May home sales for San Diego declined year over year by over 20% and declined from April sales by 9%. It is important to remember that May 2010 sales reflected the end of the tax rebate program which saw many buyers rush in to beat the deadline. Pending sales activity increased by 2% from last month and increased by 9% from May 2010, again May 2010 reflects the drop in demand after the end of the tax rebate program. All six regions in the county had year over year sales declines ranging from a low 5% in Central San Diego Coastal and a high of 30% in Central San Diego. The overall sales decline was broad based with declines in all regions, all home sizes and all price ranges, except the over $1 million market segment which had a 5% year over year sales increase. The composition of sales by price range in May had increased market share for homes priced under $300,000 and over $1 million. The foreclosure market is heavily oriented towards the under $300,000 market with 67% of all foreclosures sold. Cash buyers are also oriented towards the under $300,000 market with 61% of all cash buyers. FHA/VA loans saw a decline below 30% of the market for the first time in many months, even though the market share of homes priced for FHA loans increased. Cash buyers seem to be pushing FHA buyers out of the market to some degree. As we move forward in 2011, we expect to see sales to be even or down slightly to the same period of 2010.

The overall months supply for the San Diego housing market increased slightly month over month to 3.7 months. However, one has to be careful because the months supply varies greatly by price range. Homes priced under $500,000 all have months supply below 4 months, indicating a strong possibility for multiple offers, while the over $500,000 market is well over 4 months and goes as high as 11 months for homes priced over $1 million. So far in 2011, the inventory has remained relatively flat creating the low months supply in the high demand market segments. Based on current price levels many potential sellers either chose not to sell or cannot sell unless they become a distressed sale. Almost 50% of May sales were either foreclosures or short sales. Distress sales impact neighborhood prices in a negative way. As a seller, the more distress sales in your neighborhood the more the negative impact on your sale price. In general, foreclosures sell for less than short sales and short sales sell for less than regular sales.

San Diego home prices have been in decline since May 2010 with current prices down an average 4%. The price declines are across all home sizes, except for the over $1 million market, and down in all regions except for North County Coastal, which has a 1% gain year over year.  However, if the current months supply trend continues, especially the under $400,000 market trend, multiple offers will increase increasing the pressure for prices to begin to rise a bit. The May selling prices show the San Diego market still over 30% below peak prices. San Diego still has an affordability issue when you get above $400,000 and the market will not return to a robust market until that issue is resolved with either higher wages, lower interest rates, less restrictive lending or lower prices. In essence the market will continue the malaise we have seen.