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December 31, 2011

5

San Diego Real Estate Market 2012 Outlook – Forecast

by Bob Schwartz

San Diego 2012 real estate forecast

San Diego Real Estate Market 2012 Outlook - Forecast

San Diego Real Estate Market 2012 Outlook

San Diego Real Estate Market 2012 Forecast

The latest major economic news shows that the unemployment rate finally dropped below 9%. Any drop in the unemployment rate has to be considered good for the housing market in the long run. As is usually the case with government reports, sometimes one has to look beyond the headline or sound bite to really understand what’s going on. When one considers that over 300,000 of the unemployed went off their unemployment benefits last month and were no longer counted, one has to question the possible improvement this report indicates.

The reason I started with the unemployment report was the fact that it should be quite obvious that the real estate market is not going to pull us out of our malaise this time around. No, I believe only strong job growth and the accompanying drop in the unemployment rate will be the key factors in turning around the economy and improving the housing market.

Where does the San Diego real estate market seem to be headed for 2012? Once again at this time of year, when all the pundits come out with their forecast, it’s the rare individual that does not go along with the real estate industry’s proverbial ‘now’s the time to buy’ mantra. I’m going to be part of the 1% who deviates from the traditional ‘by now before you’re priced out of the market’ end of the year talking points.

I bet you have an idea where I’m going with my report for the Outlook for San Diego real estate values in 2012. Before I get into the meat of my forecast, let’s take a quick look back at the titles of my prior forecasts for the real estate market and short synopsis of each:

2005 – – San Diego Real Estate — A Trend to Go National? (The big divergence between home sales and home prices seen here in San Diego indicated a dropping market and a real estate trend I thought would go national.)

2006 – San Diego Home Sales Figures: Not All That They Seem on the (industry and news reports indicated that San Diego home value drops were substantially less than what was occurring in the real marketplace. This was mainly caused by failure to consider all the concessions that developers as well as private sellers were offering to entice buyers to purchase San Diego homes.)

2007 — Is Your San Diego Home Appraisal Really Accurate? (This focused on the fact that many appraisers were overvaluing San Diego homes because they were not fully considering seller concessions that were taking place in the open market.)

2008 — San Diego Real Estate Market: What Did You Expect?  (How the main-stream media still did not raise any real estate red flags in late 2005. Instead it was ‘just a return to normal’ or “a great time to buy without the pressure of multiple offers.”)

2009 — California: Land of Sunshine and a Year of FREE Living (How many California underwater homeowners were living mortgage and tax payment free for a year or more before foreclosure)

2010 — San Diego Real Estate 2010 Forecast: The Year of the Strategic Mortgage Default (For 2010, San Diego housing will remain a risky deal that will again be dominated by government intervention. Until both the Federal and State governments get out of the housing market, a real bottom will not occur, thus San Diego housing values will continue to decline well into the next year.)

2011 — San Diego Real Estate 2011 – Year of the Short Sale: I personally do not see any real base building in the San Diego real estate market until 2012

With my little trip back in memory lane finished, let’s look at 2012 for San Diego home values. In the most recent Case-Shiller Index report, home prices dropped in 17 of the 20 cities tracked. The biggest monthly price declines were in Atlanta, San Francisco and Tampa (Florida). Home prices in Atlanta, Las Vegas and Phoenix fell to their lowest points since the housing crisis began four years ago.

For our hometown of San Diego, Case-Shiller reported that home prices dropped 0.6 percent between September and October, and fell by 4.5 percent from October 2010. So, if in your area of San Diego the average home prices were about $500,000 in October 2010, in one year they lost approximately $22,500 on average!

Considering there’s a lag time in reporting closed prices, on average about 60 days or so, the above Case-Shiller reported drop was actually derived from the end of our traditionally strongest seasonal real estate marketing time. This is not good news. It does look like the volume of monthly resales of homes has been increasing; I believe that this is good news for San Diego homeowners.

Back in the summer of ‘05, one of the main factors for my calling a market drop was the drop in sales activity while home values continued to increase basically because of the lag time in reporting. Well, I believe the same could be occurring now, except in reverse! With sales increasing (hopefully this trend will stay in place) I believe the San Diego real estate market will finally see home values stabilize in 2012.

I’m not calling for some slingshot snapback in home values next year. I’m calling for, to be precise, the continued modest decline in San Diego resale home prices through at least the first half of 2012. Naturally, barring some major detrimental economic news either here or in Europe, I think the second half of 2012 could see some solid base building, with perhaps, some modest single-digit appreciation by year’s end.

There continues to be talk about pent-up buyers to getting into the market. The theory goes that many potential first-time buyers and move up buyers have been holding off getting into the market and once they see some improvement will rush back in a big way. I said this in a number of prior posts, and I’ll say it again now: I believe there is pent-up demand in today’s San Diego real estate market! The ‘you can never go wrong buying real estate’ crowd has this pent-up demand theory 180° backwards! Personally, I see it not as pent-up demand to buy, but just the reverse! Yes, pent-up demand to sell! I’ve seen many current San Diego homeowners who have seen their home values drop 30% or more during the last six years who would love to recapture a small amount of that decline. They could then move on to a home more suitable for their current family and economic situation. When we finally do see some modest San Diego home value appreciation, I believe we’ll see a lot more inventory become available from these San Diego homeowners.

I usually end these forecast by saying that I hope I’m wrong and things turn out better for San Diego homeowners that I’m forecasting. I’d like San Diego home prices to make a sharp upswing in 2012, but with the magnitude and longevity of San Diego’s real estate home value bust, I don’t really believe that there is any chance for such a fairytale snap-back next year.

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5 Comments
  1. Paul C.
    Dec 31 2011

    From where I sit, I can’t identify anything in your post that I would disagree with.

    Paul

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  2. Jan 5 2012

    Your housing outlook for San Diego appears to see a little light at the end of a very long tunnel. One can only hope. I am thinking about getting a 5/1 ARM.

    I hope to sell this place and move out of state. I have a 3 year time horizon.The taxes here are killing me and there are more on the way.

    Jerry has the unions and teachers spending millions to promote his tax to ‘soak the rich’. I can’t wait to get out of here.For what it is costing me now to live I can have a home in another state and spend 6 months traveling!

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