Price Spiral in Home Sales Levels Off

Although the rapid growth in housing prices witnessed earlier this year has softened, strong demand led to a record number of October transactions involving existing houses in metropolitan San Diego.

According to sales statistics released Wednesday by the San Diego Board of Realtors, 1,632 houses and condominiums were sold in October, the most since the board was “regionalized” in 1983 by merging El Cajon, La Mesa, Chula Vista and San Diego memberships.

The number of transactions surpassed the record of 1,599 units sold two months earlier in August, and represented a 46% increase over the 1,116 transactions posted in October 1988.

However, the runaway housing-price spiral seen earlier this year has apparently run its course for the time being. Although October’s average sales price of $210,831 was up 18% from the October 1988 figure of $178,908, the average price has remained relatively flat since April, when an all-time average record price of $217,802 was set.

The October median price--or the price at which half of all houses sell for more and half for less--was $179,500, up 17% over the $152,900 median price of October, 1988. According to the board’s statistics, median resale figures, too, have hardly fluctuated. Since April, the median price has stayed within a range of $175,000 to $180,000.

Prices of new houses sold in subdivisions seem to have flattened as well. According to a recent survey of subdivisions conducted by Market Profiles of San Diego, the average cost of a new single-family house sold during the three-month period ended Sept. 30 was $258,590, down slightly from the $259,021 average price recorded in the second quarter of this year.

Nevertheless, this year’s third-quarter average price was up 22% over the $211,609 average posted over the same period last year, said Russell T. Valone, president of Market Profiles.

The Meyers Group, a La Jolla-based research firm that also tracks new sales, reported a median sales price of $249,900 for the third quarter ended Sept. 30, up 34% from the $186,000 of the same period last year.

“The pattern of escalating prices has run its course,” said William H. Malone, a Meyers Group senior consultant. “People are taking a step back, reconsidering the situation. They just won’t pay such high prices any more. The frenzy we saw earlier this year is no longer.”

Meyers said prices should continue to stabilize but limited supply will prevent them from plummeting.

“We won’t have to worry about too much product,” Meyers said. “In San Diego, political restrictions (slow-growth legislation), lack of developable land because of San Diego’s topography, among other things, will keep a restraint on supply.”

The Meyers Group also reported that the median price for new attached units, such as condominiums and townhouses, for the three months ended Sept. 30 was $153,900, up 29% from the $118,900 price recorded from the same period last year.

“What we’re seeing is a normalization of the market,” Valone said. “Last year, in addition to the normal factors that typically increase demand, such as businesses’ opening and immigration, we were confronted by an artificial factor such as no-growth propositions that rapidly increased sales pace.

“People were rushing into the marketplace trying to get a home before the county shut down,” Valone said. “Although the concern for the no-growth movement is still present, it’s certainly not as urgent an issue today as it was in 1988.”

A slowdown in the number of new houses sold reflects Valone’s comments. In the third quarter of this year, 2,744 single-family and multifamily units were sold, down from 3,178 in the second quarter of 1989. The slowdown is even more apparent when this year’s third quarter figure is contrasted with the 4,386 units sold over the same period last year.

“We’re seeing a softening in the overall marketplace, including the resale market,” said Jim Hansen, a regional manager of the Fieldstone Co., one of the county’s largest home builders. “Since the majority of new sales are move-up buyers, when the resale market softens, we’re affected, too.

“I think we have finally seen the speculative portion of the market disappear,” Hansen said. “In the early part of 1989, because of the scarcity and excess demand, speculators came in and created even more of a demand. The prices were pushed up as high as they could go, and it created a super-hot market.

Dennis J. Casey, an official of HomeFed Bank of San Diego, said: “I wouldn’t say it’s a soft market, but it certainly isn’t as vibrant as it was last year.”

Although residential mortgage rates have been declining in recent months, Casey said fewer home buyers are taking advantage of them.

“The rates have been declining for the past couple of months, and we’re at 9 7/8 right now (for a 30-year fixed rate loan),” Casey said. “Typically, when rates fall into single digits, you see a pickup in mortgage rate loans. But we haven’t seen much of a demand.”

Casey attributes home buyers’ disinterest to several factors, including exorbitant housing prices. “Housing affordability is still a factor,” Casey said. “With prices still so high, few families can afford to buy a home.”

Casey said he expects to see interest rates continue to fall until June, 1990. From that point on, however, he said, home buyers can expect a moderate upturn in rates for the rest of the year. “It’s conceivable that you could see fixed-rate mortgages somewhere in the mid-9% range” through June, 1990, Casey said.

S.D. HOUSING PRICES

This chart reflects the average sales prices of existing housing in San Diego, La Mesa, El Cajon, Chula Vista.

MONTH AVERAGE SALES PRICE NUMBER OF SALES January 1988 $155,438 669 February 1988 $160,826 518 March 1988 $160,704 1,088 April 1988 $161,653 1,179 May 1988 $169,301 1,319 June 1988 $175,416 1,494 July 1088 $171,819 1,302 August 1988 $182,237 1,427 September 1988 $179,975 1,421 October 1988 $178,908 1,116 November 1988 $191,649 1,198 December 1988 $182,320 1,111 January 1989 $202,240 1,095 February 1989 $187,636 910 March 1989 $197,494 1,452 April 1989 $217,802 1,199 May 1989 $207,478 1,441 June 1989 $217,228 1,340 July 1989 $209,125 1,153 August 1989 $213,870 1,599 September 1989 $210,123 1,583 October 1989 $210,831 1,632

Source: San Diego Board of Realtors.