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San Diego California Homes For Sale - Homes for Sale San Diego, CA: The Road to Recovery or Canary in Coalmine for More Economic Woe?

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San Diego was among the first real estate bubbles to burst, but will it also be among the first to recover? Has the San Diego residential real estate market finally hit bottom? The first quarter of 2010 demonstrates slight, but promising, single-digit increases in year-over-year home sales in San Diego. A tighter supply of condominiums and homes for sale in San Diego, CA also lends hope of stabilizing sales and pricing. This is fueling optimists’ speculation the bottom has hit, and the only way is up. Are happy days ahead for those with homes for sale in San Diego, California?

On the other side of the coin are arguments suggesting the slight increase in first quarter 2010 San Diego home sales may reflect a small flurry in activity of buyers taking advantage of the recently expired tax credits requiring signed contracts by the end of April and closings by June. Without the urgency of expiring tax credits, will the market of homes for sale in San Diego, CA stall in the second quarter?

On the upside, mortgage interest rates remain at near-record low; however, unemployment remains high at just above the 10% mark. With the economy, particularly financial institutions, still reeling from near economic Armageddon, lending standards remain tight for both homebuyers and homebuilders. Realistically, the level of new construction may remain negligible for the next 2-3 years, particularly in the downtown San Diego condo market. This will keep supply low, and if the employment situation improves, demand would increase. “Low supply, higher demand” is the classic economic recipe for increasing prices on homes for sale in San Diego, CA and around the world.

Is it safe to assume the worst is behind the San Diego residential real estate market? It may still be too early to tell. The problem is San Diego was on the front-end of the residential real estate bubble, topping out in 2005. This means many of the “irrationally exuberant” mortgages on homes in San Diego are set to adjust in 2010 and 2011. For those with mortgages adjusting in 2010 or 2011, continued low interest rates will not pose a “sticker shock,” but the stark realization of negative equity in their home may trigger shock of a different sort and more negative economic fallout.

Some real estate and legal analysts are concerned the home-owners who find themselves “upside down” in their mortgages, owing far more on their mortgage than their home is now worth, may “strategically default,” and simply walk away from their mortgages. If that happens, the number of San Diego, California homes for sale will greatly out-strip demand leading, to a flooded market and financial institutions with even more bad debt and foreclosures on their hands.

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