Last week I was asked about my predictions for the San Diego real estate market. When I receive real estate questions I am asked my real estate opinions, I repeatedly answer the same way. Whether my clients are buying or selling, the only thing they can be assured is that I will get them the best possible price for current market conditions. I have had over three decades of residential real estate sales in New York, New Jersey and California, and since I'm not paid for my personal opinion on the market or its direction, I'm certainly not afraid to communicate that opinion.

Truthfully, the San Diego California real estate market hit its high point in the summer of 2005. Since then, a lot of neighborhoods have been in decline! This is a fact and not an opinion! In today's market, many San Diego neighborhoods have even had double digit value declines! According to a local San Diego Union Tribune newspaper dated 3-18-2007, the subsequent resale homes in these neighborhoods have experienced median home value decline since February 2006. La Jolla 15.6%, Pacific Beach 15.8%, North Park 15.8%, Ocean Beach 19.1% and San Carlos 19.1%.

Keep in mind, the average San Diego median home price is over $550,000. This generates a 15% decline amounting to an $82,500 loss! With my experience in San Diego real estate, I can create a good assumption on the upcoming future of the market. My take on the background of the current market expressed is that in the immediate future we will undergo a seasonal sales pick up in activity. This should keep on for a few months, and then I believe that the downward trend will re-determine itself. That trend will not only continue, but is likely to step up as the popular adjustable rate mortgages from the last few years come up for their first adjustments. In the end, I believe San Diego housing values could, with no trouble, be down 25 to 30% from their summer 2005 values by the end of 2007.

During the year ended January 31, there were 13,249 homes in default for foreclosure in San Diego County, as stated by RealtyTrac in Irvine, California. This was a 192% jump from the previous year and the defaults and foreclosures are up 131% statewide and 42% nationally. Contrasted with one in 229 homes for last year, one in 79 homes in San Diego County is in default or foreclosure this year.

The average San Diego home increased in value in the region of 20% per year from 2000-2005, or 100% for the five year period. San Diego real estate has continued its buying frenzy for at least two or three years past when it would have regularly ceased. It is my opinion that this has occurred because of the zero down, stated income, low start rate loans, and the sub prime loans. Now unfortunately, as with any frenzy, it's payback time.

At first, a lot of people thought there was no bubble and that it was always a good time to purchase real estate; how could you ever lose if you invest in real estate? Today, many of those same people clearly have changed their minds. Now the current belief is that our ‘correction’ in San Diego home values is concluded and both real estate sales and home values will be escalating from here.

Alas, I find it difficult to agree with this majority opinion, considering that San Diego was named the piggyback loan capital of the US just a few years past. I must make it clear that our prevailing activity pick up is just seasonal in nature. I feel that the complete impact of both the sub-prime loans and all the easy qualifying loans are however a few months off.

It's wonderful to be optimistic and when working with high net worth people, it's my opinion that you must give a practical opinion on the market. This is most critical when dealing with sellers because being overly optimistic here could be a sure ticket to an expired listing.

To further explain, our local San Diego MLS is complete with price reductions, rising commissions and buyer motivations. What can you do when the original price you settled upon with your a seller ends up being reduced by $20,000, $30,000, or even $50,000? How do you tell them that the market pickup was looking very strong, but now you'll have to reduce their selling price?

A very important fact to remember is that 95% of getting a property sold is precise initial pricing. It is exceedingly important to price properties right from the start in this market.

So I really do hope I'm wrong. I hope that this San Diego up-tick in housing sales is really the bottom to our market. But if I'm right, having a home sit on this deteriorating market for 3 to 6 months or even longer will cause most sellers to lose. They will lose far more in actual cash value than if they would have priced the property correctly from the commencement.

Lastly, giving a seller a rational view of the existing real estate market and the crucial importance of ‘right-on’ pricing will net more for the seller. Further, proper initial pricing may escape a lengthy listing period, marked by large price reductions, and possibly ending in an expired listing.