Gimme Shelter

San Diegans are feeling the effects of the real estate downturn, with slumps in sales and jumps in foreclosures. For some buyers, this means deals; for others, renting

ALMOST NOTHING quickens the pulse of a San Diegan like the announcement “We’ve closed escrow on the house.” With a historic downturn in home values over the past two years, though, some of these parcels of joy have turned into expensive reminders that a house really is just a home, and some San Diegans are struggling mightily to stay in theirs.

Yet, after months of unrelenting gloom, the San Diego housing market began to show a few rays of sunshine this spring. In April, 2,809 new and resale homes and condos were sold in San Diego County, a 33 percent increase from 2,108 in March, but still off 18.2 percent from April of ’07, according to DataQuick Information Services.

Other Southern California markets posted similar gains, resulting in a total of 15,615 new houses and condos sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties in April, up 21.9 percent from 12,808 the previous month but down 19 percent from 19,269 in April last year.


Don’t be fooled, however, into thinking residential real estate has turned the corner. DataQuick says the jump is attributable to action in mostly distressed inland markets where foreclosures have finally begun to drive sales. Of the SoCal homes that sold in April, nearly 38 percent had been foreclosed on at some point in the prior 12 months, compared to 4.6 percent a year ago. Across the six-county region, foreclosure sales ranged from 27 percent of resale activity in Orange County to about 53 percent in Riverside; in San Diego County, foreclosure sales were 35 percent of April’s total.

“One month does not a recovery make,” warns John Karevoll, an analyst at DataQuick. In fact, homeowners are continuing to have trouble staying in their homes. San Diego, for example, had 8,975 notices of default — the first step in losing one’s home — in the first quarter of 2008, a 128 percent increase over 2007. Among homeowners in default, only about 32 percent can be expected to emerge from the process by bringing their payments current, refinancing or selling the home and paying off what they owe. That figure is down from roughly 53 percent a year ago, due to the slow market.

Thus, despite the April increase in sales, analysts are cautioning that the market as a whole has yet to find its bottom, but the condo market is getting there faster.

According to DataQuick, San Diego median condo prices fell about 28 percent from April of last year to this April, from $385,000 to $300,000. Prices on houses haven’t quite kept pace, falling about 18 percent from $490,000 to about $400,000 in a year’s time.

Norm Miller, a real estate professor at the University of San Diego, says the market recovery for single-family houses could be L-shaped — where the market hits bottom, then slides along for an extended period, meaning a buyer’s market for as long as the next four years.

“The negative appreciation in prices should continue for the next six to 18 months, and then a soft market for a year or two. It’s not going to be one of those V-shaped curves where the bottom is followed by a rebound,” he says. “It could be soft and flat for two to four years.”

Miller says few analysts are considering the effect of a continuing weak dollar, “which means more inflation, and rising interest rates in 2009,” which will further depress home sales.


WHAT’S THE BEST COURSE for the home buyer eager to buy and determined to get a good deal? “There’s nothing wrong with looking,” Miller says, especially given the wide variation in the types of houses available and the effect of location on price. Generally speaking, for equivalent properties, expect to see the largest discounts south of Interstate 8, a lesser discount between I-8 and Route 52, still less north of 52.

“There’s no sense trying to time the bottom,” he says. “And for the time being, try not to think of the house as an investment but a consumption item.” He suggests not buying unless you have the intention of holding the property for at least five years, since the days of speculative flipping are over for now, and a slow market recovery means buyers will have to wait longer to see any appreciation.

If your stomach flips just thinking about timing the market or how much interest rates are going to rise in the next two years, renting may be the way to go, but beware: Rents in and around San Diego are on the increase, and in some cases may be higher than a mortgage payment.

According to RealFacts.com, based in the Bay Area, first-quarter rents in the city of San Diego averaged around $1,520 a month, though there are bargains to be had in outlying areas such as Escondido and El Cajon (tied at $1,059) and National City, the best buy at $845. City of San Diego rents rose about 4 percent over ’07 — not as much as Rancho Bernardo’s 7 percent, but more than Alpine’s roughly 3 percent.


ACTUALLY LANDING an apartment is another story. All 17 cities in the county have occupancy rates above 92 percent, and your best chance of finding a rental may be in an upscale neighborhood. For example, the fewest available rents are in Lakeside, with an occupancy rate of 98.2 percent — not surprising, given the average rent of $1,064 there. Conversely, La Jolla has availability with 92.9 percent occupancy but also has the highest rate in the county at $1,701.

Best bet? Check out La Mesa, with the county’s lowest occupancy at 92.5 percent and the 11th lowest rental rate of $1,190, or Santee, 11th in occupancy at 94 percent and ninth in affordability at $1,226. That National City bargain may not be around for long, since the city posted the highest gain in occupancy in the county at about 3 percent. San Diego gained 1 percent.

Though few homeowners may want to hear it, Miller says the residential market’s ride on the down escalator is “in general a good thing. It increases housing affordability, which makes it easier for businesses to hire people, and that helps job growth. It’s a correction we had to go through, and hopefully next time we’ll have better mortgage underwriting.”

And that would help homes retain a lot more of their value — and joy. 

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