Downtown San Diego 2009 Real Estate Report – Part Two

by Jeffrey on February 19, 2010

in Breaking News,Communities,Downtown,Real Estate,Statistics

Downtown San Diego Real Estate: Some Speculation (Spin) For What’s Ahead

A couple of days ago I wrote a blog post regarding the numbers for the downtown San Diego real estate market in 2009 compared all the way back to 2002. Several people have asked me what my takeaway is so this post will be more speculative in nature – in other words check back in a year and see how good my guesses predictions were.

We will start with some statistics regarding active properties for sale in Sandicor MLS for attached units. You can always find up to date downtown market statistics on the Community Page of Flash Charts or have them e-mailed to you on a weekly basis. Active market statistics gives us up to date activity in the San Diego real estate market.

Probably the most encouraging news for stabilization in the downtown San Diego market is low inventory. As of today Altos Research indicates a total of 563 units on the market. This does not include all units available in new development buildings including Vantage Pointe, Bayside, Sapphire Tower, and Smart Corner (Sky Loft).

The above chart is averaged over a 7 day period to show more accurate fluctuations in the market inventory. In 2009 there were a total of 807 attached home sales. Even with the addition of the developer sales and “shadow” inventory of short sales and bank owned property inventory is low enough not to flood the market, thereby bringing prices downward.

The average price per square foot sold in 2009 was $399.29. Price per square foot of the active units for sale is $441.00 per square foot. Looking back over the years the average from list price to sales price was 96 to 97%. This means overall the active asking prices are optimistic over average price per square foot sold.

Lets look at 2009 sold properties by different price points.

Up to $500,000 – 599 Units Sold – Average SP $320,142 – Price Per Sq. Ft. $343.46 – SP/LP at 99%
$501,000 to $1,000,000 – 193 Units Sold – Average SP $660,917 – Price Per Sq. Ft. $486.01 – SP/LP at 94%
$1,000,001 & Up – 43 Units Sold – Average SP $1,476,761 – Price Per Sq. Ft. $742.02 – SP/LP at 94%

For those of you following the downtown weekly sales report this should be no surprise. Units under $500,000 are selling at 99% of their active asking price. Many units in desirable buildings are actually selling over asking price indicative of multiple offers.

Altos Research has developed a proprietary index, The Market Action Index that gives you an at-a-glance answer to the question, “How’s the market?” The higher the index goes, the hotter the market. Like a thermometer, the measurable scales goes from zero to over 100. Altos sets a threshold at an index value at 30 above which demand is high enough to call a “Seller’s Market” and below which is a “Buyer’s Market.” Sometimes demand climbs really high, properties stay on the market for only a matter of days, in those instances you may see an index value over 100.

So we have been painting a picture with some pretty broad brushes here. When asked by a Client to do a specific analysis of a particular building the brush gets much smaller and more accurate. That analysis is not suitable for a public post.

The downtown market is pretty complicated with location issues, floor height, view corridors, neighborhood issues, re-development impact, litigation issues with HOA’s, and what sales have recorded in a particular building.

So for the few readers that have not fallen asleep here is the speculation.

We are unlikely to see any more development in downtown San Diego for at least 3 to 5 years. My guess it will be longer for any luxury tower. Current market prices simply do not support the cost of development. This will continue to put pressure on lower inventories meaning stable to higher prices.

Many of the developers have been able to obtain FHA & V.A. approvals for financing. These loans tend to make it easier for first time or buyer’s that don’t have large down payments.

For those buyer’s in the lower end price range, under $500,000, I think combined with the low interest rates this is a great time to invest in downtown real estate. You need to consider how much time you’re going to hold the property – the longer the more speculative you can be on the location of the building.

Don’t expect to purchase something with a discount as properties that are desirable and priced well are selling quickly. Work with an experienced downtown agent that can alert you when new properties come the market and move quickly. Also get your financing in order as many buildings will not be able to do FHA or VA, so you’ll need to know what your limitations are.

With prices down from 20 to 40% from 2004 & 2005 this is a great time to invest.

The next price tier up to $1,000,000 saw more challenges in list price to sales price. The average was 94% of the listing price so to sell in this price bracket the Seller must be realistic in pricing. With that said some buildings offer exceptional values far below replacement costs – buy location and quality for the safest investment.

Over 1 million dollars also is an average of 94% of the asking price for those 43 units sold in 2009. Once again consider market pricing and look very closely at individual comparable sales in the building you are considering.

While the lower under $500,000 should remain fairly stable until we see some appreciation back in the real estate markets, the upper priced properties may experience price drops of between 10 to 15% before the markets start back with appreciation. There are lots of moving parts that effect our market so no one really knows if this will come to pass or not.

Photo courtesy of Flickr.