Thanks to Jack for the recent comment on my “Calling All Buyer’s” post in which he asked for clarification on our current market. Specifically, he expressed confusion about comments he has heard that our market is a normal one, yet San Diego’s inventory of unsold listings is at an all-time high. How is that normal?
In a previous post of mine I talked about the definition of a “Buyer’s Market?”. In short, if at current absorption rates (homes sold per month) it would take six months for all active listings to sell, the market is a normal one; longer would be a Buyer’s Market, shorter would be a Seller’s Market. This Spring/Summer, we have returned to more of a normal market, although coming off of many years of frenzied activity, it doesn’t feel very normal to a lot of us. An article in this morning’s Union Tribune said that San Diego currently has a 7.1 month inventory of homes for sale, which would suggest we are indeed moving toward a market favoring buyers, and I believe few will question that this is a trend. Fall should be interesting. It remains to be seen whether buyers will begin seeing the advantages of a lower interest rate environment which will offset anticipated (by some) future price reductions or will continue to take the wait-and-see approach that is making the listing (and buyer’s) agents crazy right now.
Now, for the exciting contest results. Rank has its privileges, and I hereby award the trip to Starbucks (transportation not included) to Jack. OK, you didn’t answer the questions, but you asked a good one. Shoot me an email (hit the “Contact Us” link) so I know where to send your prize. As for what we learned from my little survey, not a lot it seems. The numerous respondents 
agreed that prices are high and that time is on their side. The investor’s response I found most interesting and indicative of things to come. We have eliminated much of this buying segment, which has historically represented a large component of our San Diego sales, as high prices no longer allow the investment opportunities to pencil out.
OK, Steve. Your turn.
ABOUT THE AUTHOR Kris Berg is Co-Owner and Designated Broker of San Diego Castles Realty. If not-so static web sites are your thing, go here at once where you will find loads of real estate information including homes for sale, market trends, floor plans and more. Kris's hobbies include fencing and spot welding. She likes kittens. 
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{ 10 comments… read them below or add one }
First let me say that I disagree with Kris’ statement (big surprise) that investors (who are not now actively buying) have “historically represented a large component of our San Diego sales”. While I don’t have the most current stat’s on this, I do recall seeing an article in the San Diego Union (I think) about six months ago that suggested investors (non-owner occupied homes) represented less than 17% of the ownership countywide, including both condo’s and single family detached homes. Now I know that on a community-by- community basis this number may be higher (i.e., downtown) or lower (i.e., Scripps Ranch). But even at 17%, were not talking huge numbers. I will acknowledge that it’s not an insignificant number (just not a “large” number).
With regard to Jack’s comment, let’s put this in historical perspective. For the past 10 years, San Diego has experienced an unprecedented upward move in home prices. Certainly we have had periods or economic cycles of home price appreciation and depreciation in the past (both the 70’s and 80’s), but never for such a long period. From 1990 to 1996 San Diego was impacted by a downturn in the national economy. This somewhat natural downturn in the business cycle was made much worse for San diego by the loss of General Dynamics and its’ affiliated subcontractors and according to some accounts more than 75,000 people lost jobs here within 24 months. I remember homes on the market and “For Sale” signs everywhere at that time. Some sold for 20% less than what they had paid one year prior. But here’s the big difference…
Back in 1990, there was no Eastlake, Otay Ranch, Torrey Highlands, 4S Ranch or Sabre Springs. They had not yet been developed. Scripps Ranch and Carmel Valley were less than 50% of the size they are now. Much of San Marcos and Vista was just undeveloped land. Get the point? The housing stock in San Diego has grown by tens of thousands of homes since the last downturn in the market. So on a relative basis, I would not necessarily disagree with Leslie Apple-Young when she says this is more of a normal market. For the many people who entered the real estate market and purchased a home during the past ten years compounded annual appreciation of home prices SEEMS like a normal market, but it isn’t. Yes, 7 months of inventory is what I would call a “buyers market”, but it’s closer to normal that what we have experienced during the past 10 years. As an example, during the months post 9/11/2001 there were up to 120 single family homes on the market in Scripps Ranch. Today there are 148 homes on the market. But there are hundreds of more TOTAL homes in the inventory than were built in 1991 (i.e., Scripps Ranch Villages). At one point in March of 2004 there were 10 homes on the market in Scripps Ranch. Now THAT is not a normal market.
Same with most of San Diego County. More homes on the market now, but proportionately many more homes are in the inventory base than 5 or 10 years ago. AS A PERCENT of the the total inventory (i.e., apporx. 1.5% in Scripps Ranch currently on the market) I don’t think we are even close to where we were during the 1990-1996 recession years. Unfortunately, the current MLS data base does not go back that far back so it is hard for me to pull the old statistics.
Anyway, sorry this comment went so long, but I hope it gives everyone a perspective check. Plain and simple, the market is adjusting, as most of us who follow it knew it had to do after so many years of price appreciation. It is not Armageddon. Just a natural swing in a dynamic cycle. Where it goes from here is the subject of another BLOG.
Congratulations on the longest Blog comment in the history of mankind. If anyone is still reading this (zzzz…), I just want to say that 17% is a large number! (Note: In the longest Blog comment in the history of mankind, this reference is found in paragraph one). Following are examples of 17% being significant: 1) Return on investment; 2) Interest rate; 3) Percentage of net income devoted to children-related expenditures, not including food and mortgage; 4) Amount of discretionary time spent blogging; 4) Percentage of body fat; 5) Blood alcohol content; and, 6) PERCENTAGE OF BUYER POOL IN THE “INVESTOR” CATEGORY! Could give more examples, but I’m pooped.
Steve, can’t you, JUST FOR ONCE, say “yes, dear” and let it go at that? (P.S. Still waiting to hear from you, Jack).
I do not appreciate your commenting on the % of my body fat in public.
sorry about the delay, I didn’t check back until now.
thanks for the detailed explaination. As the population grows, as more housing develops for the population growth, you should of course have more inventory for sale. that makes sense.
even though there’s no data on the exact amount of housing stock in SD, can’t we just look at population as an indirect measure? For example, in 1995, the historic high point of inventory, there were a total of 19000 homes for sale. In 1995, there were 2.6 million San Diegans. That’s a ratio of 1:138.
We surpassed 19000 homes for sale back in April of this year. But again, that did not account for the increased population and housing stock. In June, the total inventory for sale passed 22,000 homes. We currently have 3 million folks living in SD, that’s a ratio of 1:138. So while the argument that there’s more housing now and therefore surpassing 19000 homes for sale doesn’t mean that much made sense in April, it doesn’t make sense after the inventory surpassed the population adjusted historic high point.
There’s now currently 23400 listings on the MLS, plus 6400 new homes for sale (per UT yesterday), that’s almost 30000 homes for sale in SD. Maybe as a lay person looking at these numbers I just see record record inventory. Afterall, Leslie Apple-Young is a professional from the CAR, if she sees normal inventory despite what I see as historic record inventory, even after adjustment for population growth, I must be missing something here. What do you think that is?
(ps. thanks for the latte offer, please pass it along to the next more deserving reader, thank you.)
p.s. I read elsewhere that there’s a 30% vacancy rate for all of the inventories on the MLS, casual searches on MLS search engines does show that to be about right. are you guys concerned about so many vacant homes?
Good morning, Jack, and wow! That’s a lot of information to digest at 7:22 in the morning. I will say one thing – You have done your research. I am going to have to chew on this over another cup of coffee and attempt a thoughtful response. Regarding vacancies, that is the easy one. You are right. I am seeing a lot more inventory as being vacant. I suspect this is in large part due to our shifting homebuying “paradigm” (hate that word, but it works here). For years, due to an overheated market, we have told buyers that they need to be non-contingent buyers to compete and to place them in a position of negotiating strength. As market times have increased and selling has become a little more challenging, the seamless move and concurrent closing of properties is not always happening. Therefore, I suspect the largest factor in the “for sale vacancy rate” we now see is buyers putting the cart before the horse. I also suspect this is a short-term byproduct of an adjusting market. As it becomes more commonplace (as it was in the mid-90’s) to see buyers making offers contingent on the sale of their home, fewer vacant listing will result. For instance, I have two vacant listings of my own right now. In both cases, the sellers (working from their past experiences) waited until within a month of their out of town job transfers to call me and get their home listed. In an environment of average 60 or more day average market times, that simply wasn’t enough time.
Of course, it is early, and I could be wrong.
Jack: Very goods stat’s you provide. As I am departing for a backpacking trip in Yosemite this morning, I’m going to let Kris (who is remaining in San Diego) have another cup of coffee and take a shot at a more meaningful response. But, as a parting shot, I would tend to agree with you that Leslie-Apple Young is, like most Realtors, espousing an optimistic tone to the Union Tribune. Regardless of all of the stat’s, we know the market is adjusting and may even be overshooting a “normal” market (at least at the moment). The main reasons I do not feel overly pessimistic is the differences between what we see today versus the last down market in the early ’90’s:
1.) Less land available for new construction;
2.) Stricter goverment regulations for raw land development;
3.) Lenders restricting the size of new home builder phases;
4.) An interest rate environment that while having increased is still favorable;
5.) A local economy that, while not growing in leaps and bounds at the moment, is stable, much more diversified (than in the early ’90’s) and less susceptible to large losses of employment in a short period.
I appreciate your comments and I will give them some thought as I try to climb up Half Dome this week. Maybe I will have a great period of “clarity” up there and bring back some new thoughts about this subject.
Still not ready to tackle your very thoughtful argument on the definition of normal, Jack, but you got me curious about the actual vacant listing situation in San Diego. I just took a look at Tierrasanta, since it is a smaller community with just 64 homes on the market (a number I could get me arms around). Surprisingly, your 30% number was wrong… on the low side! 25 of 64 listings, or closer to 37% are showing as “vacant”. Yikes. Hard to say without a lot of homework whether or not this is representative of the City as a whole. Now I am wondering if investor activity is playing some meaningful part in these high vacancy rates. If a property is a rental, it is not uncommon for the home to be listed after the tenants vacate (for ease of showing). We know many investors are putting their money in other markets. Just a thought.
“Leslie Apple-Young is espousing an optimistic tone to the Union Tribune”
How is describing record breaking inventory volume as “normal” being optimistic? That’s like describing the morning drive from Escondido south on the I-15 as a slight slowdown. You can be as optimistic as you want about that horrible LA type traffic, but to call it a slight slowdown would be just lying to yourself and others. I’m starting to feel like that’s exactly what Leslie did, blatantly lied to San Diego’s only Major Newspaper, in another word, blatantly lied to all of us San Diegans.
I don’t disagree with you that the picture painted by many, as Steve tried to point out, is unnecessarily rosy, but I don’t think we are going to hell-in-a-handbasket. Times are changin’, no question, but the bottom is not falling out. Prices are down and will likely continue on that track for awhile, inventory is up, interest rates will climb over the next year, the market is not “normal” by our reference point of the past decade, and selling a home (and even buying a home until sellers “get it” and start pricing more realistically) is difficult right now. There… I said it. Have a good, “normal” commute!