Party like it's 2003

… because that is where our San Diego housing prices are.

It had to happen. I am about to quote Redfin. What’s next? Cats marrying dogs? A week at Chez Berg without a pizza delivery?

While I have been known to engage in some friendly sparing over the years where their business model is concerned (OK, I was overly harsh — downright mean, actually), I will admit that I do enjoy their newsletters. I usually find their take on the housing market to be spot-on. The latest installment that landed in my inbox is no exception.

From someone at Redfin writing under the pen name of “Glenn Kelman,” this:

Now the Problem is Weak Demand

The first confirmation that demand was off came last Tuesday, when the U.S. Department of Commerce reported that contracts being signed on new construction dropped 33%, worse than even the glummest economists expected. What this means is that we’ve stopped worrying about supply and started worrying about demand: last year, we saw plenty of buyers chasing a seemingly bottomless pit of foreclosures being sold at fire-sale prices. At the time, we said foreclosures wouldn’t peak until summer 2010.

Now, we see demand weakening even as foreclosures are being mopped up: the percentage of May home sales that were distressed was 31%, compared to 33% the previous month, and May loan-default notices declined 22% from the previous year. Anecdotally, it seems like the sellers stuck on the market for the past six months aren’t dropping their prices because they need every penny from the sale to pay off the bank. But sellers just coming onto the market are being more realistic in their pricing.

A Significant Price Recovery is 9+ Months Out

That doesn’t mean prices in most markets are going to fall off another cliff, even if demand is weak. The Phoenix market has already lost 52% of its value and homes are now selling below construction cost, so desert homes probably won’t drop another 25%. But it does mean that a significant price recovery is more than nine months out. The summer-less real estate cycle that we have been predicting month after month has arrived: usually sales peak in July, but not this year.

They are speaking from the broader, national market perspective, of course. But while we wait for Steve to muster the courage to respond to my latest challenge, it’s good filler.

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