In December the San Diego real estate market continued the trends of year over year declining sales, monthly declining inventory, increasing months supply and stable to declining prices. December home sales declined by 17% from December 2009 which continued a sales trend that started in June. In terms of sales, 2010 had two sales patterns – the first half of the year sales were greater than 2009 by 2.5% while the second half of the year sales declined by 14.5%. The tax credit that expired in April seemed to have the effect of pulling sales forward. After the tax credit expiration there was a significant decline in demand. December sales increased over November sales by 19% which is consistent with historical sales patterns – since 2003 only 2007 had lower December sales versus November. Year over year sales declines were experienced across all price ranges, with the largest declines occurring in the under $300,000 price range. Sales declines were experienced across all regions in the county, with the smallest decline in Central San Diego Coastal with a 9% decline. The broad based decline in demand indicates that San Diego is experiencing an overall market decline which could indicate that the market has an affordability issue.

Inventory continued to decline month over month, a 3% decline versus November. In terms of % change, inventory reductions were in double digits for all price ranges above $500,000 which are the market segments with the most excess inventory. The reduction of new listings in December of 17% explains part of the inventory reduction issue; however, this is in line with prior years. The overall inventory reduction of 3% combined with the decline in pending activity of 16% pushed the months supply up to 5.9 months which is at the top end of a price stable market. Normally we see inventory increase from the first of the year through late spring. If this trend occurs without an increase in demand then months supply will keep pushing upward, indicating a softening of prices.

San Diego home prices in December reflect the neutral market conditions. About half the prices by home size are trending down and half having increases, the average year over year price change is up about 3% at $425,000. However, the average price is down 7% from May 2010. The San Diego market was in a sellers market through 2009 and the first half of 2010 – low months supply and higher demand. As the end of the tax rebate came months supply was increasing and demand was slowing prices began to stabilize then decline, which is where the market is currently.