In order to help keep you informed about your local area in an objective way, Premier Magazine will be monitoring the health of different San Diego areas in each edition. In this edition, we look at La Jolla and Solana Beach/Encinitas.
Too often we want to understand the health of our local real estate, but can only find either raw data or statistics which seem disconnected or contradictory. In order to help keep you informed about your local area in an objective way, Premier Magazine will be monitoring the health of different San Diego areas in each edition. In this edition, we look at La Jolla and Solana Beach/Encinitas. Other areas we will be monitoring are Coronado, Downtown San Diego, Rancho Santa Fe, and Del Mar. With enough reader feedback, we will even add other areas to our list.
La Jolla
Unlike some areas in the country, La Jolla 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 92037 and 92093 zip codes) exhibited unusual strength from 2006 to 2007. Most of this strength appears to have come from a correction in supply or total properties listed for sale. Admittedly, there were fewer new listings in 2007, 1363 versus 1460, and on average slightly longer marketing timelines. However, there were practically the same number of properties sold in 2006 and 2007 and, of those properties sold in 2007; they had higher sales values on average.
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.
Solana Beach/Encinitas
In 2006, like La Jolla, the Solana Beach/Encinitas area (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) also wrestled with relative excess real estate supply or total properties listed for sale. The average daily inventory of properties listed for sale was 491 in 2006 compared to 401 in 2007. That is 22% higher than 2007 average daily inventory levels. However, the 2006-2007 supply correction has been more of a mixed bag for Solana Beach/Encinitas.
Unlike La Jolla, the Solana Beach/Encinitas area saw the number of listed properties sold fall from 2006 to 2007 by 8% (Chart F). Also, average sales values did not increase, but stayed flat. However, like La Jolla, 2007 saw less disparity between the number of properties available for sale versus the number of properties sold. The inventory peak that existed in 2006 appears to have flattened out in 2007 (Chart E) due to fewer new listing and some sellers taking their properties off the market. Consequently, even though fewer sales occurred in 2007, those sales had the same marketing timelines (Chart G) and accounted for an average sale price equivalent to 2006 price levels.
Interestingly, 2007 sellers did not discount their original listing prices from their sold prices as much as they did in 2006 (Chart G). Yet, given the fact that the average sale price was the same between 2006 and 2007, this implies that 2007 original listing prices were set closer to buyers’ expectations. Expectations that looked identical to 2006. This taken together with the occurrence of equal annual market timelines and less disparity between the number of properties available for sale versus the number of properties sold suggests that 2007 was more of a market supply correction, than a market downturn for the Solana Beach/Encinitas area. Now that supply and demand seems to be more aligned, going forward, the focus will be on buyer confidence with respect to demand and the strength of the economy with respect to supply.
What’s next?
When reviewing the data that we put together for La Jolla, Solana Beach, and Encinitas, it is important to remember that these areas are comprised of sub-populations, some behaving much differently than others. For example, properties that are on the beach can behave differently than other areas. Likewise, detached properties can behave differently than attached properties. What we have presented here is a macro or total snapshot that blends these sub-populations together for the individual areas. We have also integrated the data to explain the individual real estate markets. A micro-analysis would identify the subpopulation of a property then assess that particular subpopulation’s behavior. In next month’s edition, we’ll examine Coronado and Downtown San Diego.
Written by Linda and Tom Sansone
Willis Allen Real Estate
www.LindaSansone.com
March 2008 Vol 20