San Diego County kicked off California's housing boom six years ago with dramatic price rises and became one of the nation's hottest real estate markets.
Now it has attained a more dubious distinction: It's the first major California real estate market to see its median home price fall below year-earlier levels, according to data released Wednesday.
Another once-sizzling market, Los Angeles County, saw home prices in June rise at their slowest year-over-year rate since 2001.
San Diego County's median price -- the point at which half of all homes sold for more, half for less -- for new and existing homes in June was 1% lower than a year ago, a stark contrast to the 20%-plus annual gains it was posting during the peak of the boom two years ago, according to data released by DataQuick Information Systems, a La Jolla-based real estate research firm.
It was the first time the county had suffered a decline in year-over-year prices since July 1996, and means that many people who have bought homes since June 2005 have no equity increases.
The question now is whether the county's slump is a harbinger of an even deeper decline in prices, or part of a "soft landing" in which prices merely level off in the near future.
Most analysts don't expect disaster as long as the region's economy and employment continue to grow.
"Does it mean we will continue to see weakening of the hot housing markets? It almost certainly does," said Raphael Bostic, an economist and professor at USC's Lusk Center for Real Estate. "Does it mean that we will see massive declines and loss of values in these markets? No."
Nonetheless, sellers such as Michael Pines are nervous. The professional real estate investor listed his Encinitas ocean-view home for sale at $1.3 million two weeks ago. But believing that the current downward trend will continue, he figures he may have to lower the San Diego County home's price soon to close a deal.
"If you believe that history repeats itself and everything goes in cycles, real estate goes in a cycle too," said Pines, who started selling his half a dozen San Diego area properties two years ago when he believed values had peaked.
Tugging San Diego County into reverse is a tumbling in demand and prices for new condominiums in downtown San Diego, whose rebuilding renaissance sparked a rush of investors and wide-eyed developers. But speculators drove prices too high while builders may have built too many units, leaving buyers today less willing to pay the $600,000-plus prices. In many cases, developers with unsold units are offering discounts and other incentives.
Many other attention-getting U.S. markets, such as Miami, New York and Las Vegas, have also seen sharp decelerations in home price gains -- but have yet to post year-over-year price declines. Some smaller California markets, such as Napa and Marin counties, and markets that never joined the boom, such as Wichita, Kan., and Flint, Mich., have started to see price depreciation.
In many ways, San Diego County has been ground zero for a nationwide debate about whether the housing market is in a speculative bubble. It was one of the first regions to see price appreciation soar by double digits beginning in 2000, helping to double values in less than five years.
But over the last year, the county has exhibited many classic signs of a topped-out market: rising inventories of unsold homes, slower sales turnover, a leveling of prices and an exodus of hard-core speculators. San Diego County sales fell 24% in June, the 14th straight month of declines, DataQuick reported.
It adds up to a change in the market that is giving prospective buyers the advantage, local real estate professionals say. Parham Firouzi, a La Jolla-based Re/Max agent, said sellers were finding it harder to get their asking prices. Buyers, he said, "know what they want and what they are willing to pay."
"You know it's a buyer's market when your asking price doesn't mean anything," he said.
USC's Bostic and others point to the underlying strength of the economy nationally and regionally that will help insulate the housing market from a collapse. San Diego County, for instance, is poised this year to gain about 22,000 jobs -- an increase of 1.7% -- most notably in the leisure and hospitality industries and construction, according to a Los Angeles County Economic Development Corp. forecast.
But a slowing housing market could stem consumer spending and weaken the economy. Appreciating values gave many homeowners the wherewithal or confidence to finance home improvements as well as new cars or vacations.
A slowing market also could put some recent buyers -- who could afford their purchases only by stretching their incomes with unconventional, risky loans -- into financial quicksand.
San Diego County in particular has been an important and lucrative market for the mortgage industry's peddling of unconventional loans that enable buyers to squeeze into homes with far less than the traditional 20% down payment.