San Diego residential home sales in December declined from the same period in 2010 by 3% but increased 16% from November this year. Home sales for 2011 were down 2% from 2010 continuing a declining sales trend from 2009. The major declines in sales occurred in homes priced less than $300,000 and priced between $800,000 and $1 million. All of the sales decline occurred in the South Bay region, the other regions had small increases except Central San Diego Coastal which had an 8% increase. Home sales in 2011 tracked lower than both 2009 and 2010 and 2010 sales were tracking higher than 2009 until the tax rebate program ended in April 2010. From the end of the tax rebate program on sales declined for the rest of 2010 and throughout 2011. With historically low interest rates one would expect to see increasing demand but we are not seeing the increase. There are a number of issues affecting home sales; overall economic activity (jobs), more restrictive lending and home prices being too high relative to San Diego income levels. We expect to see 2012 follow the same pattern as 2011 with sales slightly over the 32,000 homes sold mark.

For December the San Diego housing market saw pending sales decline by 16% from November and inventory declined by 12% leaving the months supply still hanging around the 3.9 months mark. Both the decline in pending activity and inventory is universal with all price ranges experiencing declines. As we move into 2012 we expect to see the inventory increase in preparation for the spring market. Distress sales (foreclosures and short sales) still make up a significant part of the inventory at 37% which is impacting price trends negatively since they comprise almost 50% of sold homes.

San Diego home prices continue the trend, which started in May 2010, of declining prices. In December home prices had an average year over year price decline of 5%. All regions of San Diego County had price declines except for Central San Diego Coastal which had prices increase by 4%. Year over year price declines occurred in all home size ranges except for 2800 to 3100 sq. ft. which had prices increase. Current prices are slightly higher than 2008 prices but lower than 2009 and 2010 price levels. Measuring today’s prices versus peak prices we find the current market is still about 35% lower than the peak prices. As long as the San Diego housing market has approximately 50% of its sales as distress sales the negative pressure on prices will remain. It could be some time before we see a market with increasing hoe prices. The year over year price declines are relatively small compared to the 2007/2008 time period when we had double digit price declines. We expect to see the current price trends continue well into next year. However, if we see inventory stay stagnant while sales grow and/or distress sales become a smaller part of the market that would change the pricing picture.