What a difference a year makes. The San Diego real estate market, which had been one of the hottest in the country during the past few years, is now experiencing a much slower sales pace, and home prices are retreating.

The San Diego Association of Realtors reported that the sales volume of attached, existing-home unit sales in San Diego County fell 38.9 percent in June 2006 compared to June 2005, while the average sales price dropped 4.6 percent and the median sales price dipped 5.2 percent in June 2006 compared to June 2005.

What a difference a year makes. The San Diego real estate market, which had been one of the hottest in the country during the past few years, is now experiencing a much slower sales pace, and home prices are retreating.

The San Diego Association of Realtors reported that the sales volume of attached, existing-home unit sales in San Diego County fell 38.9 percent in June 2006 compared to June 2005, while the average sales price dropped 4.6 percent and the median sales price dipped 5.2 percent in June 2006 compared to June 2005. Meanwhile, sales of detached existing homes fell 30.1 percent, while the average sales price grew 5.39 percent and the median sales price increased 1.55 percent in June 2006 compared to June 2005.

DataQuick Information Systems, a real estate information company, reported that the median sale price of new and existing homes and condos dropped 1 percent in San Diego County in June compared to June 2005.

The performance of the San Diego market may be an indicator of things to come. According to Marshall Prentice, DataQuick president, “We expect more markets to see prices flatten or decline a bit in the second half of this year.” The Sacramento County, Calif., market has also seen a 1.3 percent drop in the median sales price of Sacramento County new and resale single-family homes and condos from June 2005 to June 2006, according to DataQuick statistics.

Not to worry, says Kevin M. Burke of Del Mar, Calif.-based Kohn and Burke Inc. Distinctive Properties RE/MAX, who is a past president of the North San Diego County Association of Realtors. Burke said that the “flood of condo-conversions” hitting the market has altered the area’s overall pricing. “It skews the statistics and makes it looks like more properties are selling (for less) than they were before,” he said.

And those buyers who were waiting for home prices to drop may not get what they expected. “Those who were waiting for a market correction are finding that it’s not correcting in the manner they thought it would,” he said.

Property is still selling, but the days of 21 percent year-over-year price appreciation are gone, Burke said. “If you price a property reasonably, the average market time is running roughly just under 90 days. The ones that are overpriced are taking longer to sell. We’re still not in a normal market. We’re just heading back to a normal market.

“All buyers are looking for a good deal,” he added. “We’re starting to see bonuses, we’re starting to see commissions increasing, sellers paying closing costs. When there are more properties on the market you need to differentiate yours from the others.”

The San Diego Association of Realtors reported that existing homes in San Diego County spent an average 48-51 days on the market in the first half of 2005, compared with 64 days on market in the first half of 2006.

In the area of Central San Diego, DataQuick reported that median prices for new and resale homes and condos dropped 2.1 percent in June 2006 compared to June 2005, while rising 3.5 percent in Eastern San Diego County, 4.5 percent in inland North San Diego County, 1 percent in coastal North San Diego County and 1.4 percent in South San Diego County.

The median price of resale condos in all of these markets dropped in June 2006 compared to June 2005.

The California Building Industry Association trade group, in a report last month, noted that multifamily resident development “has declined markedly” in San Diego County, with “a near-total cutback in downtown high-rise development.” The number of building permits issued for multifamily housing in the San Diego-Carlsbad-San Marcos metro area dropped 45.7 percent in the first five months of 2006 compared to the first five months of 2006, while the number of single-family permits dropped 38.9 percent.

Raphael Bostic, director of the Master of Real Estate Development program at University of Southern California and an expert at the USC Lusk Center for Real Estate, said in June that aspects of the San Diego housing market appeared volatile. “I’ve been concerned about downtown San Diego for a long time, particularly in the condo market,” he said.

Real estate cycles typically last about 10 years, Burke said, and the latest housing boom “was the first time we had essentially a 13-year cycle.” The housing market should be able to withstand the slowdown better than it has in the past, he said, because the area’s economy is more diverse and the demographics point to a continuing demand for housing.

“Buyers are still coming into town. They’re coming here for weather, technology, education and schools. We have a stronger (jobs) base here than before. We are not dependent on aerospace and defense,” he said. San Diego is a very unique real estate market, and it’s a mistake to compare it with Las Vegas, Arizona or other real estate markets across the country, Burke said.

Deborah Sortino, a Realtor for Geoff Mountain RE/MAX Associates in Oceanside, Calif., said the last two months have been very slow in her market area. “It’s like someone switched off the light — (properties) are not moving one way or another. There are a lot of people looking but I don’t see a lot of sales pending.”

Those homes that are selling are priced realistically, she said. And when people talk about any price declines, Sortino responds, “That’s all relative — they only made 180 percent (since purchasing the home).”

While the San Diego market has hit a slow spell, Sortino said she expects the overall market will “just keep growing — prices will continue to go up.” Any price declines will likely be temporary, she said. “Whatever is happening now is just a lull.”

New-home sales are getting more competitive with re-sales in her market, Sortino noted, as some builders have offered zero-down and zero-closing-cost programs as incentives to home buyers. Not long ago, Sortino said, “If Realtors went into new construction they’d just kind of thumb their noses at us. Now we’re really competing against new construction as well.”

While the local real estate market has been filling up with newly licensed real estate agents over the past few years, this trend will likely end with the slowing market, Sortino said. “We’ve had a lot of new people coming in and what they do is just sell their parents’ home or brothers’ home. They’re not going to survive. The next trend we should see is people going and finding other jobs.”

Rustin Rulenz, a Realtor for Prudential Dunn, Realtors, in Pacific Beach, Calif., said there seems to be a sort of standoff between buyers and sellers in the marketplace, as sellers are in some cases not as flexible on pricing as buyers are expecting. “There are a lot of people out there who are just putting up (homes) on the market to see if they can sell it,” he said. Meanwhile, “Every buyer right now thinks it’s a buyer’s market.”

Inventory is up. “You can drive down the street and see 15 yard signs in the first three blocks. Definitely there’s choice out there. There are a lot more open houses. It makes me laugh to see so many open house (signs) pointing in so many different directions,” he said.

Real estate professionals are getting back to basics in this new market. “A lot of agents say they are going door-knocking again,” he said.

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