The Next Shoe to Drop: Commercial Real Estate

March 03, 2008 02:30 PM ET | Alex Markels | Permanent Link

I try to stay ahead of the curve.

Which is why, nearly two years ago, I wrote a piece on the impacts of the housing bust on the job market.

In short, I noted that all those millions of people who chased the real-estate boom—the newly minted real-estate agents, the mortgage brokers, the developers, and the construction workers—had added more jobs to the economy than had any other industry, at its height accounting for about 1 in every 10 jobs: a record, according to Moody's Economy.com. (In California alone, the number of real-estate brokers rose to more than half a million workers—more than the total number of homes sold in the state last year.)

"We're more dependent on housing than at any time in the last 30 years," Moody's chief economist Mark Zandi told me, "which could be a problem if the downturn becomes more pronounced."

Yet until just recently, it wasn't. While the folks I wrote about were forced to give up selling mortgages and houses, their lost jobs were offset by a continuing boom in commercial real-estate development. In San Diego, for example, while condo construction all but dried up, a dozen or more fancy new hotels and office buildings were rising into the skyline, offering jobs aplenty to many of those thrown out of work in residential construction.

Yet as several economists noted at the time, the commercial building cycle is far slower than the cycle for residential housing. Big buildings take years to get approval and years more to construct. "There's somewhat of a time lag here," Jay Butler, director of the Arizona Real Estate Center, said. "But everyone's eventually going to feel it."

Nearly two years later, we're doing exactly that as whatever backlog there was back then has been all but erased. And with demand for commercial space falling and credit as tight as it has been in more than a decade, new construction is slowing— with construction in January down by 1.7 percent, the largest decline in 14 years—as the massive commercial real-estate market slowly grinds to a halt.

The result isn't just more job losses in the real-estate sector—it's more write-downs for the banks that have financed the huge commercial projects. Indeed, today's Wall Street Journal suggests that the result will be yet another ugly round of write-downs for the banking industry as commercial property values decline by as much as 26 percent over the next two years.

All this isn't just to say I told you so (although I pretty much did, didn't I?).

State's jobless rate tops 6 percent

Governor speeds up planned construction to provide work
By Dean Calbreath
UNION-TRIBUNE STAFF WRITER

January 19, 2008

Despite relatively strong job growth, the unemployment rate in California jumped above 6 percent last month, prompting Gov. Arnold Schwarzenegger to speed up construction projects that would result in the hiring of 5,000 new workers.

California employers added 15,000 new jobs last month, according to data released yesterday by the state Economic Development Department. The strongest growth came from educational and health care services, which added 5,900 jobs.

Nevertheless, the unemployment rate jumped dramatically, rising from 5.6 percent in November to 6.1 percent in December, because the number of people entering the work force were greater than the number of jobs being added.

“Never has California seen unemployment rise this drastically in a period that was not officially considered to be a recession,” said Christopher Thornberg, co-founder of Beacon Economics in Los Angeles. “This significantly diminishes the outlook for the state economy and state budget in 2008.”

In addition, the real estate and financial industries continue to deteriorate. Statewide, financial firms – including mortgage and real estate brokerages – cut 4,200 workers last month and construction firms shed 2,000 jobs.

To combat the job losses, Schwarzenegger ordered the accelerated release of $300 million in funding for roads, highways and other transportation projects, as well as $200 million for levee reconstruction.

Those funds are already in the budget, but were not slated to be spent this early in the year. Among the projects are a $25 million expansion of Interstate 5 in San Diego County.

“Speeding up construction of roads, schools and levee repairs will help our economy continue to grow and keep more people working,” Schwarzenegger said.

Schwarzenegger said he is also working with the Legislature to speed the release of $29 billion in unallocated funds from the 2006 infrastructure bonds.

“I have spoken with all four legislative leaders, and we are committed to acting quickly on removing regulatory and statutory hurdles that hinder investment in new construction in both the public and private sector,” he said.

Despite December's relatively healthy hiring pace, job growth in California was dismal in 2007. Payrolls grew only 0.5 percent, the slowest growth since 2003 and half the national rate of 1 percent. It was only the third time since 1995 that California's job growth lagged the nation's. In comparison, California employment grew by 1.7 percent in 2006.

“It's unusual for California to grow slower than the U.S.,” said Jed Kolko, research fellow at the Public Policy Institute of California, an economic think tank in Sacramento. “The main reason is that the housing slowdown is worse here than elsewhere.”

Kolko added that even though California's employment growth was slow last year, it was nowhere near as bad as it was during the recession of the 1990s and was even a bit faster than the sluggishness following the dot-com crash in 2000.

“We're doing a lot worse than the best of years, but a lot better than the worst years,” Kolko said.

But a report by the U.S. Bureau of Labor Statistics suggested that job growth in California may be slower than the state is reporting. A BLS study released Thursday shows that California added 120,000 jobs between June 2006 and June 2007, compared to 207,000 jobs reported by the state.

The state is slated to revise its 2007 data on Feb. 29, using updated information similar to that used by the BLS.

Stephen Levy, director of the Center of the Continuing Study of the California Economy in Palo Alto, said the BLS report provides an indication of what will happen after the state revises its estimates.

“For the state, job growth for 2007 is likely to be revised sharply downward, resulting in minimum job gains,” Levy said. “Job levels will be revised sharply downward for construction, finance and manufacturing.”

Levy expects the revised figures to show job losses in Orange County and large downward revisions for the Riverside-San Bernardino area. On the other hand, the new BLS figure for employment in San Diego last June is slightly higher than the number that the state reported at the time.

According to the data released yesterday, San Diego County continues to perform better than the state as a whole, although it has recently been lagging behind the national average.

Unemployment rose only slightly in the county, from 4.8 percent in November to 4.9 percent in December, not adjusted for seasonal hiring fluctuations. In comparison, the unadjusted rate was 5.9 percent for California and 4.8 percent for the nation.

Murtaza Baxamusa, director of policy research at San Diego's Center for Policy Initiatives, said that if the local rate were adjusted for seasonal changes it would be higher, since it would not include the temporary hiring of retail workers for the holiday season.

In the past year, the county added 14,600 salaried jobs, for an increase of 1.1 percent. Last month, the county added 1,800 jobs, on a seasonally adjusted basis, led by 800 new jobs in professional, scientific and technical services and 600 in health care.

But local real estate brokerages cut 400 workers last month. Administrative and support services were down 400, telecommunications resellers 200, construction firms 100, and information technology firms 100.

Federal agency grants San Diego vouchers for low-income housing

The Associated Press
Article Launched: 10/11/2007 11:39:30 AM PDT

SAN DIEGO—The U.S. Department of Housing and Urban Development will issue San Diego enough vouchers to help pay the rents of more than 1,350 households living in city-owned public housing.

The change gives the San Diego Housing Commission more control over municipal housing.

Tenants will be offered a choice between remaining in city-owned units or using vouchers to rent private apartments or houses. Private landlords, however, are not required to accept the vouchers, which carry regulations on how much the city will pay toward rent.

The Housing Commission received word last month from HUD that the public housing would no longer be under federal oversight. The agency this week guaranteed the city federal subsidy vouchers to help tenants move into private accommodations.

San Diego has struggled to operate its public housing program as federal funds for the program have sharply declined.

Housing Commission chief Elizabeth Morris said she expects most of the 4,000 people living in the city complexes to stay where they are while they weigh the pros and cons of moving. Residents who choose to stay would continue to pay 30 percent of their income toward rent.

Public housing residents who choose to move into privately owned housing must remain within the city of San Diego during the first year they have a voucher. After that, they can apply to move elsewhere in the county.

San Diego's housing agency becomes one of only a few in the country that have made the break from federal control.

San Diego gets OK to control public housing

By Lori Weisberg
UNION-TRIBUNE STAFF WRITER

September 14, 2007

Decades of federally subsidized public housing likely will end in San Diego after the U.S. housing department decided this week to let the city's Housing Commission divorce itself from the program.

The changeover would place the city's 151 rental complexes entirely under the control of the commission while giving it the financial freedom to expand the number of affordable housing units for low-income households.

The transition away from public housing, however, will not affect the more than 1,300 low-income households that would continue to have their rents subsidized either in commission-owned complexes scattered throughout the city or in rental units of their own choosing.

The city still must secure approval for 1,366 vouchers needed to subsidize the rents of people living in public housing. San Diego's 1,366 public housing units are occupied by a little more than 4,000 individuals.

If the vouchers are awarded, San Diego's would be one of only a few housing agencies in the country that have made the break from federal control. Only two other housing authorities – one in Georgia, the other in the Northwest – have left the program, according to officials of the U.S. Department of Housing and Urban Development.

The push to move away from conventional public housing comes at a time when federal funding has steadily diminished, hamstringing the housing agency's ability to properly maintain its rental complexes in neighborhoods from San Ysidro to Carmel Valley.

Most recently, the commission, like similar agencies nationwide, has been getting just 84 percent of the funds needed to operate its public housing complexes; it expects its allotment to fall even further.

“I'm pretty excited about the financial stability we'll get and that public housing won't bankrupt the Housing Authority,” said Elizabeth Morris, the commission's chief executive officer. “To do that and at the same time add affordable housing to our inventory and serve the same number of extremely low-income families, what could be better?”

Morris said she's hoping the city will learn in the next month or two whether its request for the vouchers will be granted. She said she knows of no other competition for the special funds allocated for rental vouchers when public housing is phased out.

Although no other agencies in the country have requests pending to leave the federal program, a number of authorities have inquired about the possibility, said Orlando Cabrera, HUD's assistant secretary for public housing and Indian affairs.

HUD gave its approval to San Diego, he said, because “it made its case that it's a tool they think will help their community. Their motivations would be less of an issue than the fact they have 151 properties that would not serve the folks in San Diego as well as vouchers would in the private marketplace.”

In making its case to HUD, the commission argued that its plan would create additional housing opportunities beyond those for the tenants in public housing now being served.

As tenants moved out and used their vouchers for housing in the private market, the commission said it could replace those renters with a wider range of low-income households earning up to 80 percent of the area's median income, or $56,150 for a family of four. Most public-housing tenants earn less than half that amount.

Where San Diego now receives on average of $450 a month per public housing unit, including the rent paid by tenants, the city could realize between $603 and $1,601 a month, depending on the location, size of the unit, and income level of the renters, according to the commission.

Current residents who choose to stay, however, would continue to pay 30 percent of their income toward rent. Housing officials point out that the city would also be able to borrow against its public housing complexes, valued at more than $124 million, to build or purchase at least 350 housing units affordable to both low-and middle-income families.

“My concern at first was that I want to make sure we're not losing affordable housing,” said San Diego City Councilwoman Toni Atkins. “I feel more comfortable now. But I don't want public housing residents to suffer, so the commission has to present a plan as to how these transitions will occur and whether we'll get the vouchers.”

Before presenting its plan to HUD, local housing officials met several times with residents of public housing to explain the proposal and reassure them that they would be able to stay.

Although San Diego is one of the first major U.S. cities to restructure its public housing program, it was one of the last to build such housing. Where many large cities began erecting massive, tenement-style projects in the 1930s and 1940s, San Diego's first public housing complex didn't open until the early 1980s. By then, policy-makers had shifted from building massive high-rise apartment complexes to low-rise developments, a concept adopted here.

“I think the history of public housing has made it eminently clear we're better off with mixed-income developments than highly dense, very low-income communities,” said San Diego affordable housing activist Richard Lawrence

Getting a loan grows much more difficult

By Roger Showley and Emmet Pierce
UNION-TRIBUNE STAFF WRITERS

August 14, 2007

San Diego County home prices and sales continued their downward slide last month as home buyers found it increasingly difficult to navigate the volatile mortgage market.

New-home sales were at their lowest level in five years, and the rate of homes in the county that sold for a loss over their previous sale was six times higher than a year earlier, DataQuick Information Systems Reported.

Some industry insiders who are concerned by tightening credit markets expressed pessimism about the short-term outlook, while others saw rays of hope for an upturn, noting that San Diego had led the California housing-price drop and now may be stabilizing.

In its report yesterday, DataQuick found that July's overall median home price for the county stood at $489,000, down from $495,500 in June and $500,000 in July 2006.

The drop was led by a pullback in resales – down 1.8 percent year-over-year for houses, with a median of $550,000, and condos, with a median of $377,250.

At the same time, buyers shifted away from lower-priced condo-conversion sales, which led to a year-over-year increase in prices in the new-home category to $425,500, compared with $400,000 in June and $425,000 in July 2006. Fewer conversions also drove the new-sales count down to 624, the lowest for any month since February 2002. Resales also were down from a month ago and a year ago.

DataQuick analyst John Karevoll interpreted the prices and sales as a sign that San Diego real estate may be nearing the bottom of the post-boom period.

“Most of the declines in San Diego have happened,” Karevoll said. “Now it appears to be re-establishing a balance that we have yet to see for the (Southern California) region.”

As home prices have fallen, credit has tightened, creating what some describe as a “double whammy” for real estate markets that saw huge run-ups in prices during the recent housing boom.

The credit crunch that began in the subprime market, which appeals to home buyers with blemished credit, now has spread to the prime market, leaving some buyers scrambling for financing.

San Diego County buyers have found that jumbo mortgages – loans that exceed the $417,000 limit that can be purchased by federally chartered Freddie Mac and Fannie Mae – are more costly to come by.

“Jumbo mortgage money is still out there but the price of it is more dear,” said Keith Gumbinger, vice president of HSH Associates, which monitors the national real estate market.

The recent meltdown in the subprime market has rattled the stock market as well, causing drops in trading values last week as investors worried about whether tighter credit would undermine the overall economy.

David Seiders, chief economist for the National Association of Home Builders, said many sales of new homes around the country are falling by the wayside as lenders tighten their financing programs.

“We are hearing that a lot of homes that had been sold, presold before completion, and financing had been arranged; now those loans cannot in fact be made,” Seiders said. “So the builders are now sitting with inventory they thought they had sold.”

The credit crunch has had less impact on people who can purchase homes with “conforming” loans of less than $417,000, said Zoltan Pozsar, senior economist for Moodys.com. The higher cost of nonconforming jumbo loans “affects areas where house prices are out of line with fundamentals, like San Diego, like pretty much all of California,” Pozsar said.

Although consumers in pricey California often complain that the low-conforming limit makes it more expensive to buy a house, lifting it has yet to gain traction in the federal government.

“People in the heartland don't have much sympathy for California home buyers,” said Keitaro Matsuda, senior economist of Union Bank of California.

In the first half of 2007, 35.6 percent of all primary mortgage loans in San Diego County were jumbo loans, said DataQuick's Karevoll. That compares with Los Angeles County at 46 percent, Orange County at 59.5 percent and the San Francisco Bay Area at 77 percent.

Longtime San Diego mortgage broker Martin Lopez said it's much harder to secure a home loan than it was several months ago. Before subprime loans began to fail, lenders were eager to sell loans that could be packaged as mortgage-backed securities and sold to Wall Street investors.

“There were very liberal guidelines” regarding debt-to-income ratios and credit quality, Lopez said. “People are having to prove their income now. They are having to prove their assets.”

Carlsbad-based home builder Barratt American now has a sales cancellation rate of about 25 percent, just slightly higher than normal, said President Michael D. Pattinson.

Sherman D. Harmer Jr., president of Urban Housing Partners, is involved with two condominium projects under way in downtown San Diego: Smart Corner and Sapphire Tower. He said tighter credit has slowed the sales process.

“We've gone back to our lenders, Countrywide, Wells Fargo and U.S. Bank, and tried to reconfirm with them if they have changed their underwriting standards, what kinds of loans are available, how processing has changed,” Harmer said. “There is a whole repositioning and restructuring of the loan process. It has been a moving target.”

The Federal Reserve Bank's July survey of senior loan officers, which was released yesterday, showed that more than half of responding banks had tightened their standards for subprime mortgages.

The survey found that nearly 41 percent of the banks had tightened standards for nontraditional mortgages, including interest-only mortgages, adjustable-rate mortgages and “Alt-A” loans, which require less stringent documentation of income. About 14 percent of banks said they had tightened their lending standards “somewhat” on prime loans over the past three months.

Meanwhile, consumers could cheer declining gas prices and mortgage interest rates – at least those that apply to loans that are less than the $417,000 limit. Freddie Mac pegged the average mortgage rate last week at 6.59 percent, down from 6.68 percent the week before.

In another sign viewed as positive, the San Diego Association of Realtors said there were 20,533 homes for sale as of yesterday, 10.7 percent fewer than at this time last year and the third straight month showing a year-over-year inventory decline.

“People who are in the market to sell are people who really want to sell, not investors testing the market,” said David Cabot, the association president.

But some investors have thrown in the towel and backed out of their real estate gambits, lifting the sold-at-a-loss percentage sixfold from a year ago, according to DataQuick.

Last month, 18.2 percent of homes sold locally went for less than their previous purchase price, DataQuick said. That compares with 3.3 percent of the homes sold in July 2006. The median loss suffered by sellers on these sales was $68,250.

Steve Shaffer, a real estate agent and mortgage broker in University City, handled one such case, a home on Governor Drive that was bought for $659,000 in May 2005 and sold last month for $575,500, a 12.7 percent loss.

“They bought it as investment,” Shaffer said of the sellers. “They realized that in this market, it wasn't a good investment.”

Other owners have fallen behind in their payments or let their homes go into foreclosure.

In South Bay, where all communities but Imperial Beach saw price drops in July, short sales are preferable to foreclosures, but banks have to be willing to take less than the outstanding loan balance to allow a short sale to proceed, said Scott Vinson of Coldwell Banker-Royal Realty.

“I think our eastern region of Chula Vista had a pretty hard blow,” Vinson said, referring to a spate of foreclosures there. “I'd think we'd be able to come back a little sooner than other parts of the county.”

Scary monsters looming above city

High-rise buildings block light, destroy community

Mary McFadden

Sunday, July 1, 2007

A huge, scary monster is growing in San Francisco's South of Market area. Like an atomically deranged creature from a 1950s horror movie, the first of the Rincon Towers is oozing upward, sucking light from sky and street. Its three-block shadow chills the hearts of all who pass under it, even for a moment.

Bred for expensive, high-density housing in a joint venture by the mad scientists at the Board of Supervisors, the Planning Commission and real estate speculators from San Diego, the black blob makes it obvious that urban planning in San Francisco is run by the Boys from Brazil and architects who used to design sippy cups for Satan.

They're selling exactly what they are destroying -- the community and the view.

Community is not fostered by stacking residents as if they were cans in a gourmet supermarket. Community is not created by designs that separate people, that put people into cars, into garages, into elevators, into their condos. Community is not encouraged by allowing real estate speculation to override sensible and sensitive design.

The view from the towers is not of the towers. They look down and out at lesser entities. When the Transbay Tower comes along, these three buildings will block the Bay Bridge and darken downtown.

Now that they have a foothold, these monstrosities have become the example rather than the exception. San Francisco's waterfront will be visible only from the East Bay. If we are not careful, San Francisco will steal Oakland's infamous tagline, "There is no there there."

"Manhattanization" made high-rises glamorous. San Francisco's urban plan ignores a glorious geography in favor of an "interesting" skyline but characterless streets. Sunlight never touches a large portion of downtown sidewalks. Inaccessible tops of buildings are considered public open space. The wind, present even on still days, is the digestive by-product of these now relatively small monsters.

Insensible rules, regulations and planning processes have flattened the city. Our famous hills have disappeared. The skyline, which once offered a rolling glissando of color and light, now looks like a series of bruises on a lame leg. Neighborhoods have lost so much open space and greenery that birds have moved away. This is good news for adaptable bugs, rodents, skunks and raccoons, but not good for people and pets.

Things have gone dreadfully wrong, and while there's nothing to be done about buildings in progress until nature shakes them down, we can demand an urban plan and building codes that add grace and life to our city. Great design accommodates need and embraces beauty. It does not trample upon the psyche.

The traditional -- our bright, fussy Victorians, the elegant Edwardians, the craftsman bungalows, the sleek moderns -- must be preserved, because these are the fragile, primary documents of history and icons of culture. Contemporary ideas can and must work with past ideals, as they do in Barcelona, London, Mexico City and Vienna.

Rincon Towers' baby brother is due shortly. The Transbay Terminal is scheduled to be twice the size of the scary monster already blotting out the sky. Be afraid. Very afraid.

What Could Save the Housing Market

We don't have to look back very far to spot a potential blueprint for the federal government's reaction to a housing-led slowdown.
By Rich Toscano

Wednesday, May 16, 2007 | The speculative housing bubble that launched San Diego home prices so high is now in the process of deflating. Prices have been on the decline for over a year, but they remain well above the levels that would be justified by the economic fundamentals now that the bubble-era forces of rampant buyer optimism and unsustainably lax lending are disappearing before our eyes.

Using the analytical framework described above, and considering the precedents set by past boom/bust cycles in the San Diego housing market, it sure seems that the most likely outcome is for San Diego home prices to continue declining for some time to come. But nothing is ever for certain in the financial markets, so today I'd like to discuss the following question: what could prevent a serious decline in home prices?

As I see it, there are two potential factors that could help out the housing market.

The first is economic growth. If home prices are too high in comparison to rents, incomes, and other fundamentals, then it's at least possible that those fundamental factors could rise to meet home prices rather than the other way around.

The problem is that this just isn't very likely. Home prices are so out of line with rents and incomes that, given the current pace of their growth, it would take many years for rents and incomes to catch up. Meanwhile, the oversupply of inventory (especially that of the must-sell variety) would be exerting downward pressure on prices the entire time.

The only way that economic growth could single-handedly bail out the housing market would be for regional economic activity, employment, and incomes to grow in great excess to their current levels. Such a gold-rush style boom is certainly within the realm of possibility, but it's not an outcome that I would consider likely.

The second factor that could aid housing market is government intervention.

We don't have to look back very far to spot a potential blueprint for the federal government's reaction to a housing-led slowdown. In the aftermath of the 2001 recession that followed the bursting of the stock market bubble, the Federal Reserve slashed short-term rates to levels not seen since the 1950s. Such ultra-low rates encouraged consumer borrowing that, in combination with rampant federal deficit spending, helped to keep overall demand aloft and to end the recession in fairly short order.

Of course, this technique had some unintended consequences (a housing bubble, record-shattering debt levels, and a structurally weak U.S. dollar come to mind). But I don't expect such nitpicking to stop the folks in Washington from using the same playbook again should the housing-related pain become too uncomfortable for their constituents to bear. Let's look at the actions of the Federal Reserve and Congress in turn.

The Federal Reserve will want to lower their short-term federal funds rate. In the case of a housing bust, lower short-term rate would be of key importance to the hordes of adjustable-rate mortgage holders who are facing higher payments once their loans reset. Jamming short-term rates back down to 2003 levels would certainly prevent a lot of foreclosures.

If things got bad enough and lowering the fed funds rates didn't do the trick, Federal Reserve chairman Ben Bernanke could even implement some of the more radical policy suggestions he made in his seminal 2002 "helicopter drop" speech, such as setting long-term as well as short-term rates and directly intervening in the mortgage market.

It all sounds easy enough, but the truth is that the Fed can't lower rates (let alone enact any of Bernanke's proposed pull-out-the-stops policies) with impunity. Lowering short rates tends to cause the dollar to fall and inflation to rise. Here in 2007, the dollar is a lot weaker and inflation notably higher than in 2003 when the short-term rates plumbed their lowest depths. It's doubtful that the Fed could do anything as drastic as they did after the stock market bust, but it's still likely that they will lower rates to the extent that they are able.

For its part, the people in Congress can continue to do what they do best: spend money that they don't have. There have been few repercussions to such an approach so far, and until there are, the government can be expected to keep on spending -- especially if times get tougher. In general, borrowing from the future to spend in the present tends to provide a short-term stimulus to the economy. Given that "short-term" is the typical politician's favorite timeframe, this approach is a crowd favorite.

A housing bust would provide even further temptation to spend money directly on attempts to address the market itself. Some of our more eagerly opportunistic leaders are already scrambling to throw taxpayer money at the subprime mortgage problem, but the list of potential opportunities for federal largesse is nearly endless. Our leaders could stoke housing demand by offering tax breaks or direct subsidies to potential home buyers. They could help out struggling homeowners by increasing the already generous tax breaks that owners are granted. They could force lenders to extend mortgage teaser-rate periods or allow lower monthly payments for troubled owners. They could put a moratorium on foreclosures (an early variation on this theme is already taking place in Massachusetts, where the state is demanding that lenders delay the foreclosure process by up to two months for any borrower that files a complaint with state bank regulators). They could direct government-sponsored mortgage purchasers Fannie Mae and Freddie Mac to loosen their standards to keep mortgage credit freely available. And if too many private lenders got into trouble, the government could affect an industry bailout as they did with the savings and loan industry in the late 1980s. The list goes on.

Keeping rates excessively low and increasing deficit spending could work for a more fundamental reason. Both activities tend to result in more money being created and spent into the economy. To the extent that there are more dollars chasing the same amount of goods, each dollar becomes worth less in comparison to those goods. This reduction in dollar purchasing power is more commonly known as "inflation."

If the government's tactics were to cause inflation to pick up the pace, incomes and rents might quickly rise in dollar terms. This could allow the fundamentals to catch up to home prices without the latter falling too steeply. It's not that great to own a home whose price is stagnating while the price of everything else is rising, but it's probably better than owning a home whose price is falling outright. (Of course, higher inflation would tend to increase interest rates, but as described above, various legislators and Fed chairman Bernanke have already pitched the idea of forcefully keeping mortgage rates low.)

The potential interventions are many, varied, and complex. And unlike an explosion of local economic growth, at least some degree of monetary easing and housing-oriented deficit spending will be almost inevitable if things get bad enough in the real estate market.

What effect the interventions will have is another question. Meddling with the market rarely works out exactly the way it was intended, as witnessed by the housing bubble and the other economic distortions caused by the government's stimulative efforts from 2001-2003. And as we've seen with the subprime debacle, the government rarely reacts to something until after it's a crisis, so there could be some issues of closing of metaphorical barn doors vis-à-vis the whereabouts of certain metaphorical horses.

We have a long way to go before home prices once again meet up with their fundamentals, and there's no way of knowing exactly what path will be followed to that destination. The point is that while there will likely be tremendous downward pressure on home prices, it's important to acknowledge that there could be some forces putting pretty serious pressure in the other direction.

Settlement would limit number of condo conversions

Accord requires survey of tenants
By Lori Weisberg
UNION-TRIBUNE STAFF WRITER

March 29, 2007

SAN DIEGO – Condo conversions in San Diego would be limited to no more than 1,000 units a year under a tentative settlement approved by the City Council on Tuesday.

The settlement, considered in closed session, is intended to end litigation against the city over how it reviews proposals to transform rental units into for-sale condos.

A coalition of environmental and affordable-housing advocates represented by attorney Cory Briggs argued that the city had failed to formally review each conversion project to assess what potential effects projects might have on the environment.

Before the lawsuit can be dismissed, the City Council must put into law a yearly limit on condo conversions. In addition, an ordinance must be adopted that would not allow approval of conversions until after landlords have surveyed their tenants to learn what effects the conversions might have on renters. The city would then issue an annual report on the survey results.

Under the agreement, the city will reimburse those bringing the suit $75,000 in legal fees and related costs.

“Full implementation of the settlement will end the need for litigation over future condo-conversion waves by preventing future waves from ever rising in the first place,” said Briggs, who represents the Affordable Housing Coalition of San Diego County and Citizens for Responsible Equitable Environmental Development.

Unaffected by the settlement are three other lawsuits filed by Briggs against condo converters dealing with the same issue of environmental analysis.

The lawsuit naming the city was one of two suits tossed out by a Superior Court judge last year, although Briggs appealed the ruling.

While San Diego and other cities in the county have been a magnet in recent years for developers seeking to convert rentals into for-sale housing, the overall real estate market slowdown has dampened interest in condo conversions.

“In the heyday, we were getting 20 or 30 applications a month, and since July or August, it's in single digits,” said Mike Westlake of the city's Development Services Department. “So there's definitely been a slowdown. Instead of four or five or six a week, we maybe get one a week, and that number will probably go down even more.”

Last year, applications for condo conversions accounted for about 1,800 units. So far this year, there have been six projects proposed, although two of those call for the conversion of more than 1,200 units in Mission Valley, according to city records.

Jim Waring, who oversees land-use issues for Mayor Jerry Sanders, said he expects that the ordinances required under the settlement will come back to the council within 60 days.

“This has been a great distraction and not a very productive use of our time,” Waring said. “We're settling the case so we can eliminate the distraction and focus on other things we think are more important.”

S.D. economic indicators fall for 10th straight month

By Dean Calbreath
UNION-TRIBUNE STAFF WRITER

March 16, 2007

San Diego's leading economic indicators fell for the 10th month in a row in January, dragged down by a weakening employment outlook and the continuing decline in the housing market, according to a report yesterday by the University of San Diego's Burnham-Moores Center for Real Estate.

Economist Alan Gin, who compiles the monthly index of indicators, attributed the decline to the downturn in local home sales, which is beginning to have a ripple effect through the rest of the economy.

“The interesting thing is the impact of housing on the economy,” Gin said. “In employment, not only construction and real estate are down, but you're also seeing an effect in the retail sector. And help wanted advertising is down significantly in a lot of categories.”

Three of the six categories in the index worsened in January: residential building permits, help-wanted advertising and unemployment filings. In contrast, there were improvements in consumer confidence, local stock prices and the outlook for the national economy.

But the three latter categories have all declined in recent weeks.

The stock market has turned choppy, especially for small or mid-sized technology companies – precisely the type of companies that are based in San Diego. The national economic growth rate for the fourth quarter of 2006 was recently revised downward to 2.2 percent, implying slow growth for the current quarter as well.

The increasing pessimism on Wall Street and rising gasoline prices have already dampened consumer confidence. The San Diego Union-Tribune's monthly consumer confidence survey – a component of Gin's index – rose 5.8 percent in January but fell 2.1 percent in February.

“January had relatively good stock prices and low gas prices, which helped consumer confidence,” Gin said. “It will be interesting to see what happens to consumer confidence with gas prices rising. There's usually about a 70 percent correlation between gas prices and consumer confidence. If the past is any sign, the prices will put a dent in confidence.”

The 10-month decline in the economic indicators has paralleled a 10-month decline in residential building permits, a sign of the weakening housing market.

“We're weak today, but I think we'll be through these problems in nine months,” said Marney Cox, economist at the San Diego Association of Governments. “Most of the declines are in construction and real estate, and I think we're beginning to see some stabilization there. By the end of this year, I'm expecting that we'll be through this.”

But Peter Schiff, who runs Euro Pacific Capital in Newport Beach, said the real estate decline will be an impact on the economy for quite some time.

“Think about all the mortgage debt that was assumed by San Diegans in the last few years,” he said. “All they're going to be doing is paying interest on that money. Instead of buying a new car or going shopping, they'll be paying down their interest on interest-only loans. And there are so many people who bought homes for zero down payment, they will just be going to be walking out of their homes, if they haven't already, since they have no financial incentive to stay. This is a real disaster.”

Initial claims for unemployment insurance have also risen 10 months in a row, pushing the jobless rate from 4.1 percent in December to 4.3 percent in January. Job growth slowed to a gain of slightly more than 13,000 jobs, compared with an average of nearly 18,000 for 2006 as a whole.

City takes stock of its real estate

60 lots identified for possible sale
By Brooke Williams
UNION-TRIBUNE STAFF WRITER

January 14, 2007

San Diego's real estate division is cleaning house, hoping to make millions on land that has languished for decades.

It has started pulling a list of property from its massive portfolio that could be considered surplus and giving public entities first dibs. The city, squeezed for cash by a crumbling infrastructure and billion-dollar pension deficit, hopes to put land on the market by June.

For families who live next door to city lots that have become neighborhood dumps and fire hazards, the sales could be a godsend. But hundreds of families who rent land on the list wonder what will happen to them if the properties change hands.

In the 5-year map to fiscal health that he outlined last fall, Mayor Jerry Sanders proposed selling land and signing new leases to make $102.5 million by 2012. The plan estimates land sales and new leases will bring in $15.3 million in fiscal 2008 and $21.8 million in the following four years.

The real estate department has been examining the city's properties lot-by-lot for several months, as part of a review that began after The San Diego Union-Tribune reported that the city did not have an accurate inventory of the 4,000-some parcels it owns.

So far, the city has identified about 60 parcels for government review on its Web site. They include vacant lots in neighborhoods, land around a reservoir, houses and a mobile home park. The city has owned a dozen of the lots since the 1950s and 1960s, and two back to 1915, county records show.

The prospects of a sale are bittersweet for Jasper Lee Adkins, 81, and his wife, Blanche, 78. In the fall of 1958, they moved into a city-owned, two-bedroom home that abuts Highway 94 in the Stockton neighborhood, east of downtown San Diego. Rent was $70 a month.

The city acquired the lot for public projects in 1963 but didn't end up needing it. During the next three decades, the couple said they sought to buy the land, but the city wouldn't sell. After they both suffered strokes, they gave up trying. Rent is now $616 a month.

When a reporter told them that the city now is considering selling the lot, Blanche said they'd still be interested after all these years.

“It would have been paid for by now,” she said, referring to their efforts to buy the land more than 40 years ago. “But I can do nothing about it; you just have to take it as it comes.”

The city owns five houses and a duplex that may wind up for sale. Also on the list are 180 acres of land in the Cleveland National Forest, lots in Dulzura, open space in Sorrento Valley and a border patrol building in San Ysidro.

One property is a vacant lot in Grant Hill that a woman gave to the city more than a decade ago so proceeds from its sale would benefit public parks and libraries. Since then, the lot has been used as an illegal dump.

The most people potentially affected by a sale are those who live in Linda Vista Village, a 220-unit mobile home park overlooking Tecolote Canyon. Many of the residents have low incomes. Some are retired; others are families with children. Some have lived in the 75-acre park since 1980.

On Friday, about two dozen residents gathered in the park's clubhouse to try to figure out what comes next. They had more questions than answers. Do we have first right of refusal? Could we buy the land as a group? Could a developer build condos and force us out?

“How many times can I start over?” asked William Perry, 58, who bought a double-wide home and moved to the park to retire in 1999.

Margaret Neville, a single mother of two teenagers, is on disability. She said she simply can't afford to move. “Where do we go?” she asked.

The city leases the park to Tecolote Investors for about $160,000 a year. The lease, which expires in 2034, requires the company to make one-third of the homes available to low-and moderate-income families. Tecolote Investors collects about $1.6 million a year from residents, who pay between $590 and $638 a month in rent, according to city records. The files also show it cost Tecolote about $480,000 to operate the park in 2003.

Jim Barwick, who started as director of the real estate department in May 2006, said it's too early to address the residents' concerns. He stressed that the city had not yet decided to sell any land, and there would be public meetings before it does. He said he was not aware of a law that would require the city to offer land to people who live in the houses or mobile-home park before putting it on the market.

According to state law, government agencies are first in line to lease or buy certain surplus city properties if they plan to use them for purposes such as affordable housing, schools, parks and open space.

If, after 60 days, no government entity is interested, the city would take a closer look at the land to be certain it was expendable and appraise it to see what it's worth. If it's a good financial move to sell or sign a long-term lease, the real estate department would bring a detailed proposal for each lot to the City Council for approval.

A policy adopted in 1983 calls for the city to sell most properties at a public auction. There are exceptions for landlocked slivers that only an adjoining land owner would want to buy and for land a government entity might want, such the border patrol building in San Ysidro.

Barwick said he planned to recommend the council change the auction policy to allow some land to be sold on the market, which could bring in more money.

The city charter requires that proceeds of land sales go into a capital outlay fund that pays for new public improvements, such as buildings and sewer pipes. It states that money from the fund can't be used for repairs, such as fixing the city's decrepit water lines, but it can go to replace them.

Barwick did not specify what capital projects might benefit from the sales.

City takes stock of its real estate

60 lots identified for possible sale
By Brooke Williams
UNION-TRIBUNE STAFF WRITER

January 14, 2007

San Diego's real estate division is cleaning house, hoping to make millions on land that has languished for decades.

It has started pulling a list of property from its massive portfolio that could be considered surplus and giving public entities first dibs. The city, squeezed for cash by a crumbling infrastructure and billion-dollar pension deficit, hopes to put land on the market by June.

For families who live next door to city lots that have become neighborhood dumps and fire hazards, the sales could be a godsend. But hundreds of families who rent land on the list wonder what will happen to them if the properties change hands.

In the 5-year map to fiscal health that he outlined last fall, Mayor Jerry Sanders proposed selling land and signing new leases to make $102.5 million by 2012. The plan estimates land sales and new leases will bring in $15.3 million in fiscal 2008 and $21.8 million in the following four years.

The real estate department has been examining the city's properties lot-by-lot for several months, as part of a review that began after The San Diego Union-Tribune reported that the city did not have an accurate inventory of the 4,000-some parcels it owns.

So far, the city has identified about 60 parcels for government review on its Web site. They include vacant lots in neighborhoods, land around a reservoir, houses and a mobile home park. The city has owned a dozen of the lots since the 1950s and 1960s, and two back to 1915, county records show.

The prospects of a sale are bittersweet for Jasper Lee Adkins, 81, and his wife, Blanche, 78. In the fall of 1958, they moved into a city-owned, two-bedroom home that abuts Highway 94 in the Stockton neighborhood, east of downtown San Diego. Rent was $70 a month.

The city acquired the lot for public projects in 1963 but didn't end up needing it. During the next three decades, the couple said they sought to buy the land, but the city wouldn't sell. After they both suffered strokes, they gave up trying. Rent is now $616 a month.

When a reporter told them that the city now is considering selling the lot, Blanche said they'd still be interested after all these years.

“It would have been paid for by now,” she said, referring to their efforts to buy the land more than 40 years ago. “But I can do nothing about it; you just have to take it as it comes.”

The city owns five houses and a duplex that may wind up for sale. Also on the list are 180 acres of land in the Cleveland National Forest, lots in Dulzura, open space in Sorrento Valley and a border patrol building in San Ysidro.

One property is a vacant lot in Grant Hill that a woman gave to the city more than a decade ago so proceeds from its sale would benefit public parks and libraries. Since then, the lot has been used as an illegal dump.

The most people potentially affected by a sale are those who live in Linda Vista Village, a 220-unit mobile home park overlooking Tecolote Canyon. Many of the residents have low incomes. Some are retired; others are families with children. Some have lived in the 75-acre park since 1980.

On Friday, about two dozen residents gathered in the park's clubhouse to try to figure out what comes next. They had more questions than answers. Do we have first right of refusal? Could we buy the land as a group? Could a developer build condos and force us out?

“How many times can I start over?” asked William Perry, 58, who bought a double-wide home and moved to the park to retire in 1999.

Margaret Neville, a single mother of two teenagers, is on disability. She said she simply can't afford to move. “Where do we go?” she asked.

The city leases the park to Tecolote Investors for about $160,000 a year. The lease, which expires in 2034, requires the company to make one-third of the homes available to low-and moderate-income families. Tecolote Investors collects about $1.6 million a year from residents, who pay between $590 and $638 a month in rent, according to city records. The files also show it cost Tecolote about $480,000 to operate the park in 2003.

Jim Barwick, who started as director of the real estate department in May 2006, said it's too early to address the residents' concerns. He stressed that the city had not yet decided to sell any land, and there would be public meetings before it does. He said he was not aware of a law that would require the city to offer land to people who live in the houses or mobile-home park before putting it on the market.

According to state law, government agencies are first in line to lease or buy certain surplus city properties if they plan to use them for purposes such as affordable housing, schools, parks and open space.

If, after 60 days, no government entity is interested, the city would take a closer look at the land to be certain it was expendable and appraise it to see what it's worth. If it's a good financial move to sell or sign a long-term lease, the real estate department would bring a detailed proposal for each lot to the City Council for approval.

A policy adopted in 1983 calls for the city to sell most properties at a public auction. There are exceptions for landlocked slivers that only an adjoining land owner would want to buy and for land a government entity might want, such the border patrol building in San Ysidro.

Barwick said he planned to recommend the council change the auction policy to allow some land to be sold on the market, which could bring in more money.

The city charter requires that proceeds of land sales go into a capital outlay fund that pays for new public improvements, such as buildings and sewer pipes. It states that money from the fund can't be used for repairs, such as fixing the city's decrepit water lines, but it can go to replace them.

Barwick did not specify what capital projects might benefit from the sales.

The Year in Housing

Real estate's great boom time came to an end in 2006. San Diego's experience exaggerated national trends just as it had during the time of skyrocketing appreciation.

By KELLY BENNETT Voice Staff Writer
Wednesday, Dec. 27, 2006

The year's beach season was in full swing before many in the county noticed a chill in a San Diego housing market that had been sizzling for years.

"The beginning of the year was still kind of jubilant from last year," said Michael Colby, economist at MarketPointe Realty Advisors. "No one really realized where we were until the middle of July."

That was when county homeowners started hearing negative news about the market -- substantiated news, at that.

"Before that, it was just experts saying, 'This is not sustainable,'" he said. "Now, the data actually showed a change."

Indeed, 2006 proved the end of an unprecedented housing boom. Gone were the years of booming home prices, sizable sales stats and frantic "flippers" overbidding on otherwise undesirable properties. Speculators vanished, potential buyers invested more time in their decisions and some whose jobs were created by the boom -- novice real estate agents or mortgage brokers -- found other work.

San Diego proved an extreme version of what was happening in markets across the country, as inflated markets started to cool after a similar years-long run of price appreciation. The national housing market, and its downturn, became a factor in discussions about the otherwise healthy national economy.

For the first time in a decade, the median price of a home dipped negative compared to the previous year. Year-over-year price declines continued monthly from June, eventually reaching a low point of $482,000 in November. That was a $36,000 drop from the previous November, according to DataQuick Information Systems.

Median prices weren't the only indicator of the slowing market. Many analysts considered a decline in sales activity the most concrete marker of a slowdown. The number of homes sitting unsold on the market soared to more than 23,000 units this summer before declining to about 19,000 in December -- 10 times as many homes as the market's lowest supply in 2004.

And 25 percent fewer homes sold in the first eleven months this year than in the same period in 2005. Home builders drastically scaled back their plans, slashed their profit outlooks and laid-off employees. To attract consumers to the homes that were sitting vacant, they offered incentives ranging from appliances to Hummers to cruises, allowing them to mask price concessions in earnings reports. Existing home sales struggled, too -- sellers hoped to garner the prices paid for their neighbors' homes during the boom, but many buyers waited to see if prices would fall further.

And so, homes took about 30 percent longer to sell than they did in 2005. Sellers of detached homes were looking at an additional two weeks or so, on average, before they could slap a "SOLD" sticker on their yard sign, according to the San Diego Association of Realtors. The association experienced a sales volume drop of 25 percent from January to November, a $5.7 billion difference from the same period in 2005.

The drop in demand -- and profit share -- among the county's estimated 10,000 real estate agents will force many out of the profession, experts say. Job losses in the real-estate related sector, including agents, mortgage brokers and construction workers, will have lasting, significant effects on the local economy, they project.

The Bearers of Bad News
Many in the real estate industry blamed the media for the negative mindset of their formerly enthusiastic clients. Newspaper, television and radio outlets reported data as soon as it was released by analysts, revealing the drops in sales rates and prices. Agents, builders and brokers lambasted those reporters, blaming the media for perpetuating a perception of doom for the housing market. The local Realtors' association and the builders' association teamed up on an advertising campaign, admonishing San Diegans that homeownership was an opportunity not to be missed, despite some negative trends.

"2004 and 2005 were incredibly overheated," said Charles Jolly, 2006 president of the Realtors' association. "We knew anything compared to that would be a huge downturn."

But the numbers didn't lie. The median price drops told a softer story than what was actually happening in the market, many said. The real estate boom had risen to blockbuster status in conversations around the water cooler and at cocktail parties, and media outlets were among those reporting the data that emerged -- and the hangovers associated with such a raging house party. The excitement about investing in real estate that had so easily spread through society for a few years shifted to a widespread feeling of uncertainty.

In these circumstances, convincing buyers to get into the market just for the sake of doing so will be a tough sell, said Peter Dennehy, vice president of the Sullivan Group Real Estate Advisors.

"The market as a whole has gotten the memo," Dennehy said. "It is very hard to convince someone that it's a good time to buy right now. That 'let's just get something,' 'gotta get in on the market' -- I think that perception is gone."

But Dennehy does, like Jolly, consider San Diego a "buyer's market."

"Buyers have a lot of choice; they know that they have the upper hand," he said. "It's always a good time to buy a house if you find a house you need at a price you can afford, if the home meets your needs."

Reaching for Affordability
In 2000, the overall median price for a home in San Diego County was $234,000. That price leaped up annually by 15 to 20 percent for years, landing at $494,000 in 2005. The median price soared a total of 210 percent during those five years.

And so, despite this year's market "softness", prices haven't come down all that much. The all-home median price for 2006 -- once December's prices are tabulated -- will likely still be within a few thousand dollars of the 2005 price, even if it is a bit lower.

As prices come down from epic levels, some say it will boost affordability in the region. But for many who were convinced the home appreciation train was never going to stop again, the price drops could be disastrous.

Mortgage lenders nationwide responded to runaway home prices -- and consumer fear of being priced out forever -- by offering creative loans. The appeal of these mortgages is that they allow borrowers to enter a housing market they might not have otherwise accessed through low monthly payments. Some choose to pay only the interest. Others pay only a portion of the interest accrued each month, meaning that their debt incurred actually grows -- rather than shrinks -- for a period as the loan ages.

These so-called "exotic" loans are founded on the assumption that real estate always goes up -- that by the time the loans are due to reset, the borrowers' home values will have increased enough that they can, if they need to, use that equity to refinance the loan and avoid the substantially larger payments ahead.

When those loans reset, the monthly payments can be kicked up by a few thousand dollars a month. Sometimes, the payment can more than double.

And despite the impending surge in mortgage bills amid an uncertain, slow market, the loans' popularity persists. One kind of exotic loan, negative amortization on an option ARM, constituted 35 percent of the mortgages originating in the first nine months of 2006, according to First American LoanPerformance. That compares to just 1 percent in 2003.

The low introductory period of some of these loans ended in 2006, and even more are set to end in 2007. A number of homeowners faced a sizable jump in their monthly payments, reducing the amount of money they could spend on other things.

The popularity of creative financing options worries analysts. Some buyers got into homes even though they could only afford the introductory payment on the loan. When the introductory periods end, those watching the market fear an avalanche of foreclosures from those who can't afford their loans anymore. And for those who shift their budgets to account for the higher payments, the impact to the consumer spending in the region could be significant.

Traditional media outlets weren't the only purveyors of information about the market. Online innovations allowed Average Joes to snoop at their neighbors' home values, post listings and blog about their findings. Some were created this year, while several created in previous years, like Zillow, bounded in popularity.

Dennehy said the phenomenon commoditized the housing market.

"That worked to fuel the boom," he said. "And now it exacerbates the perception of the housing market -- whether that's reduced listings, foreclosures, or whatever."

Many real estate agents consider the websites a threat to the services they provide. But David Cabot, the incoming president of the Realtors' association, said he embraces Zillow and the other sites as good tools that give his clients one more piece of information to compare.

Some Realtors think the new sites will force them and their colleagues to prove to potential clients that they're more than chauffeurs. About 4,000 agents joined the local association in the last five years, and about 200 have been joining every month since January, Jolly said. He and Cabot expect a 20 percent decline in agent count in 2007 as the public starts to expect more services in exchange for commission, and the inexperienced agents are weeded out.

Crystal Ball Gazing
University of San Diego economist Alan Gin said the housing market's impact on the economy, and vice versa, is significant for the county. Gin said he's surprised at how rapid the drop in prices and sales has been already this year. And the end to rampant home appreciation also signals a slowdown for the "wealth effect" -- many homeowners in this recent boom used their homes like ATMs, refinancing their original mortgages to withdraw some of their increased value and spend it on cars or cruises even a second home. This year's decline brought a sobering effect to that phenomenon, and the retail world may feel that drop in consumer spending significantly next year, Gin said.

With the potential for foreclosures or decreased consumer spending from high mortgage payments, job losses in construction and other real estate related fields and a market that may force middle class households to leave the county in order to afford a house, Gin said it's too early to tell what the impact will be for the economy. But it doesn’t look good, he said at a recent USD real estate conference.

It was the first time in seven years of delivering an economic forecast at the conference that Gin didn't expect San Diego to outperform the nation or the state in the next year, he said. He identified slowdowns in the job and housing markets as areas of concern.

Those watching the local real estate market often wince when asked to deliver a forecast. Data can be tracked; motivations cannot, they say. Buyer and seller psychological factors will almost certainly continue to play a role in the market in 2007, and that x-factor blurs whatever crystal ball image they might conjure.

But they gave it a shot.

Robert Brown, a professor at California State University in San Marcos, compiles statistics on the housing market each month. He thinks a drop in prices could spur buyers back into action.

"If, indeed, people are just sort of waiting to see what's going to happen in prices, then, if we do see a decrease in price, that will encourage people to get into the market," he said. "And that [activity] will counter any significant price decreases."

Cabot, the incoming San Diego Association of Realtors president, said he expects prices and sales to pick up by the end of March. Inventory levels may rise in the beginning of the year, he said, but increased sales will absorb those levels quickly.

Colby, of MarketPointe, said in order to absorb the number of homes unsold, the county will see more price drops. He said while some expect sales to turn around next year, he thinks it will take a while longer.

"Sellers are pretty sticky," he said, referring to the reluctance sellers have to lower their prices.

Dennehy, of Sullivan Group, said he expects an up-tick in sales in February or March, with the trend remaining essentially flat for another year or so. Prices will continue to come down until sales and inventory catch up, he said.

"On the whole, we're looking at more 'fingers-crossed' thinking," he said. "Six months ago, it seemed a lot more desperate than it does today."

Rules to Live By

Smart growth not so smart?
- Wendell Cox
Monday, December 11, 2006

To the extent that there's been anything about the economy still worrying some journalists and media analysts in recent months, it has been softness in the housing market. Downward price pressures in new housing were noted in October as having contributed to less-than-expected economic growth. On Nov. 20, the National Association of Realtors issued its third-quarter report showing a 12.7 percent decline in existing home sales when compared to the same period last year.

All of this, of course, will refuel the debate about the "housing bubble." Is there one? If there is, will it burst? Paul Krugman, the economist and columnist for the New York Times, has argued that there is a bubble, but it is a geographical one. His thesis is that the "zoned-zone" is artificially inflating housing costs -- and he appears to be right.

A zoned-zone is an area of the nation that has embraced land-rationing policies, usually under the misleading title of "smart growth." Those policies include restrictions on suburban development, such as Portland's (Oregon) urban growth boundary, and requirements for excessively large lots that reduce the supply of land for residential development.

There is little argument about this dynamic among economists -- rationing raises prices and it does so with a vengeance.

Take "smart growth" friendly San Diego -- where today the median house price is more than 10 times the median household income (a measure called the "median multiple"). The historic norm has been a median multiple of 3.0 or less. In San Diego, the median multiple was 3.6 in 1995. In just 10 years, the total cost (including interest) of the median-priced house in San Diego has risen more than $900,000. By comparison, the total cost over a 30-year period of the median priced house has risen only $55,000 in Atlanta, where there is more liberal land-use regulation. And in just the first half of the decade, 100,000 domestic migrants -- people who move from one metropolitan area to another -- have left the San Diego. Who can blame them?

In the San Francisco-San Jose area, the domestic migration loss over the same period has been nearly 550,000. Total population growth in the San Francisco-San Jose area since 2000 has been less than that of San Joaquin County.

State-level home sales tell a stark story. In the states with stronger smart growth or other land-rationing policies, the fall-off in existing house sales has been by far the greatest. During the past year, existing house sales have fallen an average of 20 percent in the highly regulated states. All 18 of these states experienced declines, even in historically fast-growing states like Arizona, California, Florida, Nevada, Oregon and Washington. By contrast, in the less-regulated states, the annual loss was just 4 percent and one-third of these states, including Georgia and Texas, experienced sales increases.

The escalation of housing prices relative to incomes in the highly regulated markets is not the result of low interest rates. The same low interest rates have not produced the same effect in markets with lighter regulation, such as Dallas-Fort Worth, Houston or Kansas City. Nor is the escalation a result of demand, as Atlanta, Dallas-Fort Worth and Houston are the fastest growing large metropolitan areas in the nation, yet the median house price has remained below the 3.0 benchmark.

The problem in highly regulated markets is that the supply of housing is not allowed to keep up with demand. If housing affordability doesn't improve, it is not inconceivable that it could at some point have serious effects on the overall economy, perhaps even a "smart growth" induced recession.

The economic and social consequences are ominous. The hundreds of thousands of additional dollars that must be paid to own a home in California, Florida, Oregon or other smart-growth states will mean less money for other needs. Fewer consumer products will be purchased. Fewer jobs will be created.

But, worst of all, there will be fewer homeowners. Lower income and many middle-income households will find their way to the mainstream of economic life blocked by artificially high prices resulting from naive urban planning policies. It seems likely these higher prices will lead in the long run to lower rates of homeownership.

The cost of this urban design extravagance will fall most significantly on minority households, whose income is generally lower and whose home ownership rate remains a full one-third below that of white-non-Hispanics. In the long run, "smart growth" is simply bad for the economy and for the people on whose enterprise and wealth creation the economy relies.

Ocean-view Tijuana townhomes attract San Diego buyers

By PAUL WILLIAMS, Mexicana Properties
Thursday, November 16, 2006

A new generation of Mexican homebuilders is developing homes with features and amenities unavailable in the United States at any price. Leveraging the lower land, labor and wholesale material costs, developers are offering buyers priced out of the north-of-the-border market affordable, quality homes in gated, landscaped neighborhoods that more resemble Tierrasanta than Tijuana, and customers are buying.
By perching his Playas Diamante Residential development (www.playasdiamante.com) on the cliffs overlooking Playas de Tijuana ("Beaches of Tijuana"), one builder is banking that his 350 three-bed, 2.5-bath townhomes priced from the mid-$100,000s to low $300,000s are an easy sell. He's right. Shoppers experiencing the sticker-shock of San Diego home prices are finding irresistible the large, high-quality residences that feature unobstructable Pacific Ocean views offered at less than half the price of a single-bedroom Santee condo.
"I'm from Monterrey (Mexico) and absolutely fell in love with these magnificent Pacific Ocean views and the fresh, salt-air breeze," said Joel Gamez Martinez, the developer. "Here in Tijuana, I knew I could build the best of the best yet still keep prices reasonable. But I wanted something really exceptional. With this location, I knew I had found my diamond."
With more than 80 percent of the first phase selling out literally before the Mediterranean White paint dried, it's clear Gamez Martinez was wise to follow his instincts.
For the price, American buyers might expect to find the builder cutting corners, and he did -- in all the right places. By employing modern "eco-intelligent" architecture emphasizing energy and water efficiency, both household and community maintenance costs are cut substantially. Eschewing "sticks and stucco" homebuilding, the structures are built using super-reinforced cinder block walls, totally insulating residents from virtually all exterior noises and temperatures changes (not that the La Jolla-like beach climate pushes the mercury around much). Off-the-grid solar-powered LED lights brightly illuminate walkways, driveways and the lush landscaping that is efficiently nourished using state-of-the-art automated grey water recycling technology. Residents can even separate their plastics, paper and green waste in a recycling program coordinated with a local middle school environmental program.
Not only are Playas Diamante Residential homes "green," they're "smart," too. Homes feature sophisticated alarms and lighting control that are automated or controlled via the owner's cell phone. Connecting the home intercom with the manned 24/7 front gate ensures convenience doesn't lessen the security of living in a gated community. Since all the homes have integrated high-speed cable, owners have the option to upgrade, allowing them to control their home lighting, security, air conditioning and even the window blinds remotely via the Internet.
At least one home shopper seemed impressed. "These are beautiful. The floor plans are smart and roomy. We never thought we could own a home that has a big balcony off the master bedroom with this view of the Pacific Ocean. So, we're really excited," said Adriana Comparan as she walked through a recently finished unit with her husband and their two elementary school-aged kids in tow. Judging by the number of children playing in the neighborhood, it's clear many families didn't pass up the opportunity to have a breathtaking ocean view themselves.
"Now, we're about to offer our best value -- the Diamante 'Crown Jewel' Penthouses. Given the great response, we have every expectation to close escrow on every unit by the end of January," said Gamez Martinez. With the security of U.S. title insurance combined with liberal financing and onsite property management, many investors and prospective homeowners frustrated with San Diego housing prices that have flattened at the top are seeing incomparable buying opportunities in Baja California, and savvy Mexican developers are building more affordable, quality housing to meet this dynamic shift in market demand. One look at Playas Diamante Residential is proof enough that the San Diego housing market now includes the beaches of Tijuana.

County's growth falls to 2.9%

Area drops below state, national figures
By Dean Calbreath
UNION-TRIBUNE STAFF WRITER

November 2, 2006

For the first time in six years, San Diego County's economic growth is lagging the rest of the state and nation, according to a report released yesterday by the Greater San Diego Chamber of Commerce.

San Diego's gross regional product is growing by an estimated 2.9 percent this year, the second-slowest growth rate in the past decade. In comparison, the report said, California has shown 3 percent growth this year and the United States 3.2 percent.

Next year's growth will be even slower, although San Diego will resume its position of outperforming the state and nation, the chamber predicts. The forecast projects that next year the county's economy will grow 2.5 percent, compared with 2.4 percent for California and 2.1 percent nationwide.

“San Diego has really been the harbinger for the state and national economy,” said economist Kelly Cunningham, who prepared the forecast.

“For the early part of this decade, San Diego led the nation in growth and now we are leading the nation in seeing our growth slow down.”

One of the chief culprits for the slowdown is the decline in home construction and growing softness in prices. In San Diego County, median home prices have dropped 4.4 percent since last year, according to the latest figures from DataQuick Information Systems.

Cunningham – who once worked full time for the chamber and now works as a consultant – predicted that prices could decline an additional 5 percent over the next year.

“The biggest declines will come in condominium prices,” he said. “We're really overbuilt in condos. And I'm concerned about the growth of condo conversion.”

Cunningham noted that the weakness in home prices may have led to a cutin consumer spending. After adjusting for inflation, retail sales have been close to flat since the end of 2004, he said. He estimated that the sluggishness will continue through at least mid-2007.

Jon Haveman, co-founder of Beacon Economics, a forecasting and research firm, said, “I hate to be bearish, but I have to be.” With a decline in home prices and a rise in foreclosures, “Consumers are going to start cutting back their spending, and if they cut back too dramatically, it could lead to a recession.”

On the other hand, Haveman said, a good omen for California is that all of the state's regional economies – except for the areas around Santa Rosa and Fresno – are still growing relatively well. And if California businesses increase their spending, they might make up for pullbacks from consumers.

“Corporations are sitting on pretty large war chests right now,” Haveman said.

James Hamilton, economist with the University of California San Diego, said there are signs that housing may be bottoming out. Since July, he said, mortgage rates have dropped by almost half a percentage point, which could be enough to bolster the market.

He noted that it typically takes up to 16 weeks for home prices to reflect changing interest rates, which means that the market could improve soon.

However, there are several factors that could keep prices declining, he said. A spike in loan defaults and foreclosures “could give us a much uglier scenario.” And home buyers might be slow to enter the market, hoping that the longer they wait to buy a house, the cheaper it will get.

“I think it's a little more likely than not that we have reached the bottom (in housing prices),” he said. “But there's still a very significant possibility – maybe 30 or 40 percent – that things could get much more frightening.”

Buyers, sellers having to readjust expectations

Coachella Valley market is changing, but prices have not fallen like other areas
Lou Hirsh
The Desert Sun
October 15, 2006

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Those who do sell their homes are still making money on them.
But in today's Coachella Valley real estate reality, home price appreciation, on a year-over-year basis, has slowed into the single digits - most recently at about 8.1 percent in August, down from 19.7 percent in August 2005 and the seller-heyday 37 percent of July 2004, according to DataQuick Information Systems.

Multiple Listing Service data from the California Desert Association of Realtors indicates that for the first eight months of 2006, the median price of $380,000 was an increase of 1.3 percent from the same year-earlier period.

In 2005, the appreciation rate for the same period was around 20 percent.

Unlike what's happening in places like San Diego, valley prices year-over-year are not yet falling - with the monthly median sales price still hovering just below $390,000.

But sales counts are down more than 40 percent from a year ago, according to DataQuick.

The current market means buyers, sellers and investors are all having to readjust their expectations.

"I have to tell sellers not to price their house up too high, but to price it at what they're willing to accept and negotiate from there if they have to," said Rocio Flores, a real estate agent with Century 21 D'Oro in Indio. "There's a ton of inventory out there, especially with the new building still going on."

The speculator effect

Many of the homes constructed and purchased in response to the frenzied 2004 market - often by nonresident investors - are now sitting empty, frequently being offered up as rental units.

And at some of the larger subdivisions, homes continue to be built, adding yet more competition for investors still trying to sell properties purchased during the boom of 2004-05.
"It's a much more competitive market out there right now, and builders are having to do things to entice buyers," said Fred Bell, executive director of the Southern California Building Industry Association's Desert Chapter.

In response, some new-home builders are throwing in free pools, casitas and major price breaks to move their product. And instead of seeing bidders line up, some resale-home sellers are now having to drop prices by tens of thousands of dollars, as the sellers' market of two years ago moves in favor of buyers.

Even though their true impact has never been calculated, experts agree that much of the mass buying and building activity of that frenzied period of 2004 was spurred by speculators.

As occurred elsewhere in California, speculative buyers - many of them not residents of the valley and with no plans to live here - often purchased large quantities of resale or new-construction homes, aiming to "flip" them quickly for a profit.

With that party long over, the rest of the valley market is feeling the hangover - though the local market still hasn't been hit as hard as places like San Diego.

"I'm sure there were a lot of speculators who bought here in 2004 and 2005 but decided, 'Hey it's been a good run,' and they're not in the market anymore," said Chapman University economist Esmael Adibi.

He regularly tracks valley economic trends and is the co-creator of The Desert Sun Economic Index.

"But any of them who are still in the market, I imagine they are having problems selling those homes," Adibi said.

The news isn't all gloomy. Some local experts maintain that consumer shopping and sales activity remain steady in the higher price categories, as baby-boom retirees and other second-home buyers look for deluxe homes at prices still favorable compared with other regions.

"I truly believe that this market is still seeing good interest at the higher end," said Mary Garcia, an agent in the Palm Desert office of Dyson & Dyson Real Estate.

She said she is still seeing committed buyers, particularly in the $600,000 to $900,000 price range.

"My office showed homes (in that range) to about 30 couples in two days in early September," Garcia said. She noted that about 10 percent of those shoppers would likely go on to close a deal on a valley home by the time the month was out.

Historically normal trend

Garcia said shoppers from outside the valley - places like Northern California and Los Angeles and Orange counties - currently comprise about 60 percent of the buyers and browsers she's been showing homes.
Even at the high end, she said buyers are conscious of value. For instance, she noted that while $600,000 buys around 2,000 to 2,500 square feet in a new valley luxury home, the same space in a comparably built house would cost around $900,000 in competing regions of California.

Several local observers contend that the current market phase - being witnessed throughout California and the nation - is historically normal.

The valley's current unsold inventory, for instance, is about where it was 10 years ago.

They also note that all high-flying markets must eventually moderate to sustain long-term growth and bring the needs of buyers and sellers into balance.

"This housing market cycle or slowdown is different than others in the past in that local economies are still strong," said Greg Berkemer, executive vice president of the California Desert Association of Realtors.

"Jobs are increasing, and incomes are not dropping. That may help mitigate its length and descent."

Berkemer contends there is still pent-up demand - just not at some of the current price points.

But as sellers lower their prices and "reality settles in" - with the market shifting into a true buyer's market - those priced out of the market over the past two years may find themselves able to get back in and purchase a home.

For now, according to real estate analyst Patrick Veling, seller motivation is the big unknown factor.

Some valley sellers may have listed their homes out of fear of missing out on a market peak.

However, most have not been lowering prices significantly as inventory has risen, and a truly enthusiastic buyers' market has not yet materialized.

"Is it a meltdown? No," said Veling, president of Real Data Strategies in Brea. He tracks all aspects of the local home market.

"Can it lead to a potential reversal in prices? Possibly, if sellers are actually motivated."

Especially at the higher end of the pricing scale, where sales are still steady.

Seen it before

Veling theorized that some sellers have enough equity in their homes, and are otherwise in a sound enough financial position, that there is little rush to drop prices.
He said the valley real estate market remains in the "soft landing" mode that he and other experts projected more than a year ago. Mortgage interest rates are still historically low, and the rising inventory is the only fundamental that has changed, Veling said.

Some experienced home builders say what they're seeing now in the valley is nothing new to them.

They point to residential building rates that have been slowing in recent quarters, and note that the region is well poised to avoid the problems that occurred in the early 1990s. That came at a time of recession when new construction got too far ahead of demand and created a costly glut of homes.

"We've got a much smarter group of builders, and they are watching market conditions," said Bell. "They are aggressively managing the inventory."

Homes are now being built in smaller phases, with releases timed to better match current demand, he said.

While larger national builders have been forced to make major adjustments in the current market - Toll Brothers, for instance, recently witnessed a rise in luxury-home orders being canceled and had to scale back production - the pace of the current market suits smaller, locally based builders just fine.

Rudy Herrera, a partner in Palm Desert-based builder Family Development, contends that the current market is better suited to the valley's supply of qualified construction workers and materials.

Today's buyers don't have to wait months to see construction begin on homes they've purchased, as frequently happened to customers of several builders during the frenzy days of 2004.

"No builder could possibly deliver 30 homes a month, even if they wanted to," Herrera said.

In today's market, builders are satisfied selling four to 10 homes per month for each development.

Builders note that today's demand is still strong, especially in places like northern Indio, and the simultaneous slowdown in construction and sales should allow the valley to absorb its current new-home inventory in a year to 18 months.

Builders' per-home profit margins may have dipped from their 2004 levels - going from 25 to 30 percent to around 10 to 15 percent, according to local experts.

But Herrera said current conditions are not abnormal for a growing community experiencing natural real estate cycles.

"If we had somehow circumvented everything that happened in the last two years, people would look at the sales they're having right now and would be quite happy with them."

Today's market is very familiar to Mickie Riley, who's been in the home-building business for more than 30 years. Two years ago, he moved his company, Rilington Communities, from San Diego to Cathedral City. He said he's quite happy to be selling four to six homes per month in his valley developments.

While their effects still linger in the valley market, builders like Riley say good riddance to the speculator crowd that helped create today's surplus of unpurchased homes.

"They're gone from this market - which is good for us," he said. "We have always tried to sell to families and communities."

"It's better that way because if you sell to (nonresident investors) you end up with things you don't want - like neighborhoods of rental houses where you'd rather see owner-occupied homes."

Questions ahead

Builders and other real estate observers are betting that current inventory will be absorbed in the long term, as the valley population grows and demand for homes keeps rising.
They point, for instance, to state projections that the valley's current population is likely to double by 2030, to more than 700,000 residents.

Nevertheless, the experts acknowledge there are several economic factors that must be monitored to determine the long-term future of the local housing market.

Economist Adibi pointed to the possible impact in late 2006 and 2007, when rising interest rates cause many home-buyers who took out interest-only and other nontraditional loans to face much higher monthly payments, as low introductory fixed rates turn adjustable.

Real estate agent Flores said she is already seeing a few cases where recent buyers are becoming overwhelmed by suddenly rising monthly mortgage payments, compounded by property taxes and insurance payments now coming due. Those owners could end up pricing their homes to sell quickly, so they can get out from under the loans and at least break even on their investments. That in turn could lower prices in the overall market.

In the current market, Flores theorizes that many potential valley buyers across all price ranges are sitting on the sidelines because they are uncertain of how mortgage interest rates, pricing and other economic factors will play out in the coming months.

"People are wondering, should I buy now or wait six months?" she said. "They're not sure what to do."

Economists are also watching for a potential increase in foreclosures in the coming year. In the past year, foreclosures of valley homes have remained historically low, although notices of default - sent by lenders when payments are overdue - have been rising.

Another factor is what the Federal Reserve does in its efforts to stem inflation. The Fed recently paused in its moves to bump up interest rates, but Adibi said that pause may not hold for long if fuel costs and other consumer prices head up in the future. Fuel prices recently have been trending down.

Bell emphasized that most conditions that bear studying are out of the direct control of valley builders, buyers and sellers.

"Right now we have a situation that builders can live with," he said. "I think we should be able to get through this market OK, as long as there are no further impacts from interest rates or some other economic event that hits the market."

For the most part, said analyst Veling, the long-term outlook for the valley real estate market - including the resale sector - remains positive.

"The unknown is whether the sellers get motivated enough to start lowering their prices significantly," he said. "Right now that just is not happening much."

Those Seeking Downtown S.D. Retail Space Better Act Quickly

Colorado-Based Smoothie Operation Hopes to Put the Squeeze on Its Rivals

By JESSICA LONG
San Diego Business Journal Staff

Downtown retail vacancies during the first six months of this year improved compared with the same time last year, although more space exists today.

A report released last month by Burnham Real Estate’s Urban Retail Group finds that of the roughly 4.6 million square feet of retail space in downtown today, only 6.6 percent, or about 303,000 square feet, is available. As of summer 2005, there was only 4.4 million square feet of retail space in downtown, with a vacancy rate of 7.8 percent.

“The new space that has come on-line is being absorbed quickly,” said Bill Shrader, senior vice president and principal with the San Diego-based retail group.

But Shrader also said, in a prepared statement, that a “notable lack of supply by late 2007 and 2008” could be in store for downtown San Diego because of the postponement and cancellation of new projects. Among recent projects to be delayed is the redevelopment of the Navy Broadway Complex, nearly 15 acres downtown expected to be transformed into office towers, a hotel and retail space.

According to the Burnham report, roughly 460,000 square feet of retail space is planned or under construction this year compared with a million square feet last year.

The downtown neighborhood with the highest vacancy rate is East Village, at 15.1 percent, followed by downtown’s core, 10.8 percent, Cortez Hill, 10 percent, Columbia, 8.7 percent, the Marina District, 5.1 percent, Little Italy and the Gaslamp Quarter, tied at 4 percent, and Horton Plaza, 0.8 percent.

The Gaslamp accounts for 21.1 percent of the roughly 4.6 million square feet of retail space in downtown today, followed by Horton Plaza, 21 percent, East Village, 15.7 percent, downtown’s core area, 14.2 percent, the Marina District, 9.4 percent, Little Italy, 8.9 percent, Columbia, 7 percent, and Cortez Hill, 2.7 percent.

Just outside downtown, other neighborhoods that may catch some of downtown’s retail overflow are Bankers Hill, Hillcrest, Mission Hills and North Park. Combined, the four neighborhoods tout roughly 1.7 million square feet of retail space today, running at a 9 percent vacancy rate.

The Burnham report finds that North Park has the most space, with about 650,000 square feet, followed by Hillcrest, about 630,000 square feet, Bankers Hill, about 191,000 square feet, and Mission Hills, about 190,000 square feet.

The highest vacancy rate among the four can be found in Bankers Hill, at 15.8 percent, followed by Hillcrest, 9.1 percent, North Park, 7.4 percent, and Mission Hills, 7.3 percent.

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Franchise News: Another juice bar franchise plans to squeeze into the San Diego marketplace.

Colorado-based Squeeze Fresh Smoothies announced Sept. 21 that it plans to open at least 36 stores in San Diego by 2013, with the first opening by the end of the year. Squeeze would join other major juice bar franchisers Jamba Juice Co. and Robeks Fruit Smoothies & Healthy Eats.

The Housing Market's Next Boom: Commissions

As competition in downtown's condo market grows, the deal-sweeteners in some recent sales are going not to the buyer, but to the buyer's real estate agent.
By WILL CARLESS Voice Staff Writer
Wednesday, August 2, 2006 6:51 PM PDT

(Editor's Note: Due to mathematical errors, the original version of this story gave the false impression that Richard Caty, the seller of the condo, netted about $14,500 less than he would have had he dropped the condo's price $24,000 and sold it with a regular commission. Rather, the difference would be an estimated $3,645. Caty and his agent said he made no more or less on the sale as a result of the commission, as his agent said the buyer made other concessions in the closing of the deal. Likewise, the original version of this story erroneously reported that agent Scott Hoover's commission would have been $13,530 had he received a 3 percent commission. The commission should have been estimated at $19,530. We regret the errors.)

Friday, July 28, 2006 | In San Diego’s stagnant downtown condo market, sellers trying to unload their properties have discovered a new tactic: Offer real estate agents up to three times the normal commission to find a buyer.

Those who have pioneered the trend say it's capitalism at work, with motivated sellers looking for new ways to make their condos stand out from the growing crowd of downtown properties on the market. But the beefed-up commissions have others in the industry concerned that the new approach leaves Realtors -- rather than buyers -- reaping a windfall from a buyer's market.

In at least one of the three examples recorded locally in recent months, the seller offered the enhanced commission instead of dropping his sales price by $25,000.

"Thank God you can’t find that many, that there aren’t that many out there. There is something that isn’t absolutely correct in what’s being done," said Tom Stevens, president of the National Association of Realtors. Stevens said though high commissions are a legitimate sales tactic, commissions as high as 7 percent or 8 percent are unusual.

Some industry experts worry that the new marketing technique could lead an agent to hunt for the best commission, rather than the best property for their client.

"I think there's definitely an inclination on the part of agents to steer their buyers to deals where the commission levels are offered at higher amounts. That's just human nature," said Gary London, president of the London Group Real Estate Advisors in San Diego.

Typical commissions downtown range between 2.5 percent and 3 percent of the sales price, and are set and paid by the seller of the property. In recent months in San Diego, buyer's agents have three times received a commission of between 7 percent and 8 percent, according to the Multiple Listing Service -- a database of local real estate transactions.

All three deals were recorded in the first five months of 2006, but local Realtors said the practice is more widespread than the MLS records suggest. Each of the three recorded high commissions came from downtown condo sales.

The trend comes as the downtown condo market cools. Three years ago, there were fewer than 100 condos for sale in downtown San Diego. These days, there are nearly 600 condos for buyers to choose from.

As sales have slowed, increased competition among sellers has inspired a host of marketing incentives aimed at attracting buyers: Sellers have offered to pay buyer’s homeowners association fees for five years. Some have even bought exotic sports cars for agents who can close deals. Meanwhile, many local developers have increased their standard commission rates for agents who bring them buyers -- but not to the extent of the handful of high commission deals seen recently in downtown.

In what is supposed to be a buyer’s market, the increased competition for sales often results not in cheaper homes for buyers, but in more lucrative deals for the agents involved, some local experts said.

Other local Realtors said such deals are a natural byproduct of a changing market.

"It’s just people helping people," said Tyler Adams, a San Diego Realtor who received a beefed-up commission one of the recent high-commission deals. "When an agent offers a high commission, they’re letting other agents know they’re serious."

Adams said the MLS records are deceptive and that there are many more high-commission deals happening in San Diego at the moment and not just in downtown. He said he knows of at least 10 high-commission deals currently pending in downtown.

"You just have to know the right people," he said.

In May, Richard Caty sold his one-bedroom condo in the Grande condo tower overlooking San Diego Bay using a high commission to attract buyer’s agents.

He had been willing to lower his asking price by $25,000, he said, but instead chose to pay out a higher commission upon the urging of his real estate agent. The incentive worked. So well, in fact, that he ended up selling his unit for $651,000 -- $2,000 more than the asking price, according to property records.

The buyer’s agent in that deal, Scott Hoover, a broker based in the Ventura County town of Newbury Park, received a $48,825 commission. At a standard 3 percent rate, the commission would have been $19,530.

Caty said the deal left him feeling uneasy -- he said he was concerned that the Realtor was reaping the high commission at the expense of his buyer, who could effectively have bought the condo at the reduced price.

"There was a lean, green doubt in my mind," he said.

The buyer of that property, Gene Azar, also of Newbury Park, said he was happy with how the sale panned out. He said he was unconcerned by the high commission his agent received for arranging the deal, even when he learned he could have purchased the unit at a lower price.

Ben Mason, who as Caty's agent set the commission, said the offer is just the latest in a long line of incentives that have grown out of the changing real estate market in San Diego.

"When you have a motivated seller, the commissions are driven by that motivation," he said.

Jim Abbott, a downtown Realtor who wasn't involved in any of the recent condo deals, said there are two schools of thought when it comes to incentives: cater to the buyer directly through price reductions or other perks like paying their homeowners association fees, or look to agents by offering a higher commission.

Abbott prefers enticing buyers directly, but said he understands why some sellers instead choose the other marketing route.

In a market with hundreds of listings, buyers are spoiled for choice and sellers have to make their property visible, he said.

"If you’ve got 300 things to choose from, which 20 are you going to show?" he said.

A buyer’s agent owes a duty to his or her client to represent their best interests. That’s a fundamental principle of the real estate industry.

It’s the agent's job to find a property that best suits their client's needs, regardless of what commission they are likely to get out of the deal. The concern among some analysts is that Realtors could take advantage of their position to reap the high commissions instead of best serving their clients.

Raphael Bostic, an analyst at the University of Southern California’s Lusk Center for Real Estate, said buyers and sellers are especially vulnerable in a market in transition like downtown San Diego. Sellers may feel helpless because they are desperate to make a sale, he said, and buyers may be unaware of the area, the sales history in a neighborhood or the shifts that are taking place in the market.

"The Realtor’s able to take advantage of desperation on both sides," Bostic said.

If Realtors are taking advantage of market conditions, consumers were doing the same thing when the real estate market was hot.

A couple of years ago, when condos in downtown San Diego were selling within days of being listed, Realtors often found their commissions reduced. With so many buyers to choose from, sellers could negotiate commissions downwards and, according to downtown Realtors, they often did.

But these days, selling a property can almost be something of a liability for agents, said Anthony Napoli, a Realtor in Little Italy. It could take an agent several months to sell a property in today’s market, he said. That costs time and money, he said, and it’s only natural that a Realtor should expect a non-discounted commission in return.

"To do it properly, you have to make up fliers, you have to put ads in the paper, you have to run open houses -- that all takes time and material and personnel," Napoli said.

Nevertheless, Napoli thinks 3 percent is an adequate commission to pay buyer’s agents.

Charles Jolly, president of the San Diego Association of Realtors, said his organization has never commented on commissions. Commission levels are set by each brokerage or broker, he said, and it’s not the association’s place to comment on individual marketing techniques.

Key Home Market Losing Steam

The median price in San Diego County in May is essentially flat from a year ago, data show.
By Annette Haddad
Times Staff Writer

June 15, 2006

The air is finally coming out of San Diego County's housing bubble.

Last month, for the first time in seven years, the median home price in San Diego County was essentially flat from the year before, the most dramatic sign yet of Southern California's softening housing market.

The median price in May of all new and existing homes was $490,000, a 0.4% change from $488,000 of May 2005 and down 3% from April, according to DataQuick Information Systems.

What's more, May's figure was down 5% from San Diego County's record level of $518,000 set in November.

The median is the price at which half of all homes sold for more and half for less.

Meanwhile, sales were lower for the 23rd month in a row. In all, 4,217 transactions closed last month, an 18% decline from the year before. May's sales were the fewest of any May in 10 years, DataQuick said.

For months, all eyes have been on San Diego County's housing market, once the hottest in the nation and considered a bellwether for other markets. It was among the first regions to see rapidly rising prices and in recent months was one of the first to experience an obvious simmering down. Whether the county's leveling prices portend an economic "soft landing" or a more serious downturn has been a subject of debate.

Local housing industry executives view the slowdown as a return to normal conditions after a prolonged period of extraordinary growth.

The cooling off "is a natural occurrence of an overheated market that lasted far too many years," said Rick Hoffman, president and chief operating officer of brokerage Coldwell Banker in San Diego.

Other indicators underlined the softening: Homes are sitting on the market an average of 66 days, and the inventory of unsold existing homes equals a seven-month supply at the current sales pace, Hoffman said.

The biggest price adjustments last month were evident in the new-home category, which includes condominiums and condos converted from apartment units. An explosion of condo construction, especially in San Diego, has resulted in an overabundance of choices for buyers. As a result, builders have offered price discounts and other incentives to induce buyers.

In May, the county's new-home median price fell 4.5% from the year before to $424,000, down 17% from April.

News briefs from San Diego area

The Associated Press
Associated Press

SAN DIEGO - The Miramar Marine Corps Air Station is now back in the sights of regional airport officials as a deadline looms to select a site as an alternative to Lindbergh Field.

Councilman Tony Young proposed joint use of bases at Miramar, North Island or Camp Pendleton during the three-hour San Diego County Regional Airport Authority's strategic planning committee meeting Monday.

The military has no interest in a joint-use airport at Miramar, but Young said the authority should consider a stand-alone operation at Miramar. The authority is facing a May target for a site decision.

"Let's find ways in which we can come up with a solution together," Young said. "Let's make a deal."

But Marine and Navy leaders have said the current Miramar/North Island/Camp Pendleton base combination offers an ideal configuration of strength and readiness that can't be duplicated anywhere else in the world.

Young's motion was approved 3-1 and now goes to the full board of directors next week.

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SAN DIEGO (AP) - The ringleader of a telemarketing Ponzi scam was sentenced to nearly five years in prison and six others got terms ranging from 10 months to 3 1/2 years.

Investors were defrauded out of more than $18 million with the promise of easy money through infomercials.

The leader of the scheme was Mark McClafferty, 40, who was sentenced by a federal judge on Friday. Through his Progressive Financial and Commercial Express firms, more than 700 people invested money in 1997 and 1998.

U.S. District Judge Napoleon Jones also ordered McClafferty and several executives to pay $15.5 million in restitution. But prosecutor Steven Peak said it was unlikely investors will get all of their money back.

Investor money supposedly paid for television time and investors were told they would be paid from the sales of products. Infomercials touting products such as a mosquito repellent, a hair band and a device to jump-start cars were produced.

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VISTA, Calif. (AP) - A judge refused to lower the $2 million bail for each of the five men charged with plotting the deaths of three people, including two brothers owed money for offshore sports bets.

Deputy District Attorney Tom Manning told Superior Court Judge Adrienne Orfield on Monday that associates of the defendants, as well as some of the accused, admitted to the alleged murder plot.

Scott Lee Sepulveda, 24, Bryan Speicher, 22, and Brian Edward McConnell, 25, all of Carlsbad, as well as Joseph Micah Shiller, 21, of Encinitas and Carlos Luis Ramirez, 25, a sailor aboard the USS Tarawa, were each charged with three counts of conspiracy to commit murder and one count of conspiracy to kidnap. They all also face gang allegations.

Prosecutors said many of the defendants met while attending La Costa Canyon High School and they were members of the "Shadow Crew," an affluent gang that supposedly modeled itself after "The Sopranos."

The defendants sold drugs and committed robberies, Manning said, and they allegedly plotted the killings during a meeting earlier this year.

"This group got together to kill three people," Manning said. "Mr. Sepulveda owed a sizable gambling debt."

Investigators said one of the gang members told police he was ordered to kill two brothers who were bookies. A March 16 police raid at the homes of defendants turned up about 25 handguns and rifles, ammunition, handcuffs and ski masks, police said.

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OCEANSIDE, Calif. (AP) - Toxic dirt imported to the site of a housing project has shut down construction.

Additionally, officials don't know what happened to at least 1,000 cubic yards of the contaminated soil from a downtown lot where the city and the North County Transit District are building a parking garage.

Construction of three homes on Barnwell Street was halted by the city last week after tests showed high levels of petroleum hydrocarbons, a neurotoxic substance that can affect the eyes, skin and respiratory system.

"It is our opinion that soil that was transported from the transit center to the site is a probable source of elevated petroleum hydrocarbons in fill soil at the site," read a report by the Taylor Group.

The report recommended that the top 3 feet of contaminated soil be excavated and replaced.

A month ago, city transportation director Frank Watanabe assured residents that "all of the soils that were contaminated were sent to Arizona (to be placed in a landfill)."

"It's unbelievable," Councilwoman Shari Mackin said. "With the background we had on that transit center parking lot, now this soil ends up in a residential neighborhood. How?"

Oceanside civil engineer Gary Kellison, who is managing the parking garage project, said Monday that the contaminated soil at the garage site was "identified and segregated."

Kellison said he did not know how contaminated soil reached the Barnwell project, or whether more contaminated soil had been shipped outside of the city for use in other projects.

Home Sales Plummet

By WILL CARLESS
Voice Staff Writer
Wednesday, March 1, 2006

As the number of existing home sales drops around the nation, San Diego is being hit disproportionately hard. The drop off in the sales rate in America's Finest City was four times the national average in January, a decline experts said was unexpectedly steep.

In a press release issued Tuesday, the National Association of Realtors said the seasonally adjusted existing home sales rate in January 2006 was 5.2 percent lower than in January 2005. The seasonally adjusted rate is a method analysts use to calculate the number of sales taking place, and which takes into account the fact that certain months are always slow for real estate.

While significant, that figure is tame compared to the statistics for San Diego. Seasonally adjusted existing home sales rates in San Diego County were down 20.2 percent in January 2006 compared to 2005, according to the California Association of Realtors.

None of the local experts seem particularly surprised by the drop-off in sales, though.

"The areas with the highest appreciation are likely to be experiencing the slowdown right now in terms of sales. California, and San Diego in particular, will fit into that category," said Alan Gin, professor of economics at the University of San Diego's Burnham-Moores Center for Real Estate.

In California as a whole, the sales rate was 24.2 percent lower in January than at the same time last year, according to Robert Kleinhenz, deputy chief economist at the California Association of Realtors. Kleinhenz admitted that's a sharper drop that he had expected.

"We expected a statewide decline in sales compared to a year ago probably more like in the high teens -- a 16 or a 19 percent decline in sales -- but we wound up with a 24 percent decline in sales," Kleinhenz said.

Even so, he added, there are some legitimate reasons for the weaker-than expected sales figures. Interest rates in the last quarter of 2005 were above 6 percent for the first time in a while, which he said probably had an adverse psychological impact on buyers and led to less sales being completed in January. As the year wears on and buyers get used to the higher interest rates, Kleinhenz expects sales to pick back up somewhat.

The drop in California home sales in January 2005 compared to January 2006 is the highest year-on-year decline since December 1990, when sales dropped 25.2 percent.

But that was a completely different market, said to Russ Valone, president and CEO of Marketpointe Realty Advisors. The sharp drop off in sales in the early 1990s was due largely to job losses and economic shocks outside of the housing sector, he explained.

"What you were probably seeing back then was maybe a drop from a normalized market to a true softening market, whereas what you're seeing here is a drop from a peak to a normalized market," Valone said.

Gary London, president of The London Group Realty Advisors in San Diego, agreed with Valone's assessment. He said the sales figures correlate with data showing a slowdown in home price appreciation within the county, and are simply illustrative of a cooling housing market.

But common sense decrees that a 20 percent seasonally adjusted drop in sales activity shows signs of a greatly weakened housing market. The pool of buyers is starting to dry up in San Diego, and in the past that has spelled bad news for home prices. The county's homeowners will certainly be watching the sales figures with consternation, but Valone says they've got nothing to worry about.

"As the market starts to cool, everybody gets afraid that all of a sudden there's going to be a freefall, so the market even cools a little bit more, until people recognize the fact that maybe the volume of activity is slowing down, but prices are still increasing."

And indeed, prices are still increasing.

The same National Association of Realtors press release that admits the sales drops also points out that home prices in the western United States are still up 13 percent from this time last year. Overall, home prices in the United States are up 11.6 percent from January 2005.

Of course, that's only if you can find a buyer.

Affordable San Diego Townhomes Almost Impossible To Sell

Nearly All Applicants For Affordable San Diego Housing Excluded

SAN DIEGO -- Affordable housing is incredibly scarce in San Diego, so why are brand new affordable townhomes nearly impossible to sell?

A brand new townhome with three bedrooms, 2 & bathrooms and a two-car garage is only $243,000, but the developer can't sell it.

"Unfortunately, we've had a challenge finding home buyers for those homes," said Marcie Little, with The Olson Company.

The Olson Company is building 11 affordable units in a project called Legacy Walk as part of the city's inclusionary housing program. But so far, nearly all 180 applicants, including Dominique Woodson, have been excluded.

"We were a little bit above the income level for here, as we found out, but not enough to live on the outside," said Woodson.

"I still feel a little angry about it," said Betty Cooks.

Cooks, also rejected, had the opposite problem. She just retired, so her income is low enough for the affordable housing guidelines, but not high enough to get a loan.

The issue is a single person can't make more than $44,400. For a couple the limit is $50,700, but they still have to qualify for a $1,875 a month payment, 10News reported.

"We've had over 180 people turn in applications, (but we were) only able to approve two of those people," said Little.

Little blames guidelines that are too narrow. She says they are unrealistic for people like the Woodsons who missed a golden opportunity over a few thousand dollars in income.

"If my husband and I made less, (I) don't see how we could make the payment," said Woodson.

The townhomes in the project offered at market rate, around $400,000, are selling quickly. It's the affordable ones half that price, that are left on the market empty.

The San Diego Housing Commission administers the affordable housing program.

Legacy Walk is located on Newton Avenue in Southcrest.

The Condo Glut Killed the Stadium

By SCOTT LEWIS
Thursday, Jan. 12, 2006

Let's get one thing straight -- the Chargers' stadium proposal was a good one. The football team had adroitly designed a plan that would make everyone happy.

It was a free stadium.

Nobody would have to pay for it. Everyone would gain: football fans would skip together down the sidewalk, the next 50 Super Bowls would be in San Diego (or was it 40?) and the perpetual thorn in the Chargers' side (aka City Attorney Mike Aguirre) was set to eat some humble pie.

Because it was a great deal.

And that's exactly why it died this week.

When everybody's happy with a deal like this, there's something wrong. I'm going to take a stab at what that was.

I'm pretty sure it's something to do with those guys twirling those signs on street corners -- a phenomenon particularly endemic to the congested confines of Mission Valley's sprawl. Seriously.

The Chargers' proposal, as team spokesman Mark Fabiani describes it, was simple in concept if extremely complex in its implementation. In order to avoid the whole issue of asking taxpayers to foot the bill for a massive civic project, Chargers officials came up with a solution: We'll build the stadium, we'll pay off the debt on the old stadium, we'll do everything -- all San Diego has to do is give us a bunch of land.

And here was the magic: They were going to take the land and turn it into 6,000 condos -- yes, a couple of other things too, but mostly condos. They planned to sell the condos and profits from those sales would be high enough to pay off the builder of the stadium. The snafu that finally killed the proposal -- and it's almost certainly dead -- was that the Chargers couldn't get a wealthy partner to pony up the capital to build those magic condos.

And although Fabiani deftly directed blame for the failure to the cloud of crap currently hanging over city government -- oh, and Aguirre as well -- he also acknowledged that there were other factors that negatively influenced potential development partners.

And one stood out specifically:

The San Diego housing market.

Fabiani said the Chargers courted three types of potential development partners. The first group was interested, but then, they weren't. The second group, simply didn't have the means to put up that much cash now.

And the third group … well, I'll let him tell it.

"There was a third group that said, 'This project is interesting but you're assuming that the housing market is going to remain really strong and we don't necessarily share your view of the housing market in San Diego," Fabiani said.

In other words, "we don't think we would be able to sell 6,000 condominiums for how much you think we'd be able to sell them."

And they've got a point. The inventory of condos for sale in San Diego has soared recently, as has the number of homes for sale on the market.

One need only look at the street corners in Mission Valley right now to see what that means: Guys twirling signs trying to get people to buy condominiums.

How about downtown? The inventory of condos there has soared. And thousands more are in the pipeline. It's hard to imagine how the availability of condos for sale won't be great for years to come. When potential condo buyers have many options to choose from, they're less likely to pay out the nose for a place. Especially if that place is in horrid Mission Valley.

The Chargers' proposal for a new stadium was so good because it appeared to protect taxpayers at the same time that it kept the team -- and their fans -- content.

But stadiums are not profitable enterprises for cities. They are part of that group of civic endeavors in architecture that are produced out of a surplus of resources. Along with central libraries, for example, cities are supposed to sacrifice for stadiums. You have to give something up, like time and money, in order to get one.

If stadiums, by themselves, were a profitable thing to do -- rather than just a benefit to the culture of the community -- we wouldn't even need discussions like this. People would just build them using their own capital.

The Chargers thought they could get some land from the city and then the magic of the Southern California housing boom would do the rest. At least some of their potential development partners said that was a faulty assumption.

So, either the Chargers will have to suck it up and simply pay for everything having to do with construction of a stadium, or taxpayers will. And with talk of bankruptcy still in the air around the city, it's hard to imagine any politician being able to sell the idea of directing taxes to a costly stadium project.

After all, politicians are always being told to treat governments more like businesses. In this case, the businessmen wanted nothing to do with it.

Housing prices had strong run; now what?

Experts divided over San Diego's outlook
By Roger M. Showley, Lori Weisberg and Emmet Pierce
UNION-TRIBUNE STAFF WRITERS

January 1, 2006

As San Diego County bids farewell to a five-year housing-price boom, the one question that lingers is whether the local real estate market is speeding toward a crash or gliding to a soft landing.

Some national real estate experts have placed San Diego on their list of cities that can expect price drops, which hasn't happened in the local market since 1995. But those based in California are more sanguine. They acknowledge some warning signs such as expected mortgage rate increases but foresee no collapse, pointing to a healthy local economy.

Across the country, economists are closely watching the county's real estate market, which defied some predictions more than a year ago by maintaining a price surge that went far beyond what many thought was possible.

Now, concerns are being raised that lenders have gone too far in making mortgages easily available through a host of new products. Analysts are alert for any signs of trouble, such as an increase in mortgage defaults.

Among the doomsayers is Fiserv CSW, a market research firm in Cambridge, Mass., that last month predicted San Diego's housing prices will drop 3.4 percent this year and 5.7 percent in 2007. The firm concluded, in a survey completed for Fortune magazine, that San Diego is second to Las Vegas as the most vulnerable metropolitan area out of 100 analyzed.

The company's experts include Yale University economist Robert Shiller, who has for a few years predicted a major housing-market downturn, especially in "frothy" places such as San Diego, where median home prices have more than doubled in five years.

In another analysis last month, Cleveland-based National City Corp. concluded that San Diego prices are 46 percent higher than local incomes can support. The company said the median home price here should be nearly $150,000 less than the actual price reported in the third quarter of 2005.

Closer to home, however, market watchers see a rosier picture. They believe that prices are likely to continue rising, just at a much slower pace, because of continued demand for homes fueled by job growth.

"I'd say housing is overpriced, but whether or not that implies that prices are going to crash is a different question," said University of San Diego economist Alan Gin.

He and other analysts predict prices will increase this year between zero and 5 percent, which could raise November's median home price of $518,000 to about $544,000.

Last year's overall rate of appreciation slowed to 7.5 percent, according to data being analyzed by locally based DataQuick Information Systems. That was the first year since 1999 that the county had a single-digit percentage gain – a far cry from a year earlier, when the median price jumped a record 21.1 percent.

"The boom part of the cycle is over," said DataQuick analyst John Karevoll. "Most of the gains this time around are behind us. Now the question is how much of those gains do we get to keep."

A 5 percent appreciation rate this year would be the lowest since the late 1990s, when San Diego was recovering from a long real estate recession and median home prices were under $200,000. Karevoll pegs the chances for a "soft landing" at 80 percent.

If an economic downturn does come, those most at risk are middle-wage borrowers who in recent years have relied heavily on highly leveraged loans to attain homeownership.

Often called "creative" or "non-traditional," these loans have allowed buyers to purchase homes in high-cost markets such as San Diego with less money down and little documentation to support their creditworthiness.

The trade-off is that the buyers with unconventional loans take on a higher risk of default if mortgage rates climb. Some analysts warn that such loans haven't been tested during a sharp downturn.

Watching the trend with mounting concern, federal banking regulators stepped in on Dec. 20. Five institutions, including the Federal Reserve, issued a "guidance" to lenders. In part, it says tighter regulations are needed for interest-only loans, payment-option adjustable rate mortgages (ARMs) and simultaneous second mortgages that reduce down payments.

"We have seen the mass marketing of these loans and the growth of these loans and determined it was appropriate for us to take a closer look," said Barbara Grunkemeyer, deputy comptroller for credit risk at the Office of the Comptroller of the Currency, who led a multi-agency task force that studied the issue.

Regulators are seeking comments from lenders before making the notice final, but substantial changes in the document aren't expected, said David Barr, spokesman for the Federal Deposit Insurance Corp. Once finalized, it "applies to all banks and savings and loans and their subsidiaries, so ... it does have pretty broad reach," he said.

The regulators have "joined a chorus of critics on the impact of some of the new (lending) products," said Nicolas Retsinas, director of Harvard University's Joint Center for Housing Studies. "This ranges from credit-rating agencies to consumer-advocacy groups, all with a common message. These products, particularly adjustables ... all add substantially to the risk to the home buyer."

Sensing a market slowdown, Shannon Bodnar and her husband, Alan, decided in April to put their Scripps Ranch home on the market and cash in on nearly four years of equity gains. They went ahead with a planned room addition and upgraded their 1,775-square-foot home with hardwood floors, new carpet and window coverings. New landscaping was put in the front yard and a hot tub was installed in the back.

"My husband is in grad school and due to finish next December, and we felt there was a good chance we wouldn't be in San Diego after that, and we didn't want to wind up not getting the most for our house," said Shannon, 33.

The couple's house went on the market in late June at an asking price of $699,000 to $735,000. By September, it had not sold and the couple brought in a new agent. Twice, the price was reduced, and by November the house sold for $660,000.

"We were hoping to be ahead of the curve, and I don't know if we were," she said.

The buyers were Suzy and John Marshall, both retired, who decided to return to San Diego after living abroad while John worked as a loss-prevention manager for the Army and Air Force exchange service.

"We realized we were buying at a higher price, but right now it doesn't matter because this is the home we'll be in for the rest of our lives," said Suzy, 54. "People always want to sell their homes for more than they paid, and I think the market now is not allowing them to make that windfall profit."

San Diego's real estate market, which has long favored sellers, is beginning to lurch toward buyers like the Marshalls. Today, the number of homes for sale hovers at 14,000, 55 percent above year-ago levels. For buyers, that means more choices.

It's also taking about two months to get a home into escrow, compared with three weeks at the peak of the 2004 selling frenzy. That gives buyers more room to negotiate and removes the pressure to make hasty decisions.

"Buyers no longer have fire in their belly. They're still worrying they're buying in a peak market and will end up losing equity they might have," said North County real estate broker Kris Berg. "There's just an uncertainty about where we're headed, which is causing buyers to sit back and think about it more."

Los Angeles economist Raphael Bostic says buyers now clearly have the edge.

"I think what we've seen is a transition of the market from a pure seller's market to one where the buyer has more leverage than they've had in recent years, so that's a sign we're returning to a saner market," said Bostic, of the University of Southern California's Lusk Center for Real Estate.

"The frenzy was unlikely to go on forever. For 2006, I think we'll see a slower, more measured-performing market."

Reflecting the changed market, sellers are including incentives unheard of months ago, such as higher commissions to agents, decorating and landscaping allowances and an offer to buyers of a "free" car.

The incentive of a $20,000 Nissan by condo-conversion developer Del Mar Heritage helped persuade Omar Faraj, 30, to buy a 1,164-square-foot town house in Escondido for $399,000, his first home.

"I just heard 'buy a condo, get a car' when I looked into it more," the Palomar Hospital pharmacist said. "I do need a car – I have a 1997 Altima – and I'd been thinking about upgrading."

Faraj said he is not worried that prices might dip or stay flat.

"I'm in it for the long term," he said. "I'm not in it for a quick flip."

With the promise of quick profits virtually gone, today's buyers may well have to follow Faraj's lead and stay put longer to earn enough equity to buy a bigger house.

Potentially worrisome is the impact of rising mortgage rates. Rates for benchmark 30-year, fixed-rate loans have remained above 6 percent for three months.

The outlook from economists is for a slight increase in 2006. David Seiders, chief economist for the National Association of Home Builders, expects the average for 30-year, fixed-rate mortgages will rise to about 6.75 percent by the third quarter, while the Mortgage Bankers Association predicts 6.8 percent by the fourth quarter.

Despite the pessimism of some housing analysts, one major forecaster has tempered its earlier opinion that California's real estate market was headed for a downturn. The University of California Los Angeles' Anderson Forecast, which has had a reputation for issuing doomsday predictions, eased its view in its latest report, which foresees a slowdown but no crash.

"Local housing markets will cool off, leading to a slowdown in spending and some job losses in construction and other real estate-related industries," said economist Ryan Ratcliff, who wrote the outlook. "With this in mind, we are currently forecasting a plateau in home prices, a moderate decrease in sales and new building and two years of weak growth. However, this forecast represents the middle of the road."

But Erik Bruvold, a vice president at the San Diego Regional Economic Development Corp., takes a more positive view. He said any hiccup in housing price appreciation may be brief because of a bright job picture, especially for the high-paying high-tech sector.

Looking to 2007, he can conceive of a sizable upturn in prices.

For entry-level buyers, the bright spot in San Diego County's pricey market has been the conversion of apartments into condominiums, a politically charged trend that has helped buoy the new-home market.

More recently, though, a glut of converted condos has slowed sales and has forced converters to offer incentives, while in the city of San Diego, the conversion process may be hung up by legal challenges over environmental issues.

"It's clearly a buyer's market," said Paul Kerr, president of Davlyn Investments, a local condo converter. "What's happened is that the investor buyer is no longer really active in San Diego County. The opportunity to buy a conversion and hold on to it for six months to a year and flip it and make $50,000 to $100,000 – those days are over."

With thousands of high-rise condominium units in development, downtown San Diego is regarded as a housing barometer by many industry watchers.

Real estate analyst Gary London said 2006 will see a "cycle of correction" after an infusion of 5,217 units downtown in the past five years. He says that while prices are flattening and sales are slowing, the long-term demand for downtown housing is secure.

Downtown real estate agent Eric Jones added, "Our speculator buyer is gone, which is good. We're glad to see the market settle down."

As the year begins, many say that a cooler housing market comes as a relief and that they are hopeful the market will find equilibrium. It is actually a good thing that the frenzy driven by price speculation has been removed, many analysts say.

"You should buy a house if you want to live in that house," said Bostic of USC. "If you're buying it for investment purposes, this is a relatively poor time to do that."

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."

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.

Condo conversions transform market

Trend can be salvation for new buyers, but the bane of displaced renters
By Lori Weisberg
UNION-TRIBUNE STAFF WRITER
April 17, 2005

First-time home buyer Kuazine King brags that on a clear day he can actually glimpse the ocean from the Scripps Ranch condominium he and his wife purchased last year for $369,000, a bargain in an area where the median-priced home exceeds $700,000.
No matter that this two-bedroom two-bath condo began life 20 years ago as an apartment. It's now appointed with new cabinetry and flooring, granite countertops and updated light fixtures.

"Maybe you could buy an older condo for the exact same money, but there's no way you could step in and get that same kind of newness you have here," said an ebullient King, who formerly rented in the 62-unit complex and recently started work as a real estate agent. "Tenants just aren't educated enough to know how great a deal this can be for someone just starting out. Anyone can buy."

Tell that to Richard Helwig, a five-year tenant at a South Bay rental complex slated for conversion to condominiums. With limited income and burdened with credit card debt, Helwig said there is no way he could afford a condominium, and neither could most of the tenants at the 188-unit complex where rents are still relatively affordable compared with other parts of the county.

"If they convert, all these families will be out," said Helwig, 63, a computer literacy teacher at a Catholic elementary school who fears that many in the complex will be left without a place to live. "As soon as they take this off the listing of available apartments, where do the people go? People don't like to be uprooted."

Such is the conundrum facing cities throughout San Diego County, which has experienced explosive growth in the number of rental complexes – large and small – being transformed into for-sale condominiums. Catching the cities by surprise, the number of converted condo sales has soared from just 306 in 2001 to 3,492 last year, an increase of 1,041 percent, according to MarketPointe Realty Advisors, which tracks new-home development. The firm reportsan additional 15,000 to 18,000 rental units could be adapted for condominium sales in the next few years.

Nationally, San Diego County has become a magnet for conversions, second only to Miami in percentage of apartments converted, said real estate broker Jon Busse.

To their supporters, condo conversions are a desperately needed antidote to an inflated housing market that has shut most renters out of homeownership. With newly converted condos often selling for as much as $200,000 below the median-priced home, a growing number of households are trading in their rent checks for mortgage payments.

The flip side, critics say, is that the rapid transformation of apartment buildings into for-sale housing is forcing the displacement of thousands of tenants while depleting an already limited supply of rental units. With a vacancy rate below 4 percent, they worry that displaced renters will be left with far fewer choices when they have to find a new place to live. In short, they say, it is a recipe for an even worse housing crisis.

"Conversions are a significant gold mine for the apartment owners or whoever is buying these," said La Mesa Mayor Art Madrid, whose city has opted to sharply limit conversions. "All you're doing is creating a greater population of homeless people when you evict individuals living in these apartments because that's pretty much what they can afford to pay."

La Mesa, a largely built-out city, regulates condo conversions by tying them to the number of apartments built during a two-year period, which has the effect of allowing few, if any, new projects.

Yet in neighboring El Cajon, where renters far exceed homeowners, the city has courted condo converters, believing that the refurbished buildings will boost homeownership while sprucing up declining neighborhoods and yield higher tax revenues.

"What really messed up El Cajon is that in the '70s and '80s we had an overabundance of apartments built, and we're still paying the price for that," Mayor Mark Lewis said.

"Homeownership is the key to everything, and this is about the only thing that people can afford these days. We're not depleting the rental stock. We already have more than our fair share. If you don't want your own home, then go down the street and find a place to rent."

Most elected leaders, however, have found that the concerns surrounding condo conversions are not so easily fixed with a single, surefire remedy. Increasingly, cities such as Imperial Beach, El Cajon and San Diego have been re-examining their regulations in response to the flood of conversion applications.

Some are beefing up development regulations governing reconstruction, while others are expanding relocation benefits for displaced tenants. In San Diego, for example, condo conversion developers must provide tenants who earn less than the median income with the equivalent of three months' rent, while in Imperial Beach the maximum benefit is two months' rent.

Though concerned about the negative consequences for some renters, cities nevertheless welcome the increasing supply of affordable housing for aspiring homeowners. Although prices of newly renovated condos have crept up over the past two years, they tend to start in the low $200,000 range for a one-bedroom unit and move up to the high $300,000s. By comparison, a new condominium averages nearly $500,000.

Despite the lower prices of converted condos, some affordable-housing advocates have called for a temporary moratorium in order to give cities breathing room to cope with the rapid rate of conversions.

In San Diego, the City Council's Land Use and Housing Committee held a joint workshop last month with the Planning Commission, which routinely was having its weekly agendas dominated by conversion applications, often averaging five to six a week. A number of potential remedies were discussed, but no firm direction was given. The commission will meet again May 26 to consider specific proposals that it will forward to the council.

Councilwoman Donna Frye, who serves on the committee, later said she would not be averse to a temporary moratorium "until we can have a full public hearing and make sure the issues we're hearing about are addressed."

In the meantime, requests to convert continue unabated. From 1999 to January 2004, San Diego received applications to convert 2,275 rental units into condominiums. In just a year since then, the number of units targeted for conversion rocketed to more than 8,000, which doesn't include an unknown number of projects that do not require city approval to be legally marketed as condos. City officials believe there are least 2,600 additional units in that category.

El Cajon has been similarly inundated, having approved projects to convert 1,800 units in the past two years.

"We have two (conversion) projects every Planning Commission meeting. We had been having three every meeting, but we don't have the staff to handle it," said Jim Griffin, El Cajon's community development director. "It seems like all we do is talk to people about condo conversions."

Condominium conversions typically encompass two types of development. Throughout the county, there are many complexes dating to the 1970s and 1980s and earlier that were built as condos but were rented out as apartments because of economic conditions at the time.

Now that condominiums are regarded as a far more lucrative investment than rentals, companies that have carved out a niche as condo converters are snapping up these older buildings, extensively renovating them, updating the interiors with modern amenities such as granite countertops and stainless steel appliances and then selling them as condos. Because the complexes originally were mapped as condominiums, they are not subject to city review.

Meanwhile, apartment owners hoping to capitalize on the rapid run-up in housing prices are rushing to get approvals to turn their rentals into condominiums, a process that can take as long as 18 months. They typically turn around and sell their newly mapped projects to the condo converters. Requirements for structurally converting apartments to condos vary widely from city to city, with some, such as San Diego, having no special conditions relating to structural improvements.

"The increase is attributable to the fear of apartment owners that the (conversion) process will get altered to their detriment," said Paul Kerr, president of Davlyn Investments, a prolific condo converter, with six projects alone in El Cajon. "Even if you have no intention of converting your apartment building, it's probably in your best interest to push through the entitlement process because at the end of the day the price of condos has increased significantly faster than rents."

Despite fears that renters are facing massive displacement, condo converters insist that the vast majority of their buyers are former renters who have never owned a home, meaning their departure will open up a rental vacancy somewhere else. (A recent MarketPointe survey of 550 buyers of converted condos found that 72 percent were first-time buyers.)

Converters also point out that they typically offer discounted prices or other financial incentives to help tenants buy condos and remain in their buildings, though they acknowledge that only a small percentage of the tenants end up buying in the complex where they live.

"I sell condos every day to people who would still be living in a rented apartment if it were not for the availability of a condo conversion," said Ralph Giannella, owner of Premier Coastal Development, which plans to sell 500 converted condos this year. "Remember, the people buying are coming out of a rented apartment somewhere else.

"Let's face it, there are so many positives with conversions. The only negative is that tenants are being displaced, but one of the biggest reasons tenants don't buy is the lack of knowledge that they can buy."

"Baloney," said Catherine Rodman, an attorney with Advocates for Social Justice, which assists local low-income households. "The losers are the tenants who cannot afford to buy. And it doesn't matter how much homeownership counseling they get, if there's not the financial and political support to help the tenants participate, there's massive displacement of these tenants."

The nonprofit organization Community Housing Works is holding workshops to educate tenants in San Diego about loan programs and subsidies that can help renters purchase lower-cost condos. With good credit and little or no debt, households earning as little as $36,000 a year could afford a $265,000 home, as long as they can qualify for the special home-buying assistance programs, said Gabe del Rio, director of the nonprofit's homeownership center.

Although Community Housing Works has not been tracking buyers of converted condos, last year it helped 50 first-time buyers purchase homes costing $325,000 or less, del Rio said.

A year ago, the city of San Diego set aside nearly $1.9 million to assist tenants whose complexes are being converted to condos, but so far no one has taken advantage of any of these first-time buyer loans. Some tenants simply are not interested in buying their units while others don't think they could afford the purchase price, according to housing officials.

Ultimately, many first-time buyers, who do not have ready cash for a down payment, opt to go with financing packages that require little or no money down.

Beauty college instructor Paul Ancho recently purchased a two-bedroom, two-bath condo in El Cajon for $279,000. His monthly payment, with 8 percent down and two mortgages, is $1,500, not including taxes, insurance and homeowner fees.

"I feel fantastic," said Ancho, 39, who noted that he spent the past five years living with his parents to save money. "I feel a lot more responsible and have a better outlook on life."

Purchasing a condo is not an option for Tamar Booth, 75, a retiree who can barely afford the $1,067 monthly rent she pays for her University City apartment. Notified that the complex will be converted to condos, she is desperately scouring ads to find a rental she can afford in a neighborhood offering the amenities she now enjoys in University City.

"I thought I was really set here, so it's very upsetting, and it's causing tremendous expense for me to move," said Booth, who does not qualify for San Diego's three months of relocation assistance because her complex was originally mapped as a condominium development. "It's giving up a whole lifestyle. It's very depressing."

Concerned about the proliferation of condo conversions, Rep. Bob Filner, D-San Diego, has joined ACORN, an advocacy group for low-income households, in calling for a citywide moratorium on conversions. He is especially troubled by the planned conversion of the 188-unit Southgate Village apartments, a particularly large complex in Otay Mesa, located in Filner's district. The complex still requires City Council approval before reconstruction and condo sales can move forward.

"Unless you can provide the renter with both down payment and closing costs, they'll never be able to afford to buy these," Filner said. "I would have a conversion ordinance that would put the burden on the city and the developer to find a program suitable for that to happen."

Condo converter Matthew Maisel of Maisel Presley Inc. worries that excessive efforts to regulate condominium conversions could have the effect of making such housing unaffordable. The result, he said, would be to eliminate the one source of entry-level housing that remains in San Diego.

"San Diego has a housing crisis, but not in the rental stock," Maisel said. "It's in the for-sale stock. If you cut the legs off that by modifying the condo conversion ordinance, you'll eliminate the affordable housing stock, thus driving up prices in a fashion heretofore never seen in San Diego."

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.

Market heading up or down? It depends on whom you ask

By Emmet Pierce and Lori Weisberg
UNION-TRIBUNE STAFF WRITERS
January 18, 2005

RONI GALGANO / Union-Tribune
Susan Marshall and Paul Devine watched their 11-month-old son Miles crawl in the front yard of their Normal Heights home, which they plan to sell next month.

With San Diego County's booming housing market showing signs of a slowdown, consumers are getting mixed messages about whether to expect a return of runaway prices, a steep drop in real estate values or something in between.
While the region can look forward to continued appreciation in housing prices, the customary annual gains of 20 percent and more are likely to taper off to more moderate levels this year, according to real estate professionals and most economists.

There is, however, a contingent of dissenters who say that housing prices will drop. Should that occur, the consequences could be greatest for heavily leveraged homeowners, who are counting on rising values to make large investments pencil out.

"We still have a shortage of housing, and as long as you have a shortage, the supply and demand factor kicks in," said longtime real estate agent Marjorie McLaughlin. "You probably won't see the huge jumps in appreciation we've had. It might be more like 6 to 8 percent per year."

San Diego County could be in a more precarious position than other areas because the most recent home buyers have relied on adjustable-rate loans, typically with low-cost introductory rates.

If home values start to slide and mortgage rates rise, those who bought at the peak of the market may find themselves unable to refinance their adjustable-rate loans, experts say.

Economists are predicting that interest rates this year will rise as much as 1 percentage point from their current level of about 5.7 percent for a 30-year, fixed-rate loan.

Anthony Downs of the Brookings Institution is advising Californians who are thinking of selling to do so quickly while the market is at or near its peak.

"I can't believe we can sustain this 20 percent annual increase," he said. "In the state as a whole since 1999, the median price has gone up 123 percent. That is three times as much as the country as a whole. Incomes have not gone up much at all."

Yale economist Robert Shiller, author of "Irrational Exuberance," is known as a naysayer who often gets it right. He says home prices here are poised to drop and he dismisses arguments that the low housing supply and diversified economy will keep prices strong. The gap between rising home costs and largely flat wages is so great that a sharp correction is inevitable, he said.

What pessimists fail to take into account, however, is the strong desire to live in Southern California, said Lawrence Yun, senior economist with the National Association of Realtors.

"Many contrarians who worry about the Southern California market will look to data like income but what they can't pinpoint is the desirability of living in California as opposed to living in Buffalo and Cleveland," he said. "And the migration trend has been toward warmer climates."

While prices in San Diego County continued to climb last year, the inventory of homes started to grow in the last half of the year, forcing some sellers to lower their prices. Consumers can expect more of the same this year, said agent K.J. Koljonen.

"I predict it's going to be more buyer-friendly where you can negotiate these deals and sellers don't hold all the cards," Koljonen said. "Buyers are in a position to negotiate a better price and come in lower on their offers. Sellers aren't getting top dollar now."

Tim Federighi, a veteran San Diego County real estate appraiser, maintains that the market has peaked. He sees signs of a sharp downturn in 2005.

"My gut feeling is we are going to have a market correction," he said. "The question is how long and how severe? When the median price is over $500,000, you are starting to price people out of the market. People can't afford the one thing everyone dreams of owning, and that's a home."

The University of California Los Angeles's Anderson Forecast rattled the real estate industry recently when it said San Diego County was experiencing an inflated real estate price "bubble" and that prices were due to drop. The full effect of that decline may not be felt until 2006, said UCLA economist Edward E. Leamer.

This year "will not be the year of pain," he said. "You can expect more problems in 2006 we believe; 2005 will be the slowing down of the overheated real estate sector."

However, University of Southern California economist Raphael Bostic disputes predictions of a housing bubble ready to burst. He believes demand will continue to outstrip supply, leading to an upward pressure on prices.

"The increase in mortgage rates will slow the rate of appreciation in the market. The question is, will it slow it by enough to where prices will actually fall," said Bostic, of the USC Lusk Center for Real Estate. "We're not likely to see that happen because excess demand has been so great and appreciation rates have been so high, we'd have to see real economic dislocation at a macro level."

Bubble or no bubble, Paul Devine and his wife, Susan Marshall, say they have to sell their tiny Normal Heights home and buy a larger house now that they have a baby. The continued run-up in housing prices does not concern them, although they know they need to look in areas of the county where they can get more for their money.

"The way I look at it, if you're planning to keep the house for a long period – more than 10 years – you're not affected by these short-term corrections," said Devine, who hopes to get as much as $440,000 for the 720-square-foot home he and his wife bought five years ago for $189,000.

"Our plan is to buy a house big enough for two kids, and that will hold us over for 10 years. If the market were to totally fall through the floor, we could continue to afford it. The value of the house is only the value the day you sell it."

With all the mixed messages, consumers may have a hard time reading the housing market in 2005, said John Karevoll, an analyst with DataQuick Information Systems.

"I don't think I have seen as wide a range of forecasts," he said. "You can find a forecast that tells you what you want to hear."

San Diego Near Bottom of Housing Affordability

Builders call for reforms to reduce housing costs
01/06/2005
by Larry M Edwards

The San Diego region is the second-least affordable housing market not only in California but the nation, according to a report released today by the building industry.

What's more, California is home to the 11 least-affordable housing markets in the nation, as reported by the the National Association of Home Builders/Wells Fargo Housing Opportunity Index. The revised index reflects housing costs during the third quarter of 2004.

In San Diego, just 5.4 percent of median-priced homes are affordable to families with a median income of $63,400, the study found. The third-quarter median sales price used in computing the index for the metropolitan San Diego area was $470,000.

In response to the findings, the California Building Industry Association is urging Gov. Arnold Schwarzenegger and the state legislature to enact reforms that would increase the pace of housing production and meet the demand for new homes and apartments. But critics of the builder say industry practices exacerbate the affordability problem and that builders are unwilling to contribute their fair share of infrastructure costs needed to support additional development.

"It used to be that California dominated the 'bottom 10' list of least-affordable metropolitan areas. Now, we are the bottom 10 -- and then some," said Robert Rivinius, the CBIA's chief executive officer.

"What's worse is that even in California's most affordable market -- Tulare County -- less than half of the county's residents can afford a median-priced home," he added.

The least-affordable market out of 162 metropolitan areas nationwide is Santa Barbara County, where a family earning the median income could afford only 4.9 percent of area homes, according to the revised index. The next four least-affordable areas are San Diego County, Monterey County, Los Angeles County, and Orange County.

In his second state-of-the-state address yesterday, Gov. Schwarzenegger said he would "propose legislation that eliminates regulatory and legal hurdles that delay construction and increase the costs of new housing."

"We need roads and we need affordable housing," the governor said. "I want a California where people spend less time sitting on the freeway and more time in the homes that they own."

The reforms called for by the governor and CBIA include:

Ensuring an adequate supply of land for high-density condominiums as well as single-family homes, particularly in job centers.
Legislation that eliminates regulatory and legal hurdles.
Streamlining the permitting process for new housing.
"The governor clearly recognizes that California cannot sustain skyrocketing home prices and that housing production needs to keep up with demand," said Steve Doyle, CBIA president. "An average California subdivision takes a decade to be approved."
San Diego City Council member Donna Frye agrees that housing affordability is major concern, but says the builders are being less than candid.

"San Diego requires up to 20 percent of new homes to be affordable, but in most cases, builders pay the in-lieu fees rather than offer new units at the "affordable" price because they make more money," she said. "That contributes to the rising cost of housing."

Frye also points out that if housing construction outpaces infrastructure development, it creates a multitude of problems, not the least of which is traffic congestion. Mission Valley, for example has hundreds of new units coming on line, but there is no new fire station to meet public safety requirements.

Bordering on the ludicrous, in North County a feud erupted between the cities of Carlsbad and Oceanside after new homes were built in Carlsbad before additional roads to handle the increased traffic were completed. That pushed the additional traffic into nearby residential neighborhoods in Oceanside, so Oceanside erected barricades to block it. Which, in turn, cut off direct access to a neighborhood school. Congestion on major arterials in the east Carlsbad area increased until new roads opened late last year. Oceanside subsequently removed the barricades.

Housing cannot continue to be built in a vacuum, Frye said. It must be built in a coordinated manner that takes into account infrastructure needs that include roads, public transit, water, sewer, energy, open space, parks and public safety. And that requires comprehensive planning and development, which takes time.

As for developer impact fees, Frye said they are likely to go up within the city of San Diego. Carolyn Chase, a member of the San Diego Planning Commission and spokesperson for the Sierra Club, supports the fee increase.

"The building industry likes to believe it pays its fair share, but it doesn't," Chase said. Last year, she led an opposition effort against Proposition A -- the TransNet transportation initiative on the November ballot -- in part because commercial and industrial development is exempted from paying additional impact fees.

"It seems to me that if a new building has people working there, that will have an impact on roads and traffic," she said. "I don't see how they can argue it doesn't."

The initiative, which was narrowly approved by voters, imposes an impact fee of up to $2,000 on new housing units built in the county, however. The building industry opposed the fee but ultimately accepted it in exchange for the exemption on commercial and industrial development, according to an official with the San Diego Association of Governments, which placed the measure on the ballot.

With the median price of new housing in San Diego hovering near the half-million-dollar mark, $2,000 represents less than one-half of one percent of the selling price.