San Diego County kicked off California's housing boom six years ago with dramatic price rises and became one of the nation's hottest real estate markets.
Now it has attained a more dubious distinction: It's the first major California real estate market to see its median home price fall below year-earlier levels, according to data released Wednesday.
Another once-sizzling market, Los Angeles County, saw home prices in June rise at their slowest year-over-year rate since 2001.
San Diego County's median price — the point at which half of all homes sold for more, half for less — for new and existing homes in June was 1% lower than a year ago, a stark contrast to the 20%-plus annual gains it was posting during the peak of the boom two years ago, according to data released by DataQuick Information Systems, a La Jolla-based real estate research firm.
It was the first time the county had suffered a decline in year-over-year prices since July 1996, and means that many people who have bought homes since June 2005 have no equity increases.
The question now is whether the county's slump is a harbinger of an even deeper decline in prices, or part of a "soft landing" in which prices merely level off in the near future.
Most analysts don't expect disaster as long as the region's economy and employment continue to grow.
"Does it mean we will continue to see weakening of the hot housing markets? It almost certainly does," said Raphael Bostic, an economist and professor at USC's Lusk Center for Real Estate. "Does it mean that we will see massive declines and loss of values in these markets? No."
USC's Bostic and others point to the underlying strength of the economy nationally and regionally that will help insulate the housing market from a collapse. San Diego County, for instance, is poised this year to gain about 22,000 jobs — an increase of 1.7% — most notably in the leisure and hospitality industries and construction, according to a Los Angeles County Economic Development Corp. forecast.
But a slowing housing market could stem consumer spending and weaken the economy. Appreciating values gave many homeowners the wherewithal or confidence to finance home improvements as well as new cars or vacations.
A slowing market also could put some recent buyers — who could afford their purchases only by stretching their incomes with unconventional, risky loans — into financial quicksand.
San Diego County in particular has been an important and lucrative market for the mortgage industry's peddling of unconventional loans that enable buyers to squeeze into homes with far less than the traditional 20% down payment.
"Today's situation is more reflective of a normal environment," said Karevoll, who predicts that other California markets will follow San Diego County and eventually will hit flat or negative growth, but not give up all the gains made in the last few years.
"San Diego had a 100% increase in the past five years," he said. "So far, it's been able to keep 99% of that, which isn't so bad."