For certain price ranges the San Diego housing market continues to have a lack of inventory to meet current demand. The months supply for these price ranges of 1.8 months is causing multiple offers on homes and is pushing prices up. The current market activity (pending plus contingent for the month) exceeds the new listings for the month causing the inventory to continue to decline. The inventory breaks into two classes, the hot market and the chilly market. The inventory that represents the hot price market has about 5200 homes in inventory with a 1.8 months supply and the other segment has about 3600 homes in inventory with a 40 months supply.  About 33% of the total June pending were listed in June and of that number 36% were new bank owned listings. This shows just how fast buyers are jumping on new lower priced listings. Closed sales continue to do better than the previous 2 years even though the market has longer escrow periods, especially with short sales. Currently there are over 7000 pending in the pipeline to close and over 3800 contingent listing waiting for lenders to approve the contract for a total of over 10000 homes with offers and in various stages of the closing process. The sales are dominated by entry level buyers which is normally how a market recovery starts.  However, we are missing the move-up buyer due to the high component of distress sales, bank owned and short sales make up almost 50% of the sales, which eliminates the move-up buying opportunity. The lack of move-up buyers is partially responsible for the inventory disconnect to the market. We are also still seeing a major differential between the list prices of sold homes versus the list prices of the homes left in inventory.  For example, for the less than 1000 sq ft homes the list price of the sold homes is $180,000 and the list price of the homes in inventory is $292,000 and as the home sizes get larger the differential becomes larger. This is an indicator of the buyer profile affordability. Looking at the buyer profile, we see that 25% are cash buyers, 44% are conventional loan buyers and 32% are FHA/VA buyers. This has changed dramatically from a year ago when over 80% of buyers were conventional loan buyers. For bank owned sales, cash buyers make up 35% of the market with an average selling price of $178,000. The supply/demand relationship is causing prices to rise on a month over month basis. Whether you look at price changes for detached homes, condos or by San Diego region we see the same price trends.  The lower ends of the market are seeing price increases and the higher end are still seeing price declines, back to the split market scenario. What does all of this mean looking forward? Since there are basically two markets functioning in San Diego County there are two outlooks. The part of the market with low months supply will continue in its’ current state until the relationship between supply and demand is altered by 300% to 400%. What that means is some combination of events that would reduce demand and/or increase inventory that puts the months supply in the 5 or 6 month region, which would put price changes in a neutral position, will have to happen. On the demand side, increasing interest rates and price increases could affect the affordability reducing demand. On the inventory side, more homes will have to be listed for sale and with the exception of bank owned and short sale properties it is difficult to see where the increased listings would come from. At current demand the increase in inventory would have to be in excess of 10000 new listings to have a major impact on months supply – if one counts contingent listing then the number has to grow significantly. In 2004 we saw inventory grow because people had a real profit motive to sell because of the gain in equity, today is just the opposite due to lack of equity. Over the next 6 months I see the market continuing in the low months supply arena and some prices continuing to increase. The higher end market will continue to be soft with prices in decline due to the excessive inventory. Something will have to happen to increase the demand significantly to change the direction of this market segment. While the lower end of the market has been energized not much has been done to incentivize the higher end market and we are seeing increases in foreclosure activity at the higher end which could have the effect of increasing inventory. |