A slip in home prices in San Diego as demand for condominiums slackens is giving the chills to some in this sun-drenched California city and stoking concerns of a downturn in its regional housing market after a decade-long boom.
Some are going as far as to declare all California will go the way of San Diego, one of the hottest U.S. housing markets in recent years, with large gains in home values soon to be undone, perhaps by a sharp correction.
Others expect a soft landing, and say the slip in San Diego's median home price was inevitable as it has more than tripled since the late 1980s.
"You don't go from frenzy to normal without an adjustment," said John Karevoll, an analyst with real estate research firm DataQuick Information Systems.
The year-over-year fall in June's median price was the first for the San Diego market since the early 1990s, but it was only a decline of 1 percent.
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"I wouldn't put a lot on that 1 percent drop at this point," said Alan Gin, an economist with the Burnham-Moores Center for Real Estate at the University of San Diego. "There is no panic with people trying to sell their homes."
San Diego's June median price for existing and new homes fell 1 percent to $488,000 from $493,000 a year earlier and their sales fell 24.1 percent over that time as demand for condominiums cooled, according to DataQuick.
San Diego is experiencing a "condo-led decline" because owners are putting units on an already glutted market, said Alan Nevin, a consultant with Marketpointe Realty Advisors.
"In a lot of parts of San Diego, there is no give at all on the single-family side," Nevin noted. "It's slow but sure. They are taking time to sell, but without deep discounts."
John Burns, an Irvine, California, consultant to home builders, notes San Diego area prices for existing single-family homes have been flat for a year. June's median was $565,000, up 1.8 percent from a year earlier.
"There are no desperate sellers in the resale market with two exceptions," Burns said, pointing to investors who overestimated demand for high-end condos and apartments converted to condos.
The market's median price for resale condos fell 2.1 percent to $386,750 in June from $395,000 a year earlier. The month's median for new homes, which includes new condos and buildings converted to condos, dropped 8 percent to $422,000 from $458,750 a year earlier, according to DataQuick.
Developers may put plans for new condo projects on hold over the near term, said Raphael Bostic, an economist with the University of Southern California's Lusk Center for Real Estate.
"A freeze to construction is what I think what will happen," he said.
Meanwhile, overall home prices across San Diego will plateau, Gin predicted.
"The conditions aren't there for a big rebound in prices or for a big drop," he said. "We would need a big drop in interest rates to get any significant movement on prices on the upside. We would need to see some significant job losses, a recession at the national level, to get a big drop in prices."
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