November Average: $191,649 : Home Prices Up 27%, Fueled by Ballot Issues
Driven by fears that the November growth-control ballot measures might limit the supply of San Diego County housing, the average price of a used house in the metropolitan San Diego area surged to $191,649 in November, a 27% increase over the average price paid in November, 1987, and a 7% rise from the previous month.
Most of the sales included in the November survey conducted by the San Diego Board of Realtors opened escrow in September and October when many prospective home buyers were spurred to the marketplace by fears that growth-control measures on several local ballots might pass. The initiatives were defeated at the polls Nov. 8.
Strong Since Election
Despite the absence of the “fear factor,” the local housing market has maintained its strength since the election, observers say, citing San Diego’s steady population growth, low unemployment rate and low inventory of available housing due to the building restrictions in the interim development ordinance (IDO) that will remain in effect through next February.
“I don’t think the market since the initiatives has changed much,” said Chuck Hoffman, the incoming San Diego Board of Realtors president. “In new housing tracts, I hear that sales have not fallen out of escrow, that people still really believe in real estate in San Diego. The more it goes up, the more people want to participate in it going up.”
“I’m probably amazed as much as anyone else in the real estate field as to how much these prices continue to rise,” Hoffman said.
Executives at two major San Diego savings and loans both report high levels of loan volume, saying the strength in the market is coming from existing homeowners who are selling their houses to buy bigger and costlier properties.
“People are looking to trade up as they see their equity build up proportionate to the rise in housing prices,” said Home Federal Savings vice president Dennis Casey.
Rick McGill, senior first vice president at Great American First Savings Bank, said loan volume there is running at about double the rate of last year and that the average residential loan in San Diego is now $140,000, equal to the average loan made in traditionally higher-priced Orange and Los Angeles counties.
McGill noted that the upward drift in fixed-mortgage rates to the current 10.75% range has not dampened buyers’ enthusiasm for two reasons:
- Buyers are afraid that rates will go even higher and that it’s best to borrow sooner than later.
- Adjustable-rate mortgages, which now constitute 95% of all new loans and which start out at rates lower than prevailing fixed-rate loans, “keep the housing market going through thick and thin.”
Other local housing-industry observers, however, say sales may be showing signs of leveling off from the current frenzied level. On a year-to-date basis, the average price of a house sold over the first 11 months of this year is $172,585, up 18% from the average $146,171 paid over the same 11 months in 1987.
Rising Beyond Reach
Bob Ray, a broker at Century 21-Capital Properties in the Mira Mesa area, said the cost of low- to medium-priced houses is rapidly rising beyond the reach of many first-time buyers. Particularly affected is a large segment of the Mira Mesa area’s traditional prime market: military veterans buying with no-cash-down VA loans.
“Our typical price in Mira Mesa is now between $155,000 and to $160,000, above the $144,000 maximum VA loan amount. That’s bad news for a sizable part of our market, the Navy family looking to get into a house with no money down, a 100% financed house.”
But housing prices, which have been rising an average $1,500 a week over the past several months, have not yet rolled back, Ray said.
“It’s just that . . . buyers are moving to other areas like Rancho California or Lake Elsinore and commuting to San Diego. Faced with buying a (close-in) condominium which isn’t large enough for family needs or (buying a detached house farther out from San Diego), they would rather commute.”
The price increases and intense sales activity--unit sales in the board’s survey area in November totaled 1,198, up 63% from the units sold the same month a year previous--caused some observers to wonder how long the market can sustain its strength.
Describing San Diego as the most unaffordable housing market in the country factoring housing prices by average household incomes, real estate economist Gary London of Price Waterhouse in San Diego said the local market is highly vulnerable to an economic downturn.
Such a downturn could be caused in San Diego if the Bush Administration cuts military and defense spending to lower the budget deficit, London said.
London also said that rising prices of entry-level housing could end up deflating the market. “When the first-time buyers dry up, the party’s over,” London said.
Now that the availability of new housing is not threatened by “artificial constraints” of the slow-growth initiatives, inventories of new housing should increase significantly in coming months, said Russell Valone, president of Market Profiles fo San Diego, a marketing and research firm that tracks subdivision sales.
