The San Diego real estate market saw a break in recent trends regarding selling activity. Both pending sale and sold activity had an approximate 4% month over month increase. The past 4 to 5 month trend had both metrics declining. Year over year sales increased by 4.5% but November sales were more than 12% lower than the same period in 2009. All of the year over year sales increases occurred in homes priced under $400,000; all other price ranges experienced sales declines. Regional sales changes were mixed, with 3 regions having sales declines – Central San Diego, Central San Diego Coastal and North County Inland – while 3 regions had sales increases – East County, North County Coastal and South Bay. One possible explanation for the abrupt change in the market trend is that banks have approved more short sale offers moving them from contingent sales to pending sales. The reduction of contingent sales in November covers about 95% of the increase in pending sales. November may end up being just a one month blip or it could be the start of a new trend line, time will tell.

San Diego housing inventory continued to decline with a 7% reduction in active inventory. The reduction in inventory was broad based with declines in all price ranges. The distress sale component of inventory has reduced in absolute numbers but is maintaining its’ position of 36% of inventory – 9% reo and 27% short sales. With the reduction in inventory and increase in pending activity the months supply reduced slightly to 3.7 months. However, there is a wide range in the months supply based on price range – 2.1 months for homes under $200,000 and 13.9 months for homes over $1 million. The region with the lowest months supply is Central San Diego with 2.8 months and the region with the highest months supply is Central San Diego Coastal with 6.2 months. If traditional trends hold, we should see inventory start to increase after the start of the new year as sellers get their homes ready to sell in the spring market.

Ever since the late spring of 2010 (the end of the tax rebate program), San Diego home prices have been in decline. Since May 2010 home prices have declined on average by 10% and the year over year decline in prices for November was just over 7%. The declining price trend is broad based with all home sizes and all regions showing year over year price declines. With the inventory levels ( months supply ) one would have expected to see some level of price increases, especially in the under $300,000 market. One explanation is that the level of distress homes represent about 50% of the homes sold in November and these homes list and sell for less than non-distress sales. The current price trends will continue until distress homes become a much smaller component of the market or the prices of distress homes begin to increase relieving some of the negative price pressures. The San Diego housing market is still about 35% off of peak prices indicating that the market still has many homes under water. This will keep distress sales with us for some time so about the best we can hope for is achieving some level of price stability but not inflating home values.