“The recent path of prices in San Diego opens itself up to several types of spin,” Ratcliff said. “If you want to grab headlines and scare homeowners, you can point to the 5 percent decline in the median sales price. . . . If you’d rather soothe those fears, you can simply say that 2007’s median sales prices are essentially the same as 2004’s.”

The decline in home prices has had a ripple effect through the economy. Local construction, real estate and finance firms shed thousands of jobs since last summer because of the housing slowdown. Consumers who once depended on home equity loans to make major purchases have tightened their wallets.

As a result, retail sales have edged up just 2 percent in the past year, after adjusting for inflation. This, in turn, has led to cutbacks in local retail jobs, particularly at department stores and home-improvement outlets.

“The hiring pace has slowed considerably,” said University of San Diego economist Alan Gin, who joined Ratcliff in compiling the Anderson Forecast’s report.

Year-over-year job growth averaged 22,400 in the first three months of 2006 but fell to 14,400 during the fourth quarter. By February and March, year-to-year employment growth slowed to fewer than 9,000 jobs.

Making matters worse, 40 percent of the jobs created during the past year have been in leisure and hospitality, the lowest-paying job category in San Diego, paying an average of $376 per week – less than half the average construction salary of $862.

In comparison, only 18 percent of new jobs created in 2005 were in leisure and hospitality, mostly restaurants, bars and hotels. Ratcliff said San Diego’s emphasis on leisure jobs contrasts with surrounding counties in Southern California, which have concentrated on adding higher-paying professional and technical services jobs. In San Diego, those jobs pay an average of $1,013 per week.

Ratcliff said that by the middle of this year, leisure and hospitality hiring will start to slow down as restaurant jobs that fed off the building boom begin to contract. Unemployment will rise from the current 4.3 percent to 5.1 percent before it starts to decline in the spring of 2008, he said.

“It could lead to a vicious cycle,” Gin said. “The slowing housing market leads to slower job growth and that further weakens the demand for housing.”Stan Sexton, who heads New Horizons Realty in La Mesa, said the sluggishness in hiring is already having an impact on sales.

“There’s a lot of unemployment and underemployment, especially among real estate agents,” Sexton said. “When the market was hot, a lot of the agents took on a lot of debt and used their newly found wealth to buy million-dollar homes. I would think a lot of them are sucking wind right now. And, in general, demand is so low that we’ve all felt it in the business.”

Sexton said that most of the people who buy homes on impulse have been shaken out of the market.

“I think we’re reverting to the primary reasons for why people traditionally move: a death in the family, divorce, job change,” he said. “The idea of ‘Honey, let’s go out and buy a new house’ seems to have disappeared.”

At the same time, foreclosures and defaults have risen dramatically. In the past year, notices of default more than doubled in San Diego County, jumping from 1,533 in the first quarter of 2006 to 3,931 in the first quarter of 2007.

“Default and foreclosure rates in Southern California are rapidly approaching levels only seen during the worst of the 1990s,” Ratcliff said.

He added that despite the gloomy statistics, the foreclosures have so far had no impact on local prices. In fact, San Diego’s median sales price has stabilized over the past three quarters, even as foreclosures rose.

Gary London, who heads San Diego’s London Group Realty Advisors, said that even though there has been a large increase in foreclosures, the total is still not a big number, given the size of the San Diego market.

“The bigger number is the people who are on the edge right now – getting help from their parents to pay off their mortgage, or forgoing vacations and cutting back on expenses to make ends meet,” he said.

London said that if home prices decline sharply or the housing slump lasts a long time, those people may not be able to get out from under their mortgages.

“Then, all bets are off,” he said.”