Glimmer of Hope for Southern California Home Market

I read an interesting article today in the Wall Street Journal (subscription required for some content) titled the same as this post. The main point of the article, for those without access, is that for the first time in 10 months, the median home price in southern California (as measured by MDA Dataquick) did not go down last month. Instead it stayed steady at $250,000, but still down 39% year over year. The article speculates about the market bottoming.

Personally, from everything I have seen, I think the low end of the market has bottomed or is extremely close here in San Diego. In some areas of the county, condo and townhome prices are down over 60% and are now selling for in the area of 6 times annual rent with Cap Rates north of 10%. Sales are up 56% year over year and it is largely these lower end Bank REO properties that are selling, mainly to first time home buyers and investors.

I think the higher end of the market still has some pain ahead. Most people in this segment were able to ride out the earlier market declines and simply pulled their homes off the market rather than cut their asking prices to reasonable levels. As the recession progresses I think you will see more forclosures and forced sales of mid to high end homes.

Welcome

As a Value Investor, I have been taking a great interest lately in the real estate market. Value investors try to buy assets that they expect to generate strong cash flows that are selling for significantly less than the value of those cash flows. The term is usually applied to stock investing, but really can be applied to any asset market, including real estate. With the recent plunge in home values, real estate is becoming attractive to value investors for the first time in a decade.

On this blog, I will point out interesting articles and data as I come across them and write about my thoughts and interpretation of those articles and data. I will look at various markets, but focus on the San Diego market where I live work and invest.