The stunning 50 percent plunge in Phoenix’s home prices has attracted national attention. By contrast, San Diego’s condominium market, which has seen values fall by 55 percent, has suffered in relative silence.
That may be the good news.
“This feels like 1991 or 1992,” said Gary London, a local real estate analyst. By 1992, London recalled, San Diego was already two years into a real estate downturn. But the market showed no signs of recovery until 1995, he added.
To come back — if that ever happens — experts believe that the local market will have to navigate another surge in foreclosures, which could keep the condo market depressed at least through much of 2010.
Factor in an additional problem for condo sales: regional economist Alan Gin says the condo market now faces competition from the sale of detached homes, which have fallen to affordable levels, at least for those who’ve managed to keep their jobs.
Gin, a professor of economics at the University of San Diego, said that for the condo market to rebound, the detached-housing market must first rebound. But detached homes are unlikely to bounce back without improvement in the job market. Folks getting laid off, or fearing layoffs, won’t buy houses.
“The job market is disastrous,” said Gin. Local payrolls had 44,000 fewer jobs in March of this year than they did a year ago, he noted. Gin said if this pace continues for the balance of this year, job losses in this recession will exceed those suffered in the sharp 1990s downturn.
“It is encouraging that real estate sales are up, but for a recovery to occur you need job growth,” he said.
Consider that the median price of a San Diego County condo peaked at $400,000 in April 2005, dipped slightly, and then returned to that peak again in March and May of 2006, according to MDA DataQuick, which compiles real estate data.
By March of this year, the median condo price had plunged to $180,000.
And this decline in prices has continued despite a slight uptick in sales. Condo sales in the county totaled 888 units in March, the highest in three months. But that’s well below the peak levels of more than 1800 units seen in April and June of 2004.
To take the sunny perspective suggested by those selling real estate, there’s lots of room for recovery. In other words, things have tanked so badly in the condo market, it could be near a bottom, boosters suggest.
Nat Bosa of Bosa Development, which has developed many local condo projects and continues to seek buyers for recently completed units, argues that the recent uptick in sales volume is the first positive sign.
“As recently as six months ago, I would have said we were close to a depression, but I think we averted that,” Bosa said. “We must be in our second or third year of low house-building activity. And a heck of a lot of kids have moved in with their parents. When are they going to say they want their own place?
“To be honest, I don’t know when somebody who wants to buy a house for the first time had a better time to buy than right now.”
Bosa said he’s confident enough now about prospects for a revival that for the first time in more than two years, he’s talking with architects about plans for new developments.
Clearly some buyers are concluding prices are near bottom. For others, condos have simply become affordable for the first time, and they’re willing to venture into the market.
That describes Pete Cretu, a 35-year-old information technology analyst. Back in March, Cretu bought a 2-bedroom, 1.5-bathroom condo in the Alta project near Sixth Avenue and Market Street for $455,000. He is quick to note that his condo is similar to units that sold in the same building just one year earlier for $620,000.
Cretu said he figured the cost had fallen sufficiently that it made sense for him to stop renting and buy his first home. Plus Cretu said he discovered he could take advantage of federal and state tax credits for first-time and new-home buyers that for him could total up to $18,000.
After putting down about 20 percent, Cretu said his mortgage, property taxes, and condo fees were running just a couple of hundred bucks above the rent he was paying for a one-bed, one-bath rental he had in University City. Perhaps most important, he doesn’t worry about a further price decline.
“My thing is that I am never going to get the lowest price,” said Cretu. “The unit has probably lost another 1 or 2 percent, but when you’re getting close to what you paid for rent, it paid to buy.”
But the risks of bottom-fishing the region’s dicey condo market became apparent for another professional who bought a downtown condo last year.
In that case, the mid-career professional — who asked to not be named — paid $417,000 for a unit that had sold for $595,000 just three years earlier. Seemed like a good deal at the time. But a larger unit in the same building with an additional parking space later sold for $40,000 less.
“And people tell me that extra parking place is worth at least $20,000,” said the professional.
Sherman Harmer, chairman of the Downtown Residential Marketing Alliance, said the city’s core has fared somewhat better than other areas. So-called distressed sales of condos — foreclosures and short sales — have made up 6 or 7 percent of downtown sales, compared with levels that have exceeded 20 percent elsewhere, he said.
Harmer is also encouraged by the increased volume of sales downtown and what he anticipates will be a declining inventory of unsold units. Developers have trimmed inventory by pulling units off the market and renting them. In the 679-unit Vantage Pointe development, nearing completion at Tenth Avenue and A Street, for example, the developer plans to rent nearly 400 units, rather than offer them for sale in the depressed market. In addition, Vantage Pointe recently announced it was returning deposits to some 300 potential buyers because many were unable to satisfy a lender requirement for obtaining loans to close their deals. The requirement stipulated that 70 percent of the units had to be pre-sold in order to qualify for financing.
Harmer nonetheless predicts that unsold downtown inventory — which could reach roughly 1400 homes in the next few months — could shrink to what he characterized as a normal inventory of about 400 within ten months. That projection counts on maintaining current sales levels and no increase in foreclosure sales. And Harmer’s projection could also be upset by a rise in prices that would stimulate developers to return rental units to the condo market for sale.
Louis Galuppo, director of residential real estate at the Burnham-Moores Center for Real Estate at the University of San Diego, isn’t so sanguine. He said many lenders have held off on foreclosing until they could understand new programs proposed by the Obama administration to prevent foreclosures. But those programs will work for only a small number of distressed homeowners, Galuppo has concluded.
“We will see a high number of foreclosures over the next year,” said Galuppo. Nonetheless, he added, “I think we are very close to the bottom for existing homes.”
Pete Thistle, a broker with 92101 Urban Living, said there are currently many folks shopping for condo bargains. And with the dramatically lower prices, he said, “All of a sudden, San Diego is affordable.”
But the questions keeping many from venturing into the market remain: Will the local housing market be even more affordable one year from now? And will I still be working next year?