What moves the San Diego real estate market?

Understanding the timing of motivations is key

By Zach Todaro

This will be the first in a series of columns. It is not the intention of this work to stir the proverbial pot, or profess doom and gloom, but get down the basics of what really moves the market here in San Diego.
In 2009, a prominent insurance company started an ad campaign whose message struck a chord with the recession-stricken American public; that despite economic turmoil, there were still going to be graduations, weddings, babies, birthdays and anniversaries. Likewise there will always be someone, somewhere, looking to buy, sell or lease real estate. New milestones bring new motivations, new needs and new desires. Understanding the timing of these motivations is key to moving or obtaining property in a tough market.
So how do we bridge the gap between endless spreadsheets of sales data and market subjective motivations? The financial world remedies this dilemma by creating indices that combine various forms of otherwise unrelated data. Similar rating systems make their way into the world of real estate; many assets-based adjustable rate mortgages are tied to the LIBOR, which stands for London Interbank Offered Rate. Many would be surprised to find the rate at which banks halfway across the world borrow money from one another can significantly affect the ability to sell or purchase property in San Diego. Another well-known index is Case Schiller, which combines national, citywide and smaller metro indices. These complex calculations are the best tools available to model macro trends, but offer little insight into hyper local real estate markets. Home buyers and sellers need a more illuminating metric.
Each attempted residential transaction can be placed into one of seven categories: active, sold, contingent, pending, expired, cancelled and withdrawn. Examining how these categories change from month to month provides the best insight into how a local home market is performing. Below you will find charts for select regions of the county that show active, sold and pending information for the past 12 months. Each chart delineates a specific market’s yearly trends; for instance, historically a buyer in La Jolla will find the largest inventory of active property in August, whereas a buyer Downtown might find the most options earlier in the summer.
Potential sellers in 2011 should keep an eye on the second group of charts, which delineates months of inventory. This metric states that with the given number of home sales in a month, and assuming no new listings were to come on the market, how many months would it take for the balance of homes in that market to be sold? The lower the number, traditionally, the stronger that market is for sellers. Higher numbers mean fewer sales and greater inventory, and a stronger negotiating position for potential buyers. Comparing these charts between differing markets is a compelling exercise. The differences are incredibly varied, and illustrate the importance of a hyper local focus when it comes to evaluating a target market. For example, it may behoove a seller in Kensington to put his property on the market early in the year, when the months of inventory are historically low. The data also suggests that buyers in general should look to purchase in August, which countywide shows historically high months of inventory.
If you are a potential homebuyer or seller, take this information to a Realtor in your local market, and start a discussion on what motivations shape these distinct charts. Real estate sales professionals are dedicated to helping a buyer or seller understand market trends. The perspective gained will likely save both time and money on any residential real estate transaction in 2011.

Real Estate Column GraphsZach Todaro is a Realtor with Willis Allen Real Estate, representing clients in the greater San Diego area. Zach can be reached by email at ztodaro@gmail.com and by phone at (619) 302-9239.