In March San Diego real estate continued the trends of the past few months with year over year lower sales (3%), lower pending activity (7%), stagnant inventory and lower months supply. The year over year sales decline was experienced by all 6 regions of the county. However, the market showed signs of the normal spring bounce with sales increasing by 38% from February and pending activity increasing by 18% from February. The under $300,000 market segment makes up 45% of all sales currently, in 2007 the under $300,000 market segment made up 12% of total sales. The lower price end of the market is still the major driver for San Diego home sales. Also, in March there was a change in the buyer profile with a change in financing methods being used. Cash and conventional financing increased as a portion of the financing being used while FHA/VA declined. At this time we are not sure if this will be a continuing trend or just a one time event.

Looking forward, the major issue for the San Diego real estate market is what is happening to inventory and months supply. Normally, as we enter spring inventory increases along with the selling activity. However, month to month inventory changes have been down or flat. Combine the lack of inventory growth with growing selling activity and we see declining months supply. The March months supply is now at 3.3 months and has been declining since the first of the year and is putting most of the market in a “sellers” market condition. The most affected market condition is the under $500,000 segment with each price range below 3.3 months supply. If the months supply remains at these levels we can expect to see multiple offers become the rule again which has the affect of putting pressure on prices to move upward – as we saw in 2009. Since many potential sellers are faced with the issue of little or no equity in their homes there is little incentive for them to put their homes on the market. This will have an impact on the available inventory on the market keeping inventories relatively low creating some pressure on prices to trend upward.

San Diego home prices peaked around May 2010 and have been falling since the end of the tax rebate program. Current price levels are lower than the May price levels across all home sizes. March prices were down in 5 of the home size ranges we measure and up slightly in the other 4 home sizes, indicating some upward price pressure in the market. If the months supply continues its’ current trend than we would expect to see more upward pressure as we move through the spring. Only the Central San Diego region had a year over year price increase, all the other regions had modest price declines. Distress sales – foreclosures and short sales – still make up over 50% of the San Diego housing market sales and distress sales sell for less than normal equity sales. While a low months supply can make distress sales inflate in price it is from a very low base and impacts what equity sales can command in price. Thus, neighborhoods with high levels of distress sales have competitive pressure to keep prices in check. While demand in 2011 will be less than in 2009 and 2010 the inventory level relative to demand will keep prices in a neutral position, sometimes up a bit and sometimes down a bit.