2007: First Quarter for San Diego real estate
Stats on the main players in the real estate marketplace:
1. Inventory for detached homes throughout the county went up about 30% during Q1 2007
2. Foreclosure rates are near an all-time high. Read an article
3. We've had 21,066 new listings in Q1 2007 compared to 23,534 from Q1 2006 & We've had 6067 closed sales in Q1 2007 compared to 6794 from Q1 2006. Read stats from the SD MLS
4. Average rents for all types of (rental) units increased 5.8 percent over last year (Union-Tribune, 1/16/07)
5. Interest Rates have remained steady. From the Federal Reserve website
6. Demand to live in San Diego is very high. Read an article
A discussion on these market factors:
Inventory:
This is pretty cut and dry economics - supply vs. demand. With a higher supply than usual in the past couple years, prices have dropped. While the 30% rise in the first quarter is normal for seasonal variation, the base inventory was already higher than usual at the beginning of the year. Here's some recent history on inventory. From 2000 to 2004 (our biggest boom market in recent history), about 2 out of every 3 new listing sold resulting in a 66% sale rate. In 2005 it was about 45%. In 2006, it was 35%. Currently, we are at about 30%. Bearing in mind that 2000-2004 were boom years, a normal rate would be about 40%. Visit my website to search all San Diego Homes for Sale.
Foreclosures:
Here is a scenario that typifies what is happening with foreclosures: a person buys a house with a risky loan in 2003-2005. They had a 2-year adjustable interest only loan. After 2 years, they were hoping to gain significant equity & refinance - instead, their home value dropped and they couldn't refinance. Their monthly payments went up 25% and they were unable to make their mortgage payments, so the bank repossessed the home. What this does is increase the inventory with homes that have motivated sellers (aka the bank). A foreclosure is not a home that is going to go at much, if any, below market value - the bank still has a financial interest to get the most money they can - they are simply realistic sellers that are motivated and willing to sell at a competitive market value. I have access to most Foreclosures on the market & can send you some if you like - bear in mind that these homes are usually "fixers".
Rental Rates:
When you rent a home, you have zero tax write-offs. When you own a home, all the interest & property taxes paid are tax write-offs. In the early stages of a loan, most of your monthly payments are interest (or in an interest-only loan, all). So when you compare rental rates to mortgage rates, you must include tax write-offs to balance it out. Let's take a $500,000 home in Clairemont as an example. At 100% financing, mortgage payments will be about $3300/month including property taxes on a 5-year Interest Only option. Tax write-offs will be about 30%, which equals about $1000/month. Monthly rent on this home is about $2000. When you subtract tax write-offs from the mortgage payment, you'll see that most renters are paying close to the full mortgage payment they would have to own the same home. Currently, renting in the average price ranges is almost the same dollar after taxes as owning with $0 down!
Interest Rates:
The Fed has not raised the Federal Funds rate since June of 2006. Home loan rates have, subsequently, remained very steady in the last 6-9 months as well. This is one of the X factor's for predicting the future of the housing market. An interest rate hike could affect a buyer's purchasing power more than a 5% decrease in home values.
Local Area Demand:
San Diego is well-known for its wonderful weather and high quality of living. Baby Boomers with disposable income are seeking out spots like San Diego to retire to/invest in. Many young professionals and students pay high rents to live in our city. Unemployment is low & construction permits are down limiting the amount of future new housing inventory. So although some buyers are being fickle, there is a great demand in San Diego for a well-priced home.
I hope you have found this useful and I appreciate any feedback you have for me. I also appreciate your referrals - if you know of anyone thinking of buying or selling real estate in San Diego, I would be happy to work with them. Visit our new team 73 degrees website of San Diego Realtors, coming soon...
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Adam-
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