San Diego homes sales in May were the highest May sales for the past 5 years. Both detached homes and condos enjoyed the May sales increases. May sales were broad based with all home sizes showing sales gains from the prior year. May is also the highest sales level of 2010, 15% greater than the next highest month. Of the six San Diego regions only South Bay experienced a sales decline from last year, which has been a trend for the past few months for South Bay.

The April/May period was also the end of the tax rebate program which we believe impacted both the sales and pending sales results. May pending sales declined from April pending by 25% which on first blush indicates a major slow down in the San Diego housing market. However, there is evidence that some of May pending were pulled back to April in order to meet the April 30 dead line for the tax rebate. CA also introduced its own tax rebate program and there is an opportunity window for buyers to be able to receive both the Federal and CA rebates which is dependent on the April 30 deadline. This has distorted the April and May pending activity in terms of forecasting forward. Currently June pending activity indicates that June will exceed 3000 pending which is the average range for April and May combined. It appears that 2010 sales will fall short of the 35,000 sold in 2009.

Active inventory has grown 31% from January thru the end of May. The growth in inventory has not been caused by a rush of new listings but rather by reduced expired, cancelled and withdrawn listings, pending fallout and increased inventory days on market. Combined this indicates a general slowing in the market, possibly because the tax rebate is gone. The increase in inventory has caused the months supply to begin to trend upward from January’s 2.7 to May’s 3.7 level. While May’s months supply is probably overstated due to the artificially low May pending, current inventory of 10,839 will put June around the 3.7 months supply mark so the month to month direction is still up. If the inventory/months supply continues its current direction pricing dynamics will follow with less upward price pressure. The over $1 million market segment is still showing 13 months supply and that is why that segment is showing declining prices year over year.

San Diego home prices are still increasing year over year and for the most part month over month. However, the rate of price increases is reducing. There has been a major shift in what type of home is selling; foreclosures, which sell for lower prices, has reduced from 30% of the market in January to 22% in May and the percent of sales has shifted away from areas like South Bay and East County to the coastal areas of more expensive homes. These shifts have had the effect of increasing prices due to the fact that “more” expensive homes are selling not necessarily that same home prices are increasing. We expect to see prices leveling off

 as we progress through 2010. Another indicator of price increase impacts on the market is the reduction in cash buyers seen recently. Investors need room from their purchase price to either flip or rent out with reasonable returns.

  We see the San Diego market continuing its current trends of increasing inventory, higher months supply, demand softening and prices flattening out. The market will continue towards a neutral market even with the very low interest rates of today.