THE SAN DIEGO COUNTY HOUSING MARKET AND ECONOMY: AHEAD OF THE PACK
San Diego, CA- The United States has witnessed sporadic and ambivalent messages regarding our definitive position along the path to the much anticipated economic stabilization and recovery process. As the federal government rushes to provide financial aid to struggling homeowners and financial institutions in efforts to stabilize the largest recession in recent history, many still remain uncertain of what lies ahead for the San Diego County housing market and economy.
The San Diego County housing market has erupted from its dormancy as newly released MDA DataQuick market research indicated a 15.8 percent year-over-year increase in median home prices from March 2009- 2010, the largest year-over-year increase in home valuations in five years. Furthermore, of the six counties that comprise Southern California, home sales were up 33 percent in March over February, and were up five percent over 2009 levels, according to MDA DataQuick. Analysts have attributed many factors for this sudden rise in home valuations, and many remain skeptical of the sustainability of this type of growth.
An analyst for DataQuick, Andrew LePage attributes the large spike in home prices to the increase in sales in the upper-tier real estate market. LePage states, “It’s price softness in the high-end that is driving sales and bringing up the high-end total contribution to countywide sales.”
The first quarter of 2010 also saw fewer lending institutions initiate the formal foreclosure process on distressed homeowners. According to MDA DataQuick, San Diego ‘s notices of default, the first step in the foreclosure process, plummeted 39 percent compared to the first quarter of 2009. San Diego real estate economist and financial advisor, Rich Toscano states, “Much of the government intervention in the housing market, notably low-down payment FHA loans, government guaranteed conforming loans, and the first-time buyer tax credit, has had an inordinate impact on entry-level homes. The price tier that contains these homes is going gangbuster as a result. Meanwhile, the upper-tier, which doesn’t benefit from the stimulus as much as the low tier, stagnates.” Toscano believes this divergence illustrates how the “housing rebound” is mostly being driven by government stimulus and intervention rather than economic fundamentals. But wasn’t that the purpose of the government stimulus to begin with? The stimulus was purposefully instituted to stabilize declining home prices and provide aid to homeowners in distress, all of which has seemed to be realized from the latest statistical data. Buyers are taking advantage of the incentives to purchase within the hardest hit housing sector, the low-tier.
Unemployment and job creation, both hot topics amongst political adversaries, have also shown incremental gains in the first quarter of 2010 within San Diego County. According to the California Employment Development Department’s latest estimates, San Diego not only added jobs in March, but the year-over-year rate of employment decline also fell to its slowest pace since December 2008. The skeptical Rich Toscano, states on his blog, Piggington’s Econo-Almanac, “Employment has been increasing for two months, while at this time last year it was dropping in spite of a tendency towards seasonal strength. There may be fewer people actually employed than last year, but that number is now growing instead of shrinking.” He adds, “It’s too early to tell whether a more enduring employment recovery is underway, but for the first time in a while, the data suggests that it’s at least a possibility.” Lawrence Yun, Chief Economist for the National Association of Realtors, has similar concerns. In his latest commentary, Yun states, “Steadily rising employment will be essential to keeping housing positive once the credits disappear.” While the national unemployment rate remains high and many believe unlikely to improve much in the near future, economists like Mark Zandi of Moody’s Economy.com, expects the unemployment rate to be 10.2 percent at year’s end, up from 9.7 percent in March. At the end of 2011, he predicts a still hefty 8.6 percent jobless rate.
Credit conditions remain tight and are expected to get tighter. Around a third of home sales in recent months have been financed by loans by the Federal Housing Administration, which allows down payments as low as 3.5 percent, however, the FHA is tightening its terms somewhat. James Hagerty of the Wall Street Journal states, “By early summer, the FHA plans to reduce the maximum amount a seller can contribute to the buyer’s costs—such as loan origination, legal appraisal fees—to 3 percent of the home price from 6 percent. That means buyers will have to save more to meet their closing costs. John Burns, a real estate consultant in Irvine, California adds, “A survey of builders by his firm found that they expected the FHA changes to eliminate as many as 15 percent of potential buyers.”
Despite skeptical rhetoric surrounding the local San Diego County housing market and economy, Coastal San Diego luxury real estate specialists Kip Boatcher and Eileen Anderson of Anderson+Boatcher, a strategic partnership under Willis Allen state, “The recent activity in the upper-tier luxury real estate market is unprecedented.” Since the beginning of 2010 Anderson+Boatcher has approximately placed over 25 million dollars of residential real estate in escrow, and has already closed escrow on approximately 10 million dollars worth of inventory. They have experienced a slew of high net worth clients purchase homes with all cash offers. Kip Boatcher adds, “These buyers were simply not there a year ago. They have been waiting for signs of stabilization and recovery for a few years now. Both, real estate buyers and sellers in San Diego have noticed the trend toward stabilization and have now begun the process of actively pursuing their goals of buying and selling.”
Eileen Anderson attributes recovering consumer confidence as a leading factor for the rapid influx of market activity. “Our listing portfolio has nearly doubled this year alone. Sellers are practicing their own due diligence, they are searching for the best luxury real estate marketers with the most advanced network of high net worth real estate investors and asset managers. We are selling homes before we can even place a for sale sign on the property,” says Eileen Anderson.
Surprisingly, custom homesites have also been a hot ticket item for Anderson+Boatcher, citing the diminished building costs to construct a custom estate as a leading factor for their high demand. ”In many instances, today’s market has made it possible to build a custom home in an established coastal community for significantly less than the cost of purchasing an existing home with comparable views and location”, proclaims Kip Boatcher. He adds, “Luxury homebuyers know what they want, how they want it, and they are willing to wait for the perfect opportunity, like we are seeing today.”
P.J. Roustan, the Director of Marketing and Communications for Anderson+Boatcher, attributes their success to a focused and targeted approach to real estate marketing. Roustan states, “We directly market our services and listings to the most appropriate target audiences. Our strategic integrated marketing communications approach highlighted by the advanced use of media technology, a highly stylized user-friendly website, Architecture Digest quality photography, and a team of industry leading market analysts have made Anderson+Boatcher a force poised to dominate the Coastal San Diego luxury real estate market.” P.J. Roustan adds, ” Luxury real estate buyers are there, they never left. They have been simply waiting out the storm, regrouping, and gathering information to make sound decisions for this next real estate cycle.”
Despite growing concerns surrounding the sustainability of a full economic recovery in the near future, San Diego County has remained a bright spot and glimmer of hope for those searching for answers and signs of any substantive economic progress. San Diego can be viewed as a microcosm for the greater US or a sample market, as we begin to see empirical evidence and data supporting signs of incremental progress.
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