To understand what is going on with home prices in San Diego we have to get into the pricing structure of bank owned (foreclosures), short sales and regular sales. Currently foreclosures comprise 34% of sold homes and short sales comprise 20%, both are distress sales and have a different pricing structure than regular sales. Vacant homes are another form of motivated seller sales but will not be covered in this report.  The San Diego home market has a 3 tier pricing structure this year. The foreclosed properties have the lowest sales prices, short sales the next lowest and regular sales have the highest selling prices and this is consistent across all size ranges of detached homes in San Diego. On average we find that foreclosed properties sell for about 17% less than short sales and 36% less than regular non-distress sales. However, it is important to note that this is not really an apples to apples comparison. Most often the foreclosed properties are not in the same condition as regular sales and are sold “as is”. Many investors have been attracted to the bank owned market because of the prices and they are probably willing to invest in repairing the home for either rental or flipping purposes. The market with prices below $300,000 has a 46% bank owned component with 45% of the purchases being cash purchases.   Current inventory of foreclosed homes is just over 2 weeks supply, that is correct weeks not months. Short sales have a 2 months supply and regular sales have a 4 months supply. While bank owned homes represent only about 8% of the active inventory they represent about 34% of the sold homes. From May to July we have seen bank owned properties have price increases just over 3% on average. Foreclosed properties in the 1300 sq ft to 2500 sq ft range have seen their prices increase by an average 6%, while the larger over 4000 sq ft bank owned homes saw an 18% price decline – which ties into what we see happening in the high end market overall. During the same period short sales have had an average price increase of 3% and regular sales have had a price decline of 2%. The price decline for regular sales is in the larger more expensive homes where inventory months supply is the highest. The distribution of bank owned properties in San Diego varies greatly depending on both price point and home size.  The lower prices and the heavy distribution at the lower end of the market where sales are the highest they have impacted both the median and average prices of San Diego by lowering them from the past. The increased affordability of bank owned and short sales have been a major factor in the increased demand San Diego has seen from the past year. Foreclosed properties and short sales will be with us for some time to come. Foreclosure listings are in decline despite the increasing delinquincy rate. While the delinquincy rate is increasing the Notice of Defaults have decreased indicating that lenders have pushed back on foreclosures. Plus there are an unknown number of people living in homes who are behind in their payments who have not had Notice of Defaults filed and these are future foreclosures, added to this will be the option arm resets that could cause foreclosure issues over the next year. Generally prices are rising due to the very low months supply across price ranges below $1 million. I expect this trend to continue until we see a dramatic increase in the months supply. Since many people in San Diego are “underwater” they can not afford to sell unless they bring cash to closing or do a short sale so I do not expect to see any dramatic increases in inventory, so it will be left up to decreased demand to increase the months supply. Here again, I do not expect to see a dramatic drop in demand as long as “cash for shacks”, low interest rates and lending practices remain as they are. However, there is current evidence that prices are beginning to have an impact on the market. October and November have seen decreases in pending and sold homes despite significantly lower interest rates. |