The majority of this excess supply or total properties listed for sale existed from June through October of 2006 (Chart A). Not only was this supply greater than the supply in the same period of 2007, it accumulated very quickly, i.e. the number of properties available for sale grew by 70% from January 2006 to July 2006. The market reacted in classic fashion to this accumulation in supply by extending marketing timelines and further discounting sales prices from original listing prices (Chart C). When comparing the properties sold for this period to the same period in 2007, this reaction is evident with marketing times 8% longer and discounts 17% greater in 2006 than 2007.

Specifically, for this period, marketing timelines averaged 122 days in 2006 versus 113 days in 2007 and average discount from original list price was 10.8% in 2006 versus 9.2% in 2007. Ironically, all this excess supply and price discounting in 2006 did not yield more properties sold in 2006 versus 2007. The number of listed properties sold (Chart B) was virtually the same for 2006 and 2007, 610 and 606 respectively. Moreover, 2007 actually experienced a higher average sale price. This increase appears to come from sellers generally discounting their original listing prices less in 2007 compared to 2006. All in all, 2007 appears to have been a strong year in La Jolla. Not only did it correct a supply/demand imbalance, but it did so while selling the same number of properties at an on average higher sale price.

For this analysis, we segmented La Jolla real estate into 3 groups by original listing price: 1) Properties less than $1 million; 2) Properties greater than or equal to $1 million and less than $2 million; and 3) Properties greater than or equal to $2 million. Interestingly, each group exhibited different behavior when comparing the first trimester of 2007 to the same 2008 period.

The group that had the least decrease in the number of sales between 2007 and 2008 was the first group: properties with an original listing price less than $1 million. The number of properties sold fell by 14%; however, for those homes sold, there was no change in median price (Chart B). Even though the average number of properties available for sale was the same between the two periods and fewer homes were sold in 2008, the average sale discount from the original listing price was less in 2008, helping to support 2008’s median price level, and implying the existence of determined buyers for this price group. While the first price group exhibited market characteristics preferable to sellers, the second group was unquestionably a buyer’s market. Almost all the variables suggested buyer opportunity within this segment. Median sales value declined approximately 10% from $1,347,000 to $1,220,000 (Chart B). Inventory levels were higher (Chart A), new listings were the same as 2007 even though sales decreased significantly, days on the market increased almost 30% from 5.8 months to 7.5 months (Chart C), and sale discount from original listing price increased almost 50% from 10.9% to 16.0%. All-in-all, the only variable that may curb the attractiveness of this segment for buyers in the second trimester of 2008 is seasonality, since this second-trimester seasonality effect typically favors sellers from a price perspective.

The last price group, properties with an original listing price greater than $2 million, seemed to support a seller’s market, albeit with hints of an emerging buyer’s market. Slightly supporting the former was a stable median sales price which was approximately $2.7 million for the first trimesters of 2007 and 2008 (Chart B). However, the number of properties sold fell by 20% from 49 properties in 2007 to 39 in 2008. Marketing times also increased 19% from 6.2 months to 7.4 months (Chart C) with inventory levels on the raise; abated only by a decrease in new listings. This price group appears to be headed into a buyer’s market, unless offset by the higher demand of second-trimester seasonality.

Solana Beach/Encinitas Three months ago, when we compared 2006 and 2007 Solana Beach/Encinitas real estate (defined for the purpose of this analysis as all attached and detached residential properties listed with the San Diego Multiple Listing Service for 92075 and 92024 zip codes, respectively), we saw inventory levels and the number of properties sold come more into equilibrium, albeit strongly vulnerable to any change in buyer confidence. We even saw no change in average sale price between 2006 and 2007, yet also appearing very vulnerable to buyer confidence. Now, when comparing the first trimester of 2007 to the first trimester of 2008, that caveat was merited. For this first-trimester analysis, we segmented Solana Beach/Encinitas real estate into 3 groups by original listing price: 1) Properties less than $750,000; 2) Properties greater than or equal to $750,000 and less than $1.5 million; and 3) Properties greater than or equal to $1.5 million. Unlike La Jolla, what are most notable about the price segments are not their differences, but their similarities. All three groups experienced a significant drop in average daily inventory levels (Chart E) due primarily from a reduction in new listings and sales (Chart F). Also, surprisingly, for all the price groups, sellers relented to buyer price pressure without any extension of marketing times when comparing the first trimesters of 2007 and 2008 (Chart G). What differences did occur between the groups appeared in strongest contrast between those properties above $1.5 million and those below.

Specifically, those properties having an original listing price greater than $1.5 million were the only properties to have the same number of sales in the first trimesters of 2007 and 2008 (Chart F). These sales did not come without some seller discounting. Median sales price dropped 5.6% from $1.8 million to $1.7 million, mostly due to an increase in discounting from original listing price and partially from setting lower original listing prices. However, this group also had the greatest decrease in average daily inventory levels (Chart E) and new listings. This helped to offset a supply glut that could have pushed median sales price lower, but also has the potential of stabilizing price levels in the second trimester of 2008.

Unlike the price group above $1.5 million, the two price groups below experienced a drop in the number of properties sold between the first four months of 2007 and 2008 (Chart F). Properties with an original listing price below $750,000 sold 34% fewer properties in 2008 than 2007; and properties with an original listing price greater than or equal to $750,000 and less than $1.5 million sold 23% fewer properties. However, unlike the above $1.5 million price group, these groups watched the number of month-to-month sales increase during the first trimester of 2008 (Chart F). Consequently, even though the average number of sales were less for the first trimester of 2008, the month-to-month rate of growth was strong, suggesting, among of factors, likely price stabilization in the second trimester for this price segment.

Written by Linda and Tom Sansone

Willis Allen Real Estate

www.LindaSansone.com

Phone (858) 775-6356

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