October continued the 2^nd half trends for the San Diego housing market of declining sales, inventory and home prices. Home sales in October were the lowest since 2007 and declined by 8% from the same period 2010. The sales decline was across all price ranges with the largest declines – double digits - taking place in the $500,000 to $900,000 price ranges, these declines could be a result of the change in loan limits that took effect at the end of September. Of the 6 regions in the county only 2 – Central San Diego and Central San Diego Coastal – had very modest sales increases in the 1% to 2% range. All other regions experience sales declines with the largest – 17% - taking place in South Bay and North County Coastal. The lower price ranges, below $400,000, represent 68% of total sales as compared to 2007 when they represented 36% of total sales. This gives a good indication of the affordability of the current buyer pool. Distress sales, foreclosures and short sales, are still a major part of the San Diego housing market comprising almost 50% of total sales while only making up 35% of the homes in inventory. Distress sales sell for less than regular sales and are thus attractive to many buyers trying to maximize their purchasing power. Yet another indicator of the power of pricing in this market. However, there are other forces at play in the market beyond price. Current interest rates are at historical lows and we still do not see any major upward demand movement.

Both inventory and pending sales had month over month declines in October. Inventory declined by 4% and pending sales declined by 7% leaving the months supply at 3.9 months. The months supply varies greatly depending on price range. Homes priced under $500,000 have months supply in the range of 2.4 months to 3.9 months, over $500,000 have months supply in the range of 5.2 months to 17.9 months. Depending on the price range of interest to you there will be different market dynamics at play in terms of the competition you will face making a purchase. We expect to see the trend of decreasing inventory and decreasing pending sales to continue through the balance of the year.

San Diego home prices continue to show year over year decreases with October having a 3% decrease from last October. The price decreases are across all home size ranges and across all regions in the county. Thus, this trend is a broad based market decline and not specific to any market segment. The price changes are small single digit changes and not like the major drops of a few years ago, but the trend is down. If you look at today versus peak prices the market is still about 35% off of peak prices. Over the past 3 years very little progress has been made toward recovery of peak values, not even a trend moving in that direction. This would seem to indicate that distress sales will be with us for some time which will continue to put downward pressure on home prices. Nothing short of robust demand and flat inventory will start to move home prices toward the higher prices of the past.