S.D. is 6th weakest housing market ... uh oh

Great article on high end vs low end housing in San Diego. Posted in the UT business section.

S.D. is 6th weakest housing market

November prices fell 25.8% from year ago

By Roger Showley (Contact)
Union-Tribune Staff Writer

2:00 a.m. January 28, 2009

San Diego County's housing price slump may be easing at the low end but continues to worsen in more higher-priced areas, according to a closely watched index Standard & Poor's released yesterday.

The S&P/Case-Shiller Home Price Index ranked San Diego the sixth weakest housing market nationally, with prices overall down 25.8 percent in November from year-earlier levels.

But a breakdown of the San Diego market, provided by S&P, showed a shift in the pace of price changes among the low-, middle-and high-end segments of the single-family resale market.

The low end, priced below $306,500, saw its biggest year-over-year drop of 33.7 percent in August with the declines slowing since then to 30.5 percent in November. From the peak set in June 2006, the index for the low end has dropped 46.7 percent.

The price decline for the middle group, from $306,500 to $453,097, peaked at 25.4 percent in September and has backed off to a 22.2 percent decline in November, resulting in an overall drop of 36.5 percent from the peak set November 2005.

Meanwhile, the high end, homes exceeding $453,097, continues to see ever deeper price declines, hitting a record 20.3 percent drop in November. Prices in that segment have held up better so far during the slump, down 28.6 percent from the peak set in June 2006.

David M. Blitzer, index committee chairman, said the pattern is following that of San Francisco, where the low end is now falling slower than the high end.

"It doesn't mean the whole game is over, because it (the low end) could still go down more than where it is," he said. "Prices are still 50 percent higher than they were in 2000. But I think it is a shift, certainly, and a pattern we'll see all over the place."

Nationwide, Phoenix prices were down the most, 32.9 percent, and Dallas the least among 20 metro areas studied, down only 3.3 percent. Nationally, the index was down a record 18.2 percent, reflecting what Blitzer called a "free-fall in residential real estate."

With interest rates falling and loans more difficult to come by than a few years ago, some buyers are in no hurry to buy now.

Such is the case of Pete Hernandez, 33, and his fiancee, Lisa Darling, 32, who have been looking for a year for a home priced from $300,000 to $400,000. They tried to buy short-sales - homes sold for less than their mortgage amounts - but grew impatient with banks that take months to review offers.

"We'd like to find one sooner than later as interest rates are low," Hernandez said. But they are now shifting gears to concentrate on their August wedding and will look for a home to buy after that unless a deal comes their way.

Their real estate agent, Scott Voak, said high-end price drops are probably accelerating because credit-worthy owners who took out so-called Alt-A loans - those with negative amortization features, zero interest or zero down payments - are unable to cope with resetting monthly payments and having to sell at a loss.

"A lot of people in neighborhoods like 4S Ranch (west of Rancho Bernardo) and San Elijo Hills (in San Marcos) have those loans," Voak said. "We saw a home sold for over $1 million about 2½ years ago, and the bank put it on the market for $729,000."

Pat Russiano, the president of the Pacific Southwest Association of Realtors in South Bay, said the low-end price drops may be slowing because demand is picking up.

"What we have here," she said, "is more and more people that can afford to buy who even two years ago thought they would never own a home in California - they were priced out of the market."

Mark Marquez, president-elect of the San Diego Association of Realtors, said this rising demand may signal a switch from a buyer's to a seller's market by year's end, at least at the starter-home level. He said inventories of homes for sale and the days on the market prior to sale have been dropping in recent months - signs of an active market.

"I think we're definitely heading to a level and an upside by the end of '09," Marquez said.

As for higher-priced neighborhoods, agents said most sellers are holding off listing their homes unless circumstances force them to do so.

"Unless a property is a '10,' be prepared to take a discount," Marquez said.

He said buyers in the upper end have trouble obtaining jumbo loans that carry higher interest rates and stricter underwriting standards than lower-valued mortgages.

Andrew LePage, an analyst for MDA DataQuick, which publishes monthly housing prices, said the Case-Shiller figures mirror those he has compiled. His November median price for single-family resale homes in San Diego was $335,000, down 33 percent from November 2007 and off 41.6 percent from the all-time high of $574,000 set in June 2006.

But he cautioned that both DataQuick and Case-Shiller figures reflect the dominance of low-cost fo