San Diego Home Prices Hit New High as Supply of New Houses Shrinks

With buyers being spurred to action by the specter of higher mortgage interest rates and a shrinking supply of new housing, the San Diego housing market continued to heat up over the first four months of 1988, setting record prices for new and used housing.

And market activity continues to be brisk despite a half a percentage point increase in fixed-rate mortgage interest rates two weeks ago, to about 10.5% on a 30-year loan, brokers said. Loans applications being processed at Home Federal Savings, for example, are 35% higher this year than at this time last year, said Dennis Casey, group vice president for retail loans services.

“If anything, demand is stronger than before,” said Ann Throckmorton, a broker-owner at Century 21-Regents Properties in the University City area. “Last year at this time, we sold the last house in Clairemont priced under $100,000 and now this year it looks as though we just sold the last house priced under $125,000.”

Market Activity High

The average sale price of an existing house in the San Diego metropolitan area was a record $161,653 in April, up 13.5% from the $142,232 price a year ago, said the San Diego Board of Realtors. For the year to date through April, the average sale price was $158,960, up 12% from the $141,731 average over the same four months last year.

Market activity was high, with total units sold in the board’s market area totaling 3,554 on a year-to-date basis, up 18% from the 2,927 houses sold last year. The board’s survey covers transactions in San Diego, Chula Vista and El Cajon, spokeswoman Karen Rountree said last week, and includes single-family houses and condominiums.

“Sales are up a little bit, and prices are up a little bit,” said Wayne Bank, San Diego Board of Realtors president. “Right now things are very active, mostly due to the season. The kids are finishing their school years, so people start to look.”

Chicago Title of San Diego, which tracks escrow closings of new and used housing, said sales of existing houses in all of San Diego County was 12,296 units through April, up 23.3% over the same period last year.

The average April resale price increase in the San Diego area was on a par with the rest of California during April. Statewide, median resale prices increased to $157,033, up 13.8% from the figure a year previous. The total of units sold statewide in April was about the same as last year, according to the California Assn. of Realtors.

“The market statewide is generally pretty active, although we are seeing some slowdown in demand after several strong years in a row,” said Roger Cruzen, California Assn. of Realtors spokesman.

The combined average price of new houses and condominiums sold in San Diego County over the first quarter of the year also increased, but at a slower rate than resales, possibly because condominiums gained increased favor with buyers. The average first-quarter sale price of new units was $162,531, up 6.5% from the $152,489 average over the same period a year ago, said Market Profiles, a San Diego-based research firm.

Interest Rates Seen Rising

The total of new housing units--both single-family dwellings and condominiums--that closed escrow countywide over the first four months of the year reached 5,246, up 14.7% from the 4,572 units sold last year, said Denis Rottler, manager of Chicago Title’s San Diego office.

“It was a very active first four months,” said Rottler, adding that he expects the housing market to cool off somewhat over the rest of the year. “The rise in interest rates doesn’t seem to have deterred the market, although later in the year it might.”

Rottler was one of several housing industry figures, including Home Fed’s Casey, who see fixed rate mortgage rates rising over the rest of 1988, reaching at least 11% by the end of the year. “After the election and the end of the year, it’s anybody’s guess,” Casey said.

The recent rise in interest rates seems to have stimulated buyer activity, at least in the Clairemont and University City areas, Throckmorton said. “They have seen rates go up before, and this time the response seems to be, ‘I’ve got to go out and get my house now.’ People are calling in, wanting things urgently, looking for lenders who will lock in rates.”

Buyers, however, are increasingly opting for variable-rate mortgages as a way of mitigating the increase in fixed-rate mortgages, evidenced by the fact that more than 95% of Home Fed’s loans now being processed feature variable rates. With introductory interest rates of between 7% and 8%, variable-rate mortgages enable buyers to qualify much more easily for a home loan, Casey said.

The generally low countywide inventory of finished housing is putting upward pressure on prices of new houses, development executives said. “Areas such as Escondido and East Lake in the South Bay are the strongest (new housing markets) because they have the most inventory,” said Mike Gentry of the Meyers Group, a Del Mar-based market research firm.

The drop in new inventory--and to some extent, price increases--can be traced to the decline in building permits issued in San Diego County over the last three years, said Keith Johnson, an executive with Fieldstone, a home builder active in San Diego and Orange counties. Countywide, building permits, which totaled about 43,000 in 1986, declined to 32,000 in 1987, and should decline further to 23,000 in 1988, he said.

“Our prices have been following the market and the market has been moving up quite rapidly. We are looking at price increases exceeding 20% this year,” Johnson said, referring to a half dozen Fieldstone subdivisions spread over the county.

The inventory of new housing in the city will probably become considerably tighter in coming years if voters pass a growth-control ballot measure in November that would place restrictions on new building permits. Most prospective home buyers, however, are “uneducated with regard to the (growth-control) matter” and its effect on housing prices, said Rick Jarrett, president of TCS Mortgage Banking of San Diego.

“They don’t realize the impact it’s going to have on this city, and it’s going to be tremendous,” Jarrett said. “If that (ballot measure) passes in November, the price of houses is going to skyrocket.”