August demand for the San Diego real estate market increased from July to August with a 4% increase in sales and a 7% increase in pending sales. Sales showed a 3% decline from August 2010. Generally, sales decrease for the July to August period as we head into the slower fall market. Demand year over year changes by San Diego regions show two regions with increased demand – Central San Diego and East County – while the largest decline occurred in South Bay. One explanation for this increase in demand could be buyers are trying to beat the drop in loan limits for high balance loans by $150,000 at the end of September. Every time we see the end of government temporary stimulus program we see an increase in demand then after the program ends the demand drops back to lower levels. The year over year change in demand shows that homes priced under $300,000 had increased sales and those priced from $300,000 to $600,000 had decreased sales, indicating that price is still the market driver. Another indicator of the importance of price in the San Diego real estate market is that for each price range the days on market for sold homes is significantly lower than for the homes in inventory. Distress sales still are in high demand making up 46% of sales while only 33% of the available inventory. We know that foreclosures and short sales are priced lower than regular sales, again indicating the importance of price in the market place. It is difficult to predict what the drop in high limit loan values will have on the market; however, it surely will not be a positive effect.

The decline in San Diego inventory of 3% combined with the 6% increase in pending sales caused a slight drop in months supply to 3.7%. There is a wide variation in moths supply by price range, for prices above $700,000 months supply ranges from 6.2 to 12.1 months. The highest months supply by Region occurs in the Central San Diego Coastal and North County Coastal regions and the lowest months supply occurs in South Bay. A recent check on the inventory shows that it continues to decline. Inventory generally declines as we head into the fall selling season, so we can expect the inventory to continue to decline.

San Diego real estate prices continue to trend downward, but at low rates of decline. Current market prices have declined by 4% since May 2010, the end of the tax rebate program. As you can see from the peak price chart, in the last 3 years prices still remain 34% below the peak price period. Even though the months supply indicates that prices should have a slight trend upward the level of lower priced distress sales is pushing the average selling price downward. We do not see anything in the near future to alter the current price trends in any major way until distress sales are reduced as a component of the demand model.