San Diego real estate sales for November declined by 18% from the same period in 2009 and declined 11% from October. Historically November sales decline from October; however, there is a new pattern of declining sales. The sales decline prior to 2007 (2003 to 2007) averaged 9% while after 2007 the average sales decline was 18%. While 2009 was the best sales year since 2005, this year appears to be split in terms of sales direction. The first half of 2010 had a sales increase of almost 3% over the same period of 2009 while the second have of this year had a sales decline of 12% versus the same period of 2009. The timing of this shift in sales appears to be tied to the elimination of the tax credit. Based on the lower pending activity in November we would expect to see this December’s sales to continue the current trend versus 2009. While the sales decline continues in the under $400,000 market we are seeing sales declines across all price ranges indicating an overall decline in market demand. Also, we see the sales decline of the same magnitude for both detached and condo markets. With historically low interest rates the decline in demand can not be only the elimination of the tax rebate program, we suspect that current price levels also play a part in the slowdown.

The inventory and pending activity both declined from October while the months supply had a slight increase. The current months supply of 5.1 months is in the neutral market range, not favoring either buyers or sellers. The inventory reduction occurred for homes priced over $300,000 with the largest reductions taking place at the higher price ranges. While pending activity reduced across all price ranges the largest declines took place in the over $700,000 price ranges. February 2011 pending activity and inventory direction should give an early indicator of the sales direction for 2011.

San Diego real estate home prices in November were up about 5% versus November 2009 and 16% versus 2008. However, since the market started to soften in May prices have declined about 4% on average. Price trends are affected by the mix of class of homes being sold. The market has three elements of distress sale: 1) foreclosure, the lowest sales price 2) short sales, which sell for more than foreclosures 3) vacant regular occupied sales, which sell for less than regular occupied homes. The current mix is foreclosures 20% of sales, short sales 24% of sales, regular vacant, 32% regular vacant and regular occupied sales are about 24% of sales. It is apparent that price is still a major driver in the market with 75% of the market selecting lower priced distress sales to purchase. All four classes of sales are showing the same price trends, increasing from mid 2008 to mid 2010 then going into decline. In 2011 if we see decreases in inventory increases in pending activity and a decrease in months supply then the current price direction will begin to show gains again. However, if current trends continue then prices will continue to have slight decreases and the market will remain neutral. At this point it is hard to forecast which case is most likely due to the many economic variables at play.