This week has seen the median price for Rancho Santa Fe rise this week to $2,950,000. However, asking price per square foot stayed level at $509 and total inventory also stayed the same at 262 homes. Average days on market rose to 246 days.

The market action index is at a very low 13, which indicates a market that clearly favors the buyer.

What you see on the attached graph is a study of the detached home sales in the San Dieguito area (Cardiff, Encinitas, Rancho Santa Fe, Del Mar and Solana Beach) since 2000. For our purposes, we’ll segregate the homes sales into three price categories:

1.) Under $800,000 which has the benefit of using low cost FHA financing,
2.) The move up market from $800,000 to $2,000,000,
3.) Over $2,000,000 as the luxury market.

There is an increasing price trend for homes in the sub-luxury categories, present for over a year now with a 14% increase in the under $800,000 bracket and a 9% increase in the $800,000 to $2,000,000 bracket. The luxury market did not begin to decline until a year or so after the two other brackets, as owners in this bracket were more capable and willing to hold onto their homes instead of selling in a down market.

However, as they have belatedly elected to sell, they have had to lower their prices even further. The decline from 2009 to 2010 was near 10%. Complementing this trend, the number of sales has increased in the $2,000,000+ bracket by 9% from 2009 to 2010, as more buyers enter this market to capitalize on the low pricing. This increased sales volume will allow prices to rise along with the new demand for homes in the luxury bracket.

Median homes prices in the San Dieguito area (Encinitas, Solana Beach, Del Mar and Rancho Santa Fe) have seen the median home price move from $970,000 in 2009 to $1,030,000 in 2010 registering a 6.1% increase. This is certainly running counter to the news media which is promulgating a 5-10 decline in prices for 2011. We have also seen the number of home sales increase by 9% per year for the last two years. This is good news but there is a long way to go since the number of sales in 2010 was about equal to the number of sales in 1995.

How will the banks handle the backlog of foreclosures in our area. This is the question. There are times when I think they are just incapable and undermanaged and then sometimes I think that they are playing the market since their holding cost are low and the potential for market increases appears to be real as we note 6.1% increase from 2009 to 2010 in our area.

If I could look behind the curtain, or if I had a higher level of consciousness, I think I might find that the investors who hold these mortgages are just unwilling to accept the losses and resultant regulatory capital issues that come with the losses. So, it seems that we will be seeing the shadow inventory slowing bleeding out over the next two years. I think the media has already noted that these foreclosures delays have also helped some non paying homeowners to accumulate some funds for their new launch when the time comes for the home to be sold.

All told, I am finally feeling like we can peak around the corner and see that the future is not in flames.