Friday, November 12, 2004

Record jump in housing costs

County's median price up $102,000 from a year agoUNION-TRIBUNE STAFF WRITER

November 12, 2004

JOHN GASTALDO / Union-Tribune
Karrie Myers of La Mesa looked at a model home built by McMillin Homes in Scripps Ranch.
San Diego County home prices set another record last month, with the median price up nearly 26.4 percent from October 2003, DataQuick Information Systems reported yesterday.

The $102,000 year-over-year increase brought the county's median price to $489,000. It represents the highest percentage increase in two years and the first-ever $100,000-plus price jump.

But there were multiple signs to support the growing belief that the seven-year real estate boom may be nearing an end.

Mortgage interest rates rose slightly to 5.76 percent, Freddie Mac reported yesterday in its weekly primary mortgage market survey. The rate, for 30-year fixed-rate loans, was up from 5.7 percent last week. Higher rates mean fewer people can afford homes. The news came one day after the Federal Reserve increased short-term interest rates, used to calculate many adjustable-rate loans, by a quarter percentage point.

Single-family resale homes, the largest segment of San Diego's housing market, experienced a second straight month of price declines, down $4,000 to $516,000 in October after a $5,000 drop to $520,000 in September. It was the first back-to-back monthly decline since September-October 2002.

"We may be seeing that expected leveling off in prices now," said DataQuick analyst John Karevoll.

But he said San Diego is not flattening as much as Los Angeles County, where prices have not exceeded their all-time high set in June of $414,000. Other counties' prices will be reported next week.

San Diego's inventory of unsold resale homes stood at 10,342 properties yesterday, compared with an average of 4,131 in November 2003, according to Sandicor Inc., the multiple listing service operated by local Realtor associations.

Sandicor, which monitors about two-thirds of the housing market, calculated the county October median at $495,000. The median represents the halfway point of all sales with half above and half below that figure.

Both DataQuick and Sandicor reported fewer sales in October than in September or in October 2003. The figures indicate that the unsold inventory has gone from 33 days to 105 days of supply at current sales rates. Days on the market before escrow closes now stands at 41, compared with 35 a year ago.

Karen Peterson, president of the San Diego Association of Realtors, called the current situation an "adjustment period" that includes both seasonal factors and changes in buyers' attitudes.

"Buyers believe prices will come down drastically, and the statistics are not showing that at all," she said. "They have this mindset, and it simply isn't going to happen."

However, other real estate observers aren't so sure.

Anthony Downs, a senior fellow at the Brookings Institution in Washington, D.C., who has been researching issues at the California Public Policy Institute since July, recently wrote that state prices are running 10 times ahead of household incomes, compared with a national ratio of 4-to-1.

"To me, this imbalance foreshadows a sharp, near-term slowdown in California housing-price escalation," Downs said.

As if to underscore that point, the California Association of Realtors yesterday reported San Diego's September affordability index at 11 percent, up slightly from the record low of 10 percent for the previous two months.

The number means that only 11 percent of local households earn the $132,800 necessary to buy the median-priced home with a 20 percent down payment and a 30-year, fixed-rate loan at 5.7 percent. However, nearly three-quarters of current buyers are picking adjustable-rate loans at lower rates and making far less than a 20 percent down payment.

Another perspective came from Tim Ghriskey, chief investment officer with Solaris Asset Management, who said rising interest rates are likely to override stronger-than-expected earnings by publicly traded home-building companies.

"The market, especially on deep cyclical stocks, is forward-looking," Ghriskey told Reuters, "and with home builders you've got to believe that it's as good as it gets. The easy money was made awhile ago. The housing market is in its later stages."

The human face on the present housing market might belong to Sonya Woods, 40, a single mother and resource and planning analyst at the University of California San Diego.

She put her 1,100-square-foot Sabre Springs town house on the market last spring for $440,000 to $469,000. She was moving up to a new 3,600-square-foot, $863,000 home in McMillin Homes' Mill Creek project in the StoneBridge Estates master-planned community east of Scripps Ranch.

The town house went into escrow twice at $460,000 before a third buyer closed at $425,000.

"I probably could have held out for a little higher price," Woods said, "but they were a first-time home buyer and someone was there for me when I did my first deal and I really wanted to see them have this place."

Besides, Woods, who is engaged to be married next year, still made a killing on the sale. Her purchase price six years ago was $135,000.

Woods' experience is echoed in many new-home sales offices, where buyers say they have to sell their existing homes before closing escrow on new ones.

McMillin Homes has seen a rise in cancellations and unsold homes in 10 local projects lately and thus dusted off an old incentive program that offers certain options through Dec. 31 at no extra charge. What happens in January is unclear.

"We're waiting for the holidays to regroup," said Karen Martin, McMillin's senior vice president for new-home sales. "If it (sales activity) doesn't come back strong in January-February, after the Super Bowl, we may make some adjustments, too."


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