San Diego real estate sales and pending sales declined about 18% in November versus October. The sales and pending sales declines are in line with past seasonal declines for this time of year. The one surprise is that San Diego had a seasonal adjustment at all. When showing homes or going to open houses we still see other active buyers indicating San Diego still has an active buyer pool. We also know that multiple offers are still occurring as well. Combine these facts with the lowest interest rates of the year and one would have assumed that the market would have at least remained steady for this time of year. Conventional and FHA buyers dropped in sales but the biggest sales decline was in Cash buyers. Whether you look at price ranges or home sizes the sales and pending declines are broad based and are across all ranges; thus, no single market segment has caused the decline, another sign of a seasonal adjustment. On a year over year basis the November sales are up about 5% and pending sales are about the same as November 2008.

The inventory for the residential real estate market in San Diego had a slight decline in November. Unlike the sales decline which was across all size ranges the inventory change had a split personality. Below $400,000 the inventory increased by 6% while above $400,000 the inventory declined. The biggest decline in inventory came in the over $1 million market segment, declining by 8%. The impact of the increased inventory combined with the decline in pending sales increased the months supply from 2.4 months to almost 3 months. At this point there is not any appreciable change in price pressures because at 3 months supply the market is still in the “sellers” market range. However, if the trend of decreasing pending and increasing inventory/months supply continues the market price pressures will change.

One concern the future sales of San Diego real estate is how long can the market sustain the price trends of 2009 before knocking buyers out of the market as happened 5 years ago. The real estate market has seen major price increases since early spring, as much as 25% for certain style homes and neighborhoods. The lack of inventory for the buyer pool has put months supply down at 2 to 3 months, in some cases down to 1 months supply, causing multiple offers or in better terms “bidding wars”. The steady reduction in interest rates since June has helped reduce the impact of the price increases but if interest rates change direction that could begin to cause affordability issues again with the same consequences as in the past. Part of the price increase gain in November was caused by the decline in the sales of foreclosed properties. Foreclosure sales are the lowest price homes sold and their decline from 33% of sales in August to 28% in November will push the average price up. While this change in sales mix has had the effect of showing increased prices it does not tell the whole price story. The real estate market in San Diego has been experiencing price increases for all types of sales – foreclosures, short sales and regular sales. From early spring through November regular sales had the largest price increases then foreclosures and the smallest increases were with short sales.