The San Diego housing market started 2012 with a good start. January had the highest sales, highest pending sales, lowest inventory, the lowest months supply for any January since 2009. It is important to note that 1 month is not a trend but 2012 is off to a good start. Home sales for January are basically flat year over year with 3 regions with negative sales (Central San Diego, East County and South County) while 3 regions had increased sales (Central San Diego Coastal, North County Coastal and North County Inland). Surprisingly the largest decline in sales occurred in the less than $200,000 price range while the largest sales increases occurred in the $200,000 to $400,000 price range. Consumer confidence in the economy is improving and combined with historically low interest rates could signal improving market demand.

 Inventory declined by 6% while pending sales increased by 17% in January vs. the prior month. The decline in inventory for January is a bit unusual as normally inventory starts to build after the holidays for the spring market. The effect of the changes in inventory and pending sales has dropped the months supply to 2.6 months. The months supply for homes priced less than $500,000 is below 3.0 months supply which normally indicates a seller’s market. The increased pending sales were across all price ranges and the decrease in inventory was across all price ranges except two. If January’s months supply continues into the spring market I would expect to see some slight increases in home prices, the first time since the end of the tax rebate program that we have seen any upward price trend.

San Diego home prices in January were up less than 1% year over year, so basically flat. However, what we see is that the increases occurred at the low and high end of the market, in between prices are still soft. Prices have declined since May 2010, the end of the tax rebate program, and are down by 11% on average. However, the current inventory situation could change that pattern and put a floor on prices. If the current months supply repeats itself we will see multiple offers in the market again which will tend to push prices up. A lot will depend on the foreclosure and short sale markets since they tend to keep negative price pressure on the market. If these market segments remain around 50% of sales then we will probably see stable prices since they will compensate for the low inventory. The market prices are still around 35% off of peak prices and it will probably be a number of years before we see the peak prices in the market again. 2012 has the chance to be a repeat of 2009 and better than the 2010 and 2011 period, a lot depends on people’s perception of the general economy.