Monday, March 23, 2009

Calling the Bottom

Based on evidence I have seen first hand, backed up by recent data, I am calling the bottom on the lower tier homes in San Diego. Since I am looking to invest in properties, I have had screens set up through the MLS listing service that alert me when properties that meet my price criteria in various areas of the county hit the market, or when there is a change to the listing. Comparing the alerts I was receiving 6 months or 3 months ago to today I can see a trend.

Three to six months ago I would receive alerts that properties met my criteria, then a month later, I would see an alert that the price on the same property, still unsold, was being dropped even deeper. Now I never get alerts of price declines. Also, some areas where I used to receive daily alerts of properties listed in my price range I now rarely receive alerts because properties are listing (and selling) for higher prices. El Cajon is one such area. Other areas, such as Oceanside, where I used to receive alerts for properties with prices well below my maximum price points, I still receive alerts, but the prices are now closer to my maximums.

One explanation could be that owners have suddenly started listing their properties at unrealistically high prices and the properties will sit on the market. However, all the data shows an increase in home sales so this is obviously not the case. Instead, it seems that first time home buyers, buoyed by the federal home buyer tax credit and plunging mortgage rates are now stepping up to the plate. Also, many investors are seeing the same opportunities I am seeing and are buying properties.

Here is an AP article that appeared today that helps confirm what I have been seeing. The article is about soaring home sales and plunging prices, but also includes this tidbit:

"However, in a positive sign, seller asking prices are starting to rise in places like San Diego and Orange County, Calif., where declines have been severe, said Lawrence Yun, chief economist for the Realtors. That could be an early indication that prices are stabilizing in the most distressed parts of the country."

Now, I normally take anything said by the Realtors with a grain of salt, but in this case, it confirms what I have been seeing on my own lately.

Also I would like to stress that I believe this is the bottom only on the low to lower-mid range of the market. I think the upper-mid to high end of the market still has a bit further to drop here in San Diego. The Case Schiller tiered index data is only current through December and can be found here as well as graphed below for San Diego. As of December, the data shows the bottom tier was still in a down trend, which I believe is correct. We will need to wait for the January, February and March data to see if prices have actually stabilized.

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