funding from the late billionaire Joan Kroc, Carroll moved from the Gaslamp Quarter to 16th Street and Imperial Avenue in the 1980s.

On three city blocks, he built today's St. Vincent de Paul Village, where 1,000 people regularly receive meals, temporary housing, education and other services. This year's operating budget is $30 million.

Carroll placed the present market value of the complex at $100 million and said he hopes to use the built-up equity as collateral for building one or two low-income residential towers.

A decade after the village opened in 1987, neighboring blocks began redeveloping into condo towers, hotels and office buildings, close to a new centerpiece – Petco Park.

Carroll said he has no intention of moving again and deliberately built the complex so that any proposed relocation would be prohibitively expensive.

"You'd never find another area to build with all the problems," Carroll added, referring to zoning issues and the inevitable community opposition to the presence of the homeless drawn by the programs he offers.

Besides, Carroll said, no matter how much downtown is redeveloped, it will always be a magnet for the down and out.

"In almost every city in America, they congregate downtown," he said. "We get accused that they're downtown because we are."

Carroll has a quick response for potential complaints from neighbors who move into the new high-rises being built nearby.

"Because you move into the neighborhood, you think I should move out?" he said, adding, "If they can't make the payments (on their units), they're welcome to come over here for a free meal."

Search for space
Sometimes a real estate play doesn't work out as intended, as the case of a downtown nonprofit that leases its site demonstrates.
The privately run Harborside School opened nine years ago in a two-story building at Kettner Boulevard and A Street with the help of Wal-Mart family members John and Christy Walton and a lease from the heirs of early-aeronautics pioneer Claude Ryan, said board President Reese Jarrett.

As the surrounding neighborhood developed into a sea of high-rise condos, the landlords decided to extend the lease only through the 2005-06 school year.

Jarrett said the school wants to remain downtown to retain its urban focus but has no site to move to. Nevertheless, the 150-student school will add a ninth-grade class this fall.

"It's going to be very difficult in light of the fact of escalating values of land in the downtown area," said Jarrett, an infill developer and former member of the Centre City Development Corp., which oversees downtown redevelopment.

The case is different for another private school that, unlike Harborside School, owns its buildings.

California Western School of Law moved into a former Elks Lodge on Cedar Street in the 1970s and has expanded to adjacent blocks to build a new library, classrooms and offices. But Mark Weinstein, associate dean for administration, said future growth for the 911-student school may be difficult.

"We're sort of looking all around us and watching vacant property turning into condos," Weinstein said. "Our sense of whether we have much room to expand seems to be shrinking by the day."

For Cal Western, which operates on a $24.4 million annual budget, maintaining a location downtown is a prime consideration because the school is near courts and law offices where many instructors or students work.

"Someone could offer us a real nice price on all of our properties," Weinstein said. "That sounds good, but could we duplicate what we have either at the same cost or less at a different location? The answer to that in San Diego County, without going way out, is to either the north or east where properties might be slightly lower in value. But we really couldn't duplicate what we have."

If there is one clear growth area for nonprofits downtown, it's in the creation of low-income housing. Redevelopment law requires that a certain percentage of housing built in the area be affordable to lower-income households, and the Centre City Development Corp. has poured millions of dollars into subsidies given to nonprofit agencies to build low-income apartments and homeless shelters.

The idea, said CCDC Chairman Peter Hall, is to disperse projects so that none has a negative impact on its immediate neighbors. The new developments generally blend into the downtown street scene, and casual passers-by would not know they are home to low-income seniors, the disabled and the working poor.

The opportunity to live downtown, a stone's throw from the bay and Petco Park, was not lost on Kelley Gebbie, 47, and Chantay Teel, 34, who recently were looking into renting low-income apartments at the 23-unit Leah Residence apartments at Ninth Avenue and F Street, a $6.6 million project by Catholic Charities scheduled to open next month. The two women now live at shelters downtown.

"I'm very excited to be right in the middle of things," said Gebbie, whose boyfriend and 15-year-old son also hope to live with her in a two-bedroom unit.

Teel, a disabled veteran, said low-cost residences help balance the downtown community racially, economically and gender-wise.

Real estate consultant Gary London, an East Village resident, said some nonprofits make ideal neighbors in a redeveloping area. But he thinks others are inevitably doomed to shut down or move.

"I think the reality of the fate of the social service organizations downtown is that it's a case of haves and have-nots," London said. "Ones that own their properties, if they have been good stewards, will find a place to more appropriately operate within the San Diego region. I fear those that are just renting space will basically be out of a job."

But CCDC's Hall emphasized that redeveloping an area should not mean wholesale displacement of those in society who are homeless or who have other pressing social needs.

"All of us have a moral and professional obligation to deal with the problem," he said.