San Diego County's once blistering housing market moved into negative territory for the first time in 10 years as overall prices declined 1 percent last month from June 2005.
With home sales slowing for the 24th consecutive month, real estate analysts said the decline clearly indicates a softening market, but not one that is destined to crash.
“Across the region, prices are coming down, incentives are rampant, and sellers are adjusting to longer times on the market,” said Peter Dennehy of Sullivan Group Real Estate Advisors.
“People have come to regard their homes as a cash machine, and that's not how you should be looking at real estate,” he said.
Now renting in Portland, Ore., Elizabeth and Todd Fleischmann have been trying to sell their Escondido townhome for more than five months, changing agents and cutting the price without success. They no longer are holding out for top dollar.
DataQuick Information Systems reported yesterday that last month's median home price slid to $488,000, off 1 percent from a year earlier, and down 6 percent from last November's peak of $518,000.
Although resale prices for single-family homes showed a gain of nearly 2 percent from June 2005, the market's drop was brought by sagging prices for resale condos and new houses, DataQuick analyst John Karevoll said.
“To me, this is just part of a plateauing of prices,” he said. “Between now and the fall, I'd say half the months will be slightly positive and half slightly negative, but I really don't read the drama in these numbers that most people will.”
The numbers should come as little surprise to many home sellers who have watched their properties sit on the market for months, in some cases lowering their asking prices in hopes of getting an offer.
After having his vacant Escondido townhome languish for more than five months, Todd Fleischmann realized his price was too high for a market now driven by rising mortgage interest rates and slowing demand.
Late last month, after relocating to Portland, Ore., the 26-year-old computer network administrator and his wife, Elizabeth, changed real estate agents and dropped their asking price by nearly $24,000 to $338,000. Fleischmann had paid $324,000 for the property in mid-2004.
HOWARD LIPIN / Union-Tribune
Already living in a new condo, Dyann Reilly walks through the empty condo she has been trying to sell in downtown San Diego. Last weekend she paid to have the space staged with furniture in hopes of attracting a buyer.
“It has been a disappointment but it is what it is,” Fleischmann said. “I am more concerned with selling my property than trying to get top dollar.”
Because the couple's finances have been stretched by the burden of paying rent in Portland, along with mortgage and homeowner fees on the Escondido property, they've decided to cut their losses.
“My wife and I are trying to get our lives started,” Fleischmann said. “It wasn't happening in San Diego. It is a pretty expensive area to live in.”
San Diego real estate agent Calvin Goad, who represents the Fleischmanns, says the region is experiencing a normal cycle of decline following a boom. “The prices are coming down right now, but it is a good time for the buyer to jump into the market,” he said. “San Diego historically does take a small drop in price, but then the market levels.”
Amid the overall price drop – the first since July 1996 – there were some positive signals in the market report for last month, including substantial price jumps for some communities from a year ago.
Single-family resale houses, more than half of the local housing market, showed a price gain of 1.8 percent over June of last year, DataQuick found. The median price last month in the category reached $565,000, a slight decline from May's record of $569,500. The median represents the midpoint of all sales, with half above and half below that figure.
Meanwhile, overall sales in June were up slightly from May, a hopeful sign of a strengthening market, some analysts said.
Nevertheless, sales were down 24 percent from a year earlier, the 24th consecutive month of year-to-year sales declines.
“We are seeing an increase of inventories to normal levels, but it has dramatically changed the psychology of the market,” said Leslie Appleton-Young, chief economist for the California Association of Realtors. “Buyers have more properties to look at, more time to decide.
“There is excess steam in the market created by three to four years of very rapid price appreciation,” she said.
Still, long gone are the heady days of double-digit price gains. The last time San Diego County saw year-over-year increases in the double digits was April of last year, topping off a trend that had held steady for 64 consecutive months, Karevoll said.
Home prices for the first half of this year rose a mere 2.7 percent, compared with 11 percent during the same period last year, a clear indicator of a deflating market.
No one knows that better than Pat and Sandra Daugherty, who have been trying to sell their Fletcher Hills home since February with no luck, despite lowering the price by more than $50,000.
Currently out of work and eager to move to Colorado or Texas for a new job, Pat Daugherty fears he and his wife might lose money on the 2,000-square-foot home they bought two years ago for $540,000. They've put roughly $75,000 in improvements into the house and have an asking price ranging from $635,000 to $675,000.
“At this point, we're willing to take a loss,” said Daugherty, who has two sons, ages 20 and 22, who will be moving with their parents. “We really need to get this off our back so we can get on with it. I'm obviously frustrated because we worked so long and hard on this, but sooner or later the prices had to back down.”
Dyann Reilly, a retired schoolteacher, has been struggling to sell her two-story, 2,010-square-foot downtown condo for a year while she lives in a one-story downtown unit that is more comfortable for her. She originally listed the condo she bought four years ago for $630,000 at $1.2 million but has since lowered the asking price to $900,000.
“I think people who come downtown want a view, and I don't have one,” said Reilly, 65. “I also think there are too many condos available.”
Countywide, the number of homes for sale has been rising steadily, with active listings hovering at 19,803 last month, according to the San Diego Association of Realtors. That compares with about 10,900 a year ago and 6,600 in 2004.
San Diego home builders are also feeling the effects of a sluggish market and are responding by dropping prices and offering generous incentives, noted Dennehy of the Sullivan Group.
The segment of the housing market showing the biggest drop last month was new home sales, which saw prices decline 8 percent. That was influenced, in part, by a weakening demand for condo conversions.
“Sales have slowed, concessions have increased, and prices have dropped fairly significantly,” said Paul Kerr, president of Davlyn Investments, a local condo converter. “Buyers are sitting on the sidelines waiting for a theoretical price reduction of 30 percent, and I don't necessarily believe that's going to happen.”
Steve Doyle, Brookfield Homes' president for the San Diego region, said his company has been helping buyers with financing costs and offering upgrades.
Recent Brookfield incentives have ranged from about $3,000 for a $400,000 attached home to as much a $20,000 for homes that cost in excess of $1 million, he said.
Shares of publicly held Brookfield dipped recently when the company cut its full-year forecast for home sales, citing slowing markets in the San Diego and Riverside areas and Washington, D.C.
“Long-term, the housing market remains very strong,” Doyle emphasized. “When you look at economics, we still have positive job growth.”
While many neighborhoods throughout San Diego County continue to experience sizable upswings in home values, there were nearly three dozen ZIP codes where median prices fell in June, according to DataQuick. And of the more than 90 ZIP codes in the county, all but 10 had median prices last month that were lower than their peaks set in previous months, Karevoll said.
Some homeowners still have the luxury of waiting out the stalled market until price appreciation resumes.
Gayle Johnson, 59, a registered nurse, recently pulled her two-bedroom rental condo in Rancho Peñasquitos off the market. She bought it for $255,000 in July 2003. Her asking price, a range of $320,000 to $340,000, drew no offers. Johnson holds that the recent conversion of numerous apartments to condominiums has weakened prices for attached homes. She plans to rent out her unit until the market improves.
“Everything goes around and comes around again,” Johnson said, “so I am not too concerned.
Emmet Pierce: (619) 293-1372; email@example.com