Analysts still cautious about future increases
Wednesday, February 24, 2010 at 12:03 a.m.
A widely watched index of housing prices yesterday showed San Diego County’s prices up 0.1 percent from November to December, the eighth straight month of improvement.
That is the longest upward trend among the 20 metro areas monitored by the Standard & Poor’s/Case-Shiller Home Price Index.
But analysts remain cautious that the trend line may not continue upward. Potential obstacles to further recovery include rising interest rates, a generally stagnant economy and weak housing demand.
The December index showed San Diego prices up 2.7 percent from a year earlier. The index, set at 100 for January 2000, stood at 156.29, up 8.2 percent from a low of 144.43 in April.
However, it was still 37.6 percent below the all-time high of 250.34 in November 2005. In dollar terms, that means a typical house that sold for $200,000 in 2000 rose as high as $500,680 before falling back to $312,580 in December.
San Diego was not alone in the latest improvements tracked by S&P. But the 20-metro index continued declining, although at a slower pace, down 0.2 percent from November and down 3.1 percent year-over-year. The biggest month-to-month drops occurred in Chicago, Dallas and Cleveland.
“The Southwest continues to be a bright spot, with San Diego posting its eighth consecutive monthly increase and Los Angeles and Phoenix both posting their seventh,” the company said.
Some economists see further nationwide declines ahead. IHS Global Insight predicted overall prices are likely to fall 5 percent if interest rates rise, demand slackens because of the April 30 end to federal homebuyer tax credits and foreclosures rise.
Local economists concurred with that prediction. Norm Miller, vice president at CoStar Group, said the cost per square foot of the most recent sales was down 4.9 percent from the fourth quarter of last year, even as the asking price has risen.
“That means sellers are coming onto the market with slightly higher-quality properties or are being more optimistic,” Miller said. “And yet sold property prices are going down a little. So, we’re getting a gap again between buyers and sellers, and that means the inventory will start to build up again over the next couple of months — and that will continue and the market will soften a little more until we get to another wave of buyer tax credit expirations, which will hit late spring.”
Michael Lea at San Diego State University said interest rates are likely to rise after the Federal Reserve stops buying mortgages in the secondary market, as it has announced it will do as of March 31. He said he spoke with several investment bankers last week who predicted private investors will replace the Fed in the secondary mortgage — a crucial step to continuing the flow of mortgage money for homebuyers.
But investors will demand a higher return, and Lea said that may translate into a quarter percent increase in rates.
In addition, Lea said he expects prices to remain flat or go sideways because lenders are likely to release more and more foreclosed properties for sale.
“There’s not going to be a big, sharp decline, but nothing to lead me to believe we’ll have any significant increases,” he said.
James Hamilton at the University of California San Diego said although local prices have risen in recent months, as measured by the Case-Shiller index, they still remain far below their peak, set in late 2005.
“We were battered so hard that the good news still leaves us in a tougher spot than in some of the other communities with not-as-good news,” he said.
Hamilton said San Diego housing also is likely to be affected by general economics in California, particularly the continuing state government budget deficit that likely will lead to state and local government layoffs as well as lower spending. Tourism and defense industries are not rising rapidly, he said, and there is no boom to look for soon in venture capital investment in high-tech companies.
“We’re past the worst part,” Hamilton said. “But the economy hasn’t gathered steam in an upward direction like you usually expect in the business cycle.”
