Steep Home Prices Blamed for 36% Drop in Sales
Although the cost of new housing in San Diego County continues to increase, sales volume at local subdivisions dipped significantly in 1989, slowing particularly over the last few months of the year.
Developers, market analysts and lenders see the softness continuing into 1990, blaming prices already beyond the reach of most home buyers. Developers say the buyer camp-outs of a year ago are history, and they have even begun to cut prices and offer incentives at some of their projects.
According to Market Profiles of San Diego, a San Diego-based market research and consulting firm, the combined total of single-family home and condominium units sold in 1989 was 10,035, down 36% from the 15,647 units sold in 1988.
Fourth-quarter unit sales dropped especially sharply, said Russell Valone, president of Market Profiles, dipping to 1,612 units sold from 3,146 units sold during the fourth quarter of 1988.
According to Meyers Group, another San Diego-based firm that monitors subdivision sales, the median price of a new detached house sold in the county during the fourth quarter was $239,900, up 17% from the $205,000 median price in 1988’s final quarter. But the price was down 4% from the $249,000 median price during the third quarter of 1989.
The median price is the level at which half of all units sell at a higher price and the other half at a lower price.
Wes Mudge, a partner in Westana Builders/Developers of San Diego, said that over the last several months he has seen “a real change” from the hot housing market in August when “people would wait in line to buy the worst lot in a subdivision” to the current market, which he described as “normal.”
“We have gone through an extremely inflationary period where a lot of people bought houses as an investment after the market experienced 20% to 30% inflation the last three years,” Mudge said. “That bubble has been burst, and now the only people buying housing are those who need housing. The investment motive is gone, and that’s what’s been softening the market.”
Ron Wade, a Great American Bank vice president who oversees loans made to subdivision developers, said his institution plans to scale back its lending significantly to respond to the market slowdown.
“Last year we loaned out $1 billion in tract loans” or land loans used by developers to finance the preparation of subdivision lots, Wade said.
“We are going to cut back to $600 million in 1990 because we feel the frenzy of the last five years is tapering off.”
As a further defensive move, Great American will only loan to developers who plan subdivisions with houses priced at a maximum $350,000, down from the $500,000 maximum price last year.
Valone of Market Profiles said prime factors in the steep price spiral in the late 1980s were “fear and speculation” fed by proposed growth restriction ordinances to limit the supply of new housing in the county.
Those fears eased somewhat after San Diego voters in 1988 rejected an initiative that would have imposed citywide growth limits, Valone said.
Meyers Group Vice President Peter Reeb said he expects the county’s new-housing unit sales to drop even further in 1990, in part because prices of single-family housing “got pushed out of reach” of first-time buyers, and also because two-thirds of the cities in San Diego County have enacted growth-control measures.
“The new home market is still strong but not nearly as deep as it has been the last two years,” Reeb said.
“There aren’t as many qualified buyers out there, and as a consequence new home sales will drop in 1990.”
Reeb projects between 8,500 and 9,000 units will be sold in 1990, down from 10,300 in 1989.
Sales of condominiums also declined during 1989. But, figured as a percentage of total housing units, condominium sales increased in the fourth quarter to 39% of units sold, up from 29% during the final quarter of 1988, according to Meyers Group.
The median condominium price during the recently ended quarter was $143,990, Reeb said, up 31% from the $109,900 median price of a year previous.
The hottest housing markets in the county now are the “inland North County” areas of Vista, San Marcos and Escondido, Reeb said.
Although some economists and analysts have predicted severe housing price deflation in other parts of the nation, Reeb said he doubts that San Diego will experience a significant price decline because of the growth limits that restrict housing supply and because of the area’s strong economy and job growth.
HOUSING GROWTH IN THE ‘80s
New houses and condominium units sold in San Diego County during the 1980s:
1980: 8,282
1981: 5,974
1982: 6,429
1983: 10,421
1984: 12,698
1985: 14,600
1986: 15,193
1987: 14,168
1988: 15,647
1989: 10,035
Source: Market Profiles of San Diego
