Lower Mortgage Rates Help Revive Interest in San Diego Housing

By Richard Barrington
Local Lender Columnist
Jun 18, 2008
The latest housing market figures for San Diego County show a revival of home buyer interest. Could this be a sign that the trend in home prices is about to turn upward? Home prices are cyclical by nature, though historically the overall trend has been upward over time. For potential home buyers, this requires being careful about timing. No one wants to buy in at the peak of a cycle, but waiting too long can mean watching as prices go higher and higher. The bursting of the housing market bubble has brought some relief from high home prices, but buyers would be wise to be alert for signs that the cycle is entering a new phase. This could be the case if March's housing figures are not a one-time blip.

Sales Volume and Prices

Two types of figures are commonly used to take the pulse of a housing market: sales volume and home prices. The two are related but do not move in lockstep. For example, when sales volume falls it can be a sign of falling demand for housing. However, since buyers and sellers set price expectations based on past sales, it can be a while before this falling off of demand is reflected in home prices. Eventually though, if decreasing demand persists, falling prices are likely to follow.

This pattern of volume trends leading price trends has been seen during the recent housing market slump, as volume declines often outpaced pricing declines.

Latest Figures for San Diego County

If volume tends to lead prices, then the latest housing figures for San Diego County offer a note of encouragement. Sales of both detached and attached houses rose in March, by 17% and 16% respectively. Month-to-month housing data is notoriously volatile, but these increases are substantial enough to be worthy of some notice. If sales volume continues to pick up, it could well be a leading indicator of a turnaround in home prices.

Prices and Mortgage Rates Near Bottom?

This renewed interest in the San Diego housing market has been prompted in part by low mortgage rates. 30-year mortgage rates have been declining since the middle of 2007 and by the end of the first quarter of 2008 had settled in below 6%. Based on mortgage interest rate history this is an unusually low level.

Naturally, lower mortgage rates make buying a home more affordable, which can help stimulate demand. Like housing prices, mortgage trends tend to be cyclical; however, pricing cycles and mortgage cycles do not always synch up so that prices and mortgage rates are low at the same time. That is exactly what seems to be happening now.

The upshot of all this is that prices and mortgage rates have become more attractive for buyers. One thing about cyclical trends, though, is that they don't stay in one place for long. It will be worth keeping a close eye on sales volume to see if an upturn in prices may be in the works.

Source:
Fox 6 San Diego

About the Author
Richard Barrington is a freelance writer and novelist who previously spent over twenty years as an investment industry executive.