San Diego HPI - August '08

City average: 35.1% off the peak
Top tier: 14.3% off the peak
Middle tier: 35.3% off the peak
Bottom tier: 44.1% off the peak

Almost all regions are showing declines again. City average is down 2% month-to-month, top tier is at the lowest level since 2004, and 54-94 geo finally went below 50% off the peak.




Price changes since 2000:

Forecast

This is an attempt to predict the dynamics of the real estate market in San Diego over the next 3-4 years.



"Fundamentals" curve assumes more or less unchanged interest rates and steady wage inflation that averages 3%/year going forward. For the top tier I use a soft-landing scenario (exponential decay to fundamentals). To extrapolate two other tiers, I use quadratic approximations of season-adjusted HPI points from the last 9 months.

Summary of predictions:

* Aggregate Case-Shiller bottom in February '09 in 150-155 range (late '02 pricing)
* Top tier: 5% decline followed by many years of scraping along the bottom
* Middle tier: 6-8% decline followed by a mild bounce-back

Caveats:

* Bottom tier may get some support from FHA short-refinancing program, in which case the decline will not be so severe.
* I'm assuming that GSE conforming-jumbo loans and higher FHA loan limits stay with us until the return of a healthy jumbo market. Technically, they are supposed to be discontinued on Dec 31, 2008, but it's likely that loan limits will be extended.
* Interest rates may not stay the same. Here are two alternative scenarios, with rates heading to 5.5% and 7.5% long term, respectively:





I'm not a prophet and I may be seriously off, only time will tell.

UPDATE: recalculated the "fundamentals" curve using actual CPI and mortgage rate data.

Prices by zip code: 2008 vs 2002

Approximate median values of detached homes in each community in Q2 2008, and how much they were worth in Q3 2002.

Rank	Area	Definition	Median price	Median price - Q3/02	Rank - Q3/02	Change
1	Logan Heights	92113	$186,000	$195,000	1	-5%
2	Chollas/Euclid	92105	$242,000	$233,000	2	4%
3	Encanto	92114	$250,000	$245,000	4	2%
4	Golden Hill	92102	$253,000	$263,000	5	-4%
5	National City	91950	$263,000	$234,000	3	12%
6	Vista NW	92083	$267,000	$267,000	7	0%
7	Lemon Grove	91945	$281,000	$273,000	8	3%
8	Escondido E	92027	$289,000	$282,000	10	2%
9	Spring Valley	91977,91978	$290,000	$278,000	9	4%
10	Escondido SE (valley)	92025	$290,000	$283,000	11	2%
11	Paradise Hills	92139	$290,000	$267,000	6	9%
12	Oceanside NE	92057	$318,000	$289,000	12	10%
13	Santee	92071	$329,000	$297,000	14	11%
14	San Ysidro	92173	$331,000	$303,000	18	9%
15	Escondido N	92026	$332,000	$306,000	20	8%
16	Chula Vista SW	91911	$334,000	$298,000	16	12%
17	El Cajon E	92021	$335,000	$299,000	17	12%
18	NE Vista	92084	$337,000	$327,000	27	3%
19	Otay Mesa	92154	$347,000	$298,000	15	16%
20	El Cajon W	92020	$348,000	$295,000	13	18%
21	Oceanside SE	92056	$354,000	$304,000	19	16%
22	Imperial Beach	91932	$360,000	$319,000	23	13%
23	La Mesa	91941,91942	$360,000	$318,000	22	13%
24	Chula Vista NW	91910	$374,000	$340,000	31	10%
25	Lakeside	92040	$375,000	$319,000	24	18%
26	Linda Vista	92111	$378,000	$345,000	32	10%
27	San Marcos N	92069	$382,000	$337,000	30	13%
28	SDSU	92115	$385,000	$320,000	25	20%
29	Rancho San Diego	92019	$386,000	$354,000	36	9%
30	Mira Mesa	92126	$389,000	$328,000	28	19%
31	W Oceanside	92054	$392,000	$317,000	21	24%
32	San Carlos	92119	$394,000	$346,000	33	14%
33	Serra Mesa	92123	$399,000	$324,000	26	23%
34	Ramona	92065	$402,000	$350,000	35	15%
35	Eastlake, Otay Ranch	91913,91915	$416,000	$356,000	37	17%
36	Vista S	92081	$417,000	$328,000	29	27%
37	Falbrook	92028	$434,000	$350,000	34	24%
38	Clairemont	92117	$441,000	$374,000	40	18%
39	Alpine	91901	$454,000	$410,000	47	11%
40	San Marcos S (except San Elijo Hills)	92078	$455,000	$369,000	39	23%
41	Valley Center	92082	$457,000	$407,000	45	12%
42	Normal Heights	92116	$457,000	$379,000	42	21%
43	Eastlake NE	91914	$482,000	$409,000	46	18%
44	Allied Gardens, Del Cerro	92120	$485,000	$375,000	41	29%
45	South Park	92104	$491,000	$365,000	38	35%
46	SW Escondido	92029	$495,000	$417,000	48	19%
47	Tierrasanta	92124	$513,000	$420,000	51	22%
48	Poway	92064	$514,000	$404,000	44	27%
49	Rancho Bernardo	92127	$528,000	$394,000	43	34%
50	Bonita	91902	$536,000	$434,000	53	24%
51	Carlsbad NE	92010	$547,000	$420,000	50	30%
52	Penasquitos	92129	$560,000	$418,000	49	34%
53	Carmel Mtn Ranch	92128	$571,000	$433,000	52	32%
54	San Elijo Hills	92078	$592,000	$452,000	54	31%
55	Bay Park	92110	$593,000	$464,000	55	28%
56	Escondido SE (hills)	92025	$644,000	$504,000	59	28%
57	Carlsbad NW	92008	$666,000	$485,000	57	37%
58	Scripps Ranch	92131	$676,000	$520,000	60	30%
59	University City	92122	$677,000	$474,000	56	43%
60	Ocean Beach	92107	$681,000	$496,000	58	37%
61	Hillcrest, Mission Hills	92103	$735,000	$559,000	64	31%
62	Carlsbad SE	92009	$743,000	$527,000	61	41%
63	Carlsbad SW	92011	$760,000	$551,000	63	38%
64	Pacific Beach	92109	$795,000	$563,000	65	41%
65	Encinitas	92024	$804,000	$576,000	66	40%
66	4S Ranch	92127	$838,000	$582,000	67	44%
67	Point Loma	92106	$875,000	$616,000	68	42%
68	Cardiff	92007	$884,000	$538,000	62	64%
69	Carmel Valley	92130	$982,000	$690,000	69	42%
70	Del Mar, Solana Beach	92014,92075	$1,393,000	$912,000	70	53%
71	La Jolla	92037	$1,698,000	$1,119,000	72	52%
72	Coronado	92118	$1,748,000	$1,108,000	71	58%
73	Rancho Santa Fe	92067,92091	$2,506,000	$1,932,000	73	30%

San Diego HPI - July '08

City average: 33.8% off the peak
Top tier: 13.3% off the peak
Middle tier: 34.2% off the peak
Bottom tier: 42.6% off the peak

Steady decline continues. Top tier remains resilient, but the spring bounce is clearly over. 54-94 geo is getting close to breaking the 50% off the peak.

Two lowest-priced geos ("54-94" and "north of 78") are back to mid-'02 prices. If this trend persists, we'll see 2001 prices before the end of the year.

These charts include all June closing late-reporters. Apparent stabilization in several neighborhoods in June charts was a statistical fluke.

San Diego HPI - June '08

City average: 32.0% off the peak
Top tier: 11.8% off the peak
Middle tier: 33.0% off the peak
Bottom tier: 40.4% off the peak







Low and middle tiers are quite reasonably priced. If this were January, I'd probably call the bottom. But this is June, and we have record-shattering numbers of defaults in the pipeline, and these defaults will mature into REOs during fall and winter, when real estate activity is traditionally low. Also, interest rates have gone up considerably in the last month. Higher interest rates wouldn't yet be reflected in June closings. I think there's still potential on the downside.

Interest rates are about as high today as they were in August-September of '02 (except jumbos). If we assume that houses were fairly valued back then, and add 3% average annual inflation, we get this for current valuations:

Carmel Valley, 4S, Scripps Ranch: 40% overpriced
Carlsbad, Encinitas: 36% overpriced
Rancho Bernardo, Rancho Penasquitos: 28% overpriced (except for lower-end pockets where you can get by without a jumbo)
Mission Trails (Del Cerro, Allied Gardens, Tierrasanta): 6% to 22% overpriced
Clairemont, Mira Mesa: 3% underpriced
Eastlake, Otay Ranch: 8% underpriced (except for high-end parts of 91914)
Chula Vista, Imperial Beach: 9% underpriced
North of 78 (east Oceanside, north Vista): 10% underpriced
54-94: 15% underpriced

Bay Area

"880": Pleasanton, Dublin, San Ramon, Walnut Creek, Pleasant Hill
"SE": Fremont, Milpitas, northernmost San Jose

"Ghetto" zip codes (e.g. Concord, Union City) are excluded.

Trulia's resale database is very limited, so 3 month resolution with a lot of noise is the best I can do. I planned to add a series for SW (Cupertino, Palo Alto & such) but there was not enough data, and the resulting chart was too erratic. It does appear that southwest Bay Area is still stuck at 2005 pricing.

Three suburbs

I looked and looked at today's post on BMIT and in the end I decided that it could use some hard HPI data.

And here it is.



I basically took HPI profiles for three suburbs and scaled them using known sale prices of those three houses.

Some thoughts. (Read the original post to understand what's going on)

The Temecula house is slightly above median for Temecula-Murrieta area, and it's the nicest of all three. Notice the 10k sf lot and the fact that it has no HOA or Mello-Roos. It is aggressively priced and should not have much trouble selling.

The 4S house is well below median for 4S. It's an 'economy' house. In 4S Ranch and Carmel Valley, everyone and their mother has 3000 sq.ft., and that's not the factor that determines value of the house. The key factor is lot size. BMIT post incorrectly says that 17004 Ralphs Ranch Rd. has 8276 sq.ft. lot. 'Economy' 4S houses never have lots that big. It's really 5300 sf. There may be something wrong with interior and upgrades. Here's a good example of a 'median' 4S house:

15161 Cross Stone Dr, San Diego CA 92127

4 beds, 2.5 baths, 3,031 sq ft, 6,720 sf. Sold for $812,500 on 03/20/2008. 17004 Ralphs Ranch was already listed, and the buyer of 15161 Cross Stone surely must have looked at it before committing to pay 130K more for a different house.

The CV house is below median (it's also on a postage stamp lot). At 920k, it's somewhat overpriced. In today's market, it would have a better chance of selling at 860k.

If CV and 4S were deflated to the same level as Temecula, 17004 Ralphs Ranch would be worth 500k, and 13854 Kerry would be worth 650k.