Home prices tumble 24% from 2007

San Diego County ended 2008 with the worst real estate downturn on record, with prices dropping more than 24 percent from 2007 levels. The question on the minds of buyers, sellers, renters and real estate professionals is whether 2009 will bring more of the same or mark the start of a recovery.

For all of 2008, the median price was $360,000, a record 24.4 percent decline on a year-over-year basis, while sales sank to their lowest level since 1995.

Meanwhile, December's numbers reflected a continued housing slump, with the median price declining 30.3 percent from a year earlier to $300,000 – the lowest since April 2002, MDA DataQuick Information reported yesterday. Since monthly prices peaked in November 2005 at $517,500, the median has dropped 42 percent.

But as prices sank to more affordable levels, partly because of the presence of many deeply discounted foreclosure properties, sales rose, with December up 34.7 percent year over year to 3,325 transactions.

For all of 2008, the total of 34,294 sales nearly equalled 2007's 34,741 – but both were far below the peak of the real estate boom, at 68,315 in 2004.

“It was the revenge of the first-time home buyer,” said DataQuick analyst Andrew LePage, who noted that new buyers were particularly active in Oceanside, Chula Vista and inland areas where prices fell the most.

Economist Christopher Thornberg, who predicted the bursting of the housing bubble long before many other analysts, was confident that this is the year housing prices finally hit bottom. But he cautioned that it could be at least a couple of years before housing values begin rising again.

“It's pretty clear that from the numbers we're seeing, price declines are falling at a slower pace than a year ago, and this is good news, because you need to see a slowing decline before prices stop falling,” said Thornberg, of Beacon Economics.

San Diego real estate agent Gary Kent said he expects homes under $500,000 to bottom out sooner than upper-end houses, where prices still have further to fall.

“I think that we're close to the bottom on the lower end because investors now can buy and get a positive cash flow, and home buyers can buy and not pay that much more than rent,” Kent said.

Thornberg noted that the stock of foreclosures remains high, which will continue to depress prices, and with unemployment rising, fewer people will be looking to buy homes. In December, San Diego foreclosures represented 50.4 percent of all resales, compared with 30.3 percent a year earlier.

Other indicators also suggested how the year could unfold.

The Construction Industry Research Board in Burbank reported that only 135 San Diego County building permits were issued in December, and the 5,153 total for the year was the lowest since the board started tracking San Diego permit activity in 1967.

“We foresaw '08 and fear '09 is going to be a repeat,” said Borre Winckel, chief executive of the San Diego County Building Industry Association.

In the resale market, San Diego's inventory continues to drop, a sign that demand is whittling away the supply and that prices might be stabilizing. The San Diego Association of Realtors said the inventory of unsold resale homes, including foreclosures, stood at 14,997 yesterday, the smallest since early 2006, as the housing market was cooling.

But some buyers are bypassing resales and foreclosures in favor of new homes because they like the features, financing and peace of mind they get when buying from a builder rather than a bank.

“We felt there were so many scary stories with foreclosures and didn't want to get caught up in a home that someone left at the last minute,” said Deborah Mosley, 33, who with her husband, Derrick, 37, now serving in Iraq, bought an 1,860-square-foot, $369,900 townhouse in November at Brookfield's Cordova project in eastern Chula Vista.

A.J. van de Ven, 27, an unmarried software engineer, paid cash for a $726,900, 3,875-square-foot house in Brookfield's Mahogany project in San Marcos because he was nervous about other investments.

“To be honest, it actually freaked me out,” van de Ven said of the economy last fall, when he closed escrow.

In recent months, the Federal Reserve has lowered interest rates and taken other steps to bolster the housing market and the general economy. Mortgage interest rates, which Freddie Mac reported Thursday as standing at 4.96 percent on 30-year, fixed-rate loans, are expected to continue to fall this year, possibly to as low as 4 percent.

“It's hard to figure out what else the government can do,” said Rick Sharga, vice president of marketing for the RealtyTrac research firm. “Interest rates are at record lows and home values have dropped in some markets by 40 or 50 percent, yet we are not seeing the increase in buying activity we should.”

Some economists fear that more foreclosures are inevitable as thousands of bad loans work their way through the system.

“There are not a lot of good stories to be told,” said Dean Baker, an economist for the Center for Economic and Policy Research in Washington, D.C. “You had a housing bubble. It is going to deflate, and a lot of people will get nailed.”

Also hampering a recovery is continued tightening of credit as many lenders hoard money to offset future bad loans. This week, Congress cleared the way for a new round of relief funds for the financial industry. Treasury Secretary Henry Paulson already committed half of the $700 billion bailout, which so far has failed to loosen lenders' purse strings or slow foreclosures.

Meanwhile, congressional pressure is mounting on lenders to loosen credit and make loan modifications that reduce principal debt to help homeowners avoid default. The incoming Obama administration supports changing bankruptcy laws to enable judges to reduce debt for distressed homeowners if lenders fail to act.

Many home buyers who purchased at the peak of the market just four and five years ago continue to suffer the fallout from subprime lending and rapidly falling housing values.

Single mother Kelly Soban, who in 2004 bought two homes using $350,000 in proceeds from the sale of a previous house, recently sold one of them for substantially less than what she paid for it to avoid foreclosure.

“I was really poorly advised every step of the way from different people, and my Realtor kept saying, 'The market will get better; keep paying the mortgage,' ” said Soban, who still owns her home in Clairemont. An investment house she bought in Lakeside for $510,000 recently sold for $278,000.

“The only regret I have is not educating myself,” she said. “I have a family to support, and it wasn't about greed – it was about security.”

Staff writers Emmet Pierce and Lori Weisberg contributed to this report.

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