San Diego Real Estate Market in 2011 – Price Predictions

Advance summary: Brandon Cornett, the publisher of the Home Buying Institute, shares his local market research with San Diego home buyers.

San Diego

This is not the usual kind of story we publish. In fact, it’s not a news story at all. It’s a list of predictions and perspectives on the San Diego real estate market in 2011. You see, I’m actually in the market to buy a home in San Diego in 2011. So I’ve been doing quite a bit of research, to get a feel for what the market might be like next year.

Surely there are some other home buyers out there who can benefit from the information I’ve gathered. So, in the spirit of sharing, here are some thoughts and predictions about the real estate market in San Diego.

Real Estate Outlook for 2011

Here are some headlines relating to what the San Diego housing market might do in 2011. I’ve added some background information where it was necessary.

San Diego Market Forecast for 2011
KPBS Interview with Dr. Michael Lea, December 2010
On December 2, 2010, Maureen Cavanaugh from KPBS conducted an interview with Dr. Michael Lea. The subject of the interview was San Diego real estate, and what the housing market might do in 2011. Dr. Lea is the director of the Corky McMillin Center for Real Estate at San Diego State University.

In one part of the interview, Dr. Lea had this to say: “I think the bigger effect is you’re gonna see a weak market [in 2011] with declining house prices probably in the single digits … We’re not gonna really start to see a recovery until 2012, assuming that you can get the shadow inventory through the system.”

The so-called “shadow inventory” consists of bank-owned homes that are not listed for sale, as well as homes that are likely to be foreclosed upon in the near future.

Home Prices Expected to Rise in 40% of Metro Areas in 2011
Housing Wire, December 2010
Veros Software, a Santa Ana-based tech firm that serves the financial industry, recently shared some housing predictions for 2011. I know … I’ve never heard of them either. Their report said that San Diego should experience a 3.5 percent increase in home values in 2011. I’m not sure if this company has a vested interest in rosy outlooks. But theirs was the only forecast I found that suggested rising prices. Aside from San Diego real estate agents (who definitely have a vested interest in rosy outlooks), I could not find any upward pricing predictions for 2011.

Roundtable: Outlook Remains Bleak for 2011 Housing Market
The Daily Transcript, November 2010
In November of 2010, The Daily Transcript hosted a roundtable discussion about the residential real estate market in San Diego. On the panel were Borre Winckel (president of the San Diego Building Industry Association) and Rick Hoffman (president of Coldwell Banker Residential Brokerage in greater San Diego), among others. There wasn’t much optimism at the table. According to Andrew Keatts of The Daily Transcript: “The best anyone at the table could say for 2011 is that it can’t be much worse than 2010.” Well, maybe not much worse.

Housing Prices Facing a Double Dip
San Diego Union Tribune, August 2010
In August, the Union Tribune pointed out some data that suggested a double-dip in San Diego County home prices. They were reporting on data released by Zillow. According to Zillow, San Diego was one of the only metro markets where home prices declined in the third quarter of 2010, after five quarters of an increase. Of course, this kind of drop-off was expected. Those five quarters of rising home values were largely driven by state and federal tax credits for home buyers. But now the demand is down, even as inventories rise. This puts downward pressure on home values.

Price Reductions on San Diego Homes Increase
San Diego Union Tribune, August 2010
In August, the Union Tribune mentioned a report by that showed another disturbing trend for homeowners. From July to August, the number of price reductions on San Diego homes for sale increased from 20 percent (of all homes for sale) to 23 percent. San Diego had the fourth largest increase in the number of price reductions from July to August. This suggests two things: (1) many sellers are asking for more than the average buyer is willing to pay, and (2) housing demand may be shrinking.

Crystal ball disclaimer: These are just some tidbits I came across in the course of my research. Who can really say what the San Diego real estate market will do next year? Not me. But if I were a betting man, I’d put my money on some kind of home price decline in 2011. It’s a supply and demand thing. The expiration of the $10,000 home-buyer tax credit will reduce demand. And the post-moratorium renewal of home foreclosures will increase supply. Then there’s that whole unemployment thing. Given all of that, how could home prices in San Diego not decline in 2011?