I was searching the Internet the other day for fresh news articles about the Real Estate market, and was struck by a headline that read “Rancho Santa Fe, Solana Beach, Del Mar home prices drop 16 to 37 percent, realtors say”. Now first, for anyone not living in the San Diego region, it is necessary to understand that these 3 areas mentioned are among the top home values, with the possible exception of La Jolla, which ironically was not mentioned among a list of 33 zip codes in the accompanying report.
But … think about the possible impacts here. The headline does not say that prices steadily declined, or that they declined once again, but rather that home prices dropped. Is that an intentional, albeit dramatic use of words? I mean, c’mon, why not just say that we are headed for world disaster. Or better yet, “ pricing tsunami wipes out San Diego Real Estate – no survivors”. And to add credibility, the headline provides a numeric value range that is frightening … from 16 to 37 percent. That will grab your attention … won’t it … I mean that is freaking huge! Finally, the headline leads the reader to believe that this information is absolutely the truth. Why? Because the source is considered reputable – the North San Diego County Association of Realtors. WHOA! I mean I would believe a group of REALTORS only second to the President of Iran.
Is it no wonder that consumer confidence is low, and knowledge about the direction of the economy uncertain. Some people, and especially those who do not, or cannot understand the essence of the article I refer, move quickly onto something else of greater personal importance, yet this headline, and its reflex association to doom and gloom, is now embedded into their minds and thoughts. Possibly, sellers who were considering to list their homes for sale, will likely defer that decision in fear that their house will soon be worthless… after all, how many 37% declines does it take to reach zero? And buyers who may have been considering a home purchase, have had their beliefs confirmed that the Real Estate market has not seen its bottom, and will likely continue in its spiral crash. So… where does your belief lie? Are you sure? What are we to believe is the truth?
And … as these people go out into the world of misery, despair, and remorse, now armed with headline news that may be nothing more than hype, they spread and propagate more negativity. Misery does love company … doesn’t it!
When I read further into the article, several key ideas immediately occur. First, the comparison period is the single month of February 2010 to the single month of February 2011. A single snapshot comparison such as this, does not reflect a trend. Yet, some readers may likely be misled to that belief. In addition, as admitted in the article, the data was based on 11 home sales in Rancho Santa Fe, only 4 home sales in Solana Beach, and 11 home sales in Del Mar. That is not exactly a huge sample size to make inferences, especially when total San Diego homes sales for the year ended 2010, was 31,000 plus. How can anyone consciously prepare a news article with this kind of information, unless the intent is to target a specific sensitivity. Oh, perhaps we are suppose to believe that in addition to the bleakness of short sales and home foreclosures, that now, the wealthy are not insulated from the misfortunes in the housing market.
The article also refers to median home values, which quite frankly, most people probably have no clue of its meaning, and moreso, I think it is a misleading indicator, especially when so few housing units are involved. To illustrate this point, let’s say that we have the following numbers for February 2010 … 3, 5, 12, 15, 19. The median number is the integer 12, the one in the middle of the range. Median means middle. Now, let’s say that we have the following numbers for February 2011 … 3, 7, 10, 14, 18. The median number is the integer 10. When comparing the change in the median number 12 from February 2010 to the median number 10 for February 2011, there is a decrease of 16.7%. On the other hand, another method of averaging is the mean, which is the aggregate of all the numbers for a period, divided by the count. So, for February 2010 the mean average would be 10.8, and for February 2011, the mean would be 10.4, or a decrease of 3.7%. Yikes, tells a different story doesn’t it.
Unlike other areas of Real Estate in San Diego, areas such as Rancho Santa Fe, Solana Beach, Del Mar, La Jolla are far from becoming commoditized markets. Their uniqueness in architectural character and their individuality of features and benefits, can often cause far more significant swings in the average price per square foot. For example, in La Jolla, a home by the ocean might sell for $1,500 per square foot, whereas a home in the Village area might sell for $600 per square foot. So, when trying to reflect the real story in market trends, the effects of individual home prices, aggregate volume, and the mix bag of different homes, especially over a given time period, are critical factors that should be accounted. If we are analyzing the value of “cookie-cutter” houses, then most of what I have mentioned, makes little difference.
Personally, I prefer to look at home prices on a square foot basis because I believe this is a metric that makes for easier comparison, especially when comparing houses or areas of significant variance. Further, to get a feel for the direction and trending of the housing market, I prefer to look at 6 month periods of time, such as from February 2010 to July 2010, and from August 2010 to January 2011. And, I also look at a rolling 6 month average. A rolling 6 month average always uses 6 months, however, for each new period, it adds the newest month and drops off the oldest month. This keeps the averages fresh, and at the same time smoothes out large fluctuations caused by factors such as seasonality or mix issues.
So, let’s see how data from the same source can tell a slightly different story. First, let’s compare the information for each area for two 6 month periods, then let’s look at the trending suggestion for the rolling 6 month averages. For the 6 month rolling average I have selected to illustrate only Rancho Santa Fe.
Comparison among 6 month periods
Area # of Units Avg $ / % Incr
Sold Sq. Ft (Decr)
Rancho Santa Fe
Feb to July 103 $ 414
Aug to Jan 73 $ 432 4.3%
Solana Beach
Feb to July 93 $ 476
Aug to Jan 62 $ 488 2.5%
Del Mar
Feb to July 76 $ 603
Aug to Jan 64 $ 615 2.0%
Rolling 6 month averages for Rancho Santa Fe
# of Units Avg. $ / %
6 Month Period Sold Sq. Ft. Change
Apr – Sep. 103 $ 405
May – Oct. 96 $ 411 1.5%
Jun – Nov. 90 $ 423 2.9%
Jul – Dec. 85 $ 421 (.5%)
Aug – Jan. 73 $ 432 2.6%
Sep – Feb 77 $ 436 .9%
Cumulative Change (increase – not decrease) 7.7%
So … what is the take-away from all of this? Where do we find the truth? Has the market declined by a range of from 16% to 37% as does the recent article suggest, or has it been gradually recovering in a range from 4.3% to 7.7% as does my analysis suggest. The information from the two methods I use for illustration, at least show a consistency, and suggests a trend.
Chances are much greater, however, that people-at-large will believe the headlines they see – don’t we all?
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Charles M. Schevker (CPA)
DRE # 01875556
Broker Associate
Prudential California Realty
1299 Prospect St.
La Jolla, CA. 92037
Charles M. Schevker (CPA)
DRE # 01875556
Broker Associate
Prudential California Realty
1299 Prospect St.
La Jolla, CA. 92037
Google Keyword = Homes in La Jolla CA
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