Home Prices Up, Median Hits $340,000 in May

By Mike Allen Monday, July 5, 2010 Home prices in San Diego continued rising, and showed the second highest annual increase since April 2009, according to the 20-city Standard & Poor’s/Case-Shiller home price index. In the survey released June 29, San Diego’s home prices rose 11.7 percent from April 2009. The rate was second only to San Francisco, which showed an 18 percent increase year-over-year. However, several local real estate professionals say the data reflects a rise in the sale of higher priced houses, rather than more sales coming from foreclosures or in the lower tier of the market. Rick Ungar, associate broker at Keller Williams Realty in Carlsbad, said there have been more sales in recent months in the move-up price levels. He noted that the inventory of houses for sale in the county is rising, with a drop in the number of homes for sale at the lower end of the market. Mark Goldman, a mortgage broker with Cobalt Financial Corp., said while the Case-Shiller number is a positive, he doubted prices would continue increasing at the 12 percent rate. “I think prices could still soften again, and that’s because the challenges in the economy have not been resolved,” Goldman said. San Diego’s median price for all sales continued rising in May and hit $340,000, up 15.3 percent from May 2009, according to a mid-June report from La Jolla-based MDA DataQuick. That price was far off the peak for the local market in early 2006, when the median price reached nearly $572,000. Tax Credits Spur Sales The DataQuick report said sales activity in the county and for most of Southern California spiked in May mainly due to federal and state tax credits that were expiring. Mortgage interest rates were also down to levels not seen in about 40 years. They were recently hovering near 4.75 percent for a 30-year fixed mortgage. While the tax credits definitely impacted the lower end of the housing market, most of those buyers are now gone. The credits had negligible effect on upper-end buyers, said Bob Casagrand of Fidelity Pacific Real Estate in Sorrento Valley. Much of the recent sales in the county have shifted from the lower priced houses, or those less than $300,000, to the midtier market, where the inventory is increasing, Casagrand said. Though overall prices have stabilized and risen, supply is also higher than it has been all year and is expected to continue growing, he said. “Supply is going up, and demand is going down slightly, and that takes some pressure off price increases,” Casagrand said. Slow Sales in the Top Tier At the upper end of the market, homes priced at more than $1 million, sales are slow. These are currently making up about 5 percent of all sales, but the higher priced homes make up about 20 percent of the available inventory, he said. Banks are reluctant to make the jumbo loans necessary to finance such homes, even when borrowers have high credit scores and are making large down payments, say many brokers. Ungar said he has a client, an investment adviser with excellent credit, trying to buy an $850,000 house in Carmel Valley. He offered to put down about 40 percent. Despite that, he was turned down by the bank twice. For borrowers in the middle and lower tiers of the market, the most common method of financing is a mortgage backed by the Federal Housing Administration. The loans require only a 3.5 percent down payment. According to MDA DataQuick, FHA loans were used to finance 37 percent of all purchases in Southern California in May, down from 40 percent in May 2009. Although price increases could slow, or even drop in certain areas, brokers remained optimistic about the long-term prospects for home values in the region. “In the grand scheme of things, San Diego is a market with a tremendous shortage of housing,” Goldman said. “In the long run, we’re in position to do better than many other cities in the country, and I expect our property values to continue to appreciate.” SAN DIEGO BUSINESS JOURNAL