Most of the sales that were pending in early June took place in May and closed escrow in June. Right? No wonder that the median price for escrows that closed in June was nearly identical to the Listing Price of Sales Pending in early June. But, look what has happened to the median Listing Price of Sales Pending in the second half of July, to date? They are down $62-70K, about 8%, from the peak, in just 1½ months. These Sales Pending will close escrow in August and would be reported in late September. There is 2.5 months of lag in the data that I monitor and the reports.

Another very important reason is that inventory has been swelling every week, non-stop. Active Listings are up from 2494 to 3521 in the past three months (the number was 1300-1500 during July-August 2004). Currently, 100 additional listings are added every week. All of this swelling inventory is primarily due to declining sales volume.

Whenever I have a (real estate) question I cannot get answered, I turn to Bob.

So I asked him, Why is the median rising, when each individual home is selling for less? Actually, most San Diego homes are back at 2004 prices.

Bob told me that the under $400K buyer is squeezed out due to rising prices and higher interest rates. The high end is holding up a little better, because the ripple effect has not yet made it to the high end, and the low end has weakened MORE than the high end.

Last year, the +$1million home was 8.5% of sales. This year it is 10%. This is skewing UP the distribution of homes sold, raising the median, although each home, including the high end homes, are selling for 10-15% less today than last year.

We are selling proportionally MORE of the expensive homes, and the median tells us only about the MIX of homes sold.

It does not tell us about the value of each home. The $1.1 mil house was worth $1.5 mil in 2004, so it has also gone down in value.

If you want to know how each house has held up, you have to use the Case-Shiller index, or the OFHEO housing price index. Both track the SAME house over time, giving us the change in valuation of each house instead of the change in the MIX of homes sold.

Another thing that hit me, when Bob said that we are on track to sell 30K homes this year in San Diego. SD has 1.1 million homeowners. That means 1 buyer for every 8 sellers. But these 30K homes set the price for the other 1 million homes. So all you need is a very small percentage of homeowners who are motivated, to bring down the entire market.

One of the major issues for our market is what does the future demand look like, and only time will tell. I did a rough check on July to date (July 9) to see where it stands, I debated about putting this in this writing because the numbers are scary and they will close somewhat by the end of the month. I decided to put it in so that we can see the mountain ahead to maintain some level of reasonable demand. The first 9 days of July have 303 homes sold for an average price of $559,577 and an average size of 1781 sq ft; the first 9 days of July 2005 had sales of 933 and an average price of $629,168 and an average size of 1749 sq ft. Last July's 933 sales represented 25% of the month's sales, if that were to hold this year, well suffice it to say that would be a disaster. I think this July will stay in the 30% to 35% down from last year region and that would put July sales at about 2,700 homes sold, keeping us a path to about 30,000 home sold for the year, down about 30% from last year.

Markets can not sustain 30% declines in demand over a period of time and not have price erosion. Here is a trend to consider; sales in the fourth quarter of 2005 was down 10% from prior year, sales of the first quarter 2006 was down 20% from prior year and the second quarter of 2006 was down 30% from last year third quarter of 2006 ???, anybody's guess. Another issue that will impact price pressures is that about 30% of our listings are vacant and heaven help the Fed continue to raise interest rates. Help comes in the form of something that will increase demand or reduce inventory.