I don’t think that it is “desirability” that makes a neighborhood a leading indicator. Instead, I think that it is the amount of mortgage activity in that neighborhood over the last 6-7 years. For the most part, this should reflect how “new” the housing is.
Look at it this way:
El Cajon: over the last 7 year, say 10% of the houses change hands/are used as ATM’s. At a 1% default rate, one home in 1000 enters the “must sell” inventory.
Chula Vista: over the last 7 years, say 80% of the houses change hands/are used as ATM’s. Even at the same default rate, eight homes in 1000 enter the “must sell” inventory.
Prices are going to be pushed down sooner in the newer neighborhoods like Chula Vista than the “less desirable” neighborhoods like El Cajon.
The neighborhoods that you think of as more desirable (La Jolla, Del Mar, etc) are just more developed and have a larger percentage of owners who don’t need to sell. However, I would expect the same to be other older neighborhoods, like Clairemont.
