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I have been following the real estate market in San Diego area from a distance for about 3 years now. My wife and I are moving to San Diego in June and I have been getting discouraged looking at how quickly home values have risen over the past year. We have missed the buyer's market (not that you locals are crying for me!)
We recently got back from a scouting trip to the area and found a ton of homes in RP, RB, Scripps Ranch areas that I estimated would be around $500k. I return home, look at prices, and I can't find anything below $700k.
What is the prevailing feeling on the ground out there? From an outsider's perspective, it seems like it has risen too much, too quickly, to be completely organic. Any indication that this might be another bubble or does it seem to be built on solid fundamentals? Anyone bought a home lately and felt like lending standards have been relaxed?
I am not so sure they were 500k to begin with, even 3 years ago. Which in hindsight might have been the lowest point. Those areas maintained a better chunk of their values than others.
Suffice it to say that not all parts of San Diego fell or rose at the same pace across the board.
Strong school districts (correlated with distance white collar job centers), distance to ocean are probably two major drivers here.
One of the changes I have noticed across the county since the spring is we have shifted from several years absolutely dismal quality in listings. Now we are seeing a little better quality in some areas and those listing prices are considerably higher. So while they are turnkey it appears there is a market of buyers willing to compromise and pay for them.
After living here for a decade now and following the housing market, I can tell you a few observations. The places that seem like great places to live right now are no mystery. If you notice it, so does everyone else. Compared with the 'next best' for your dollar, in some cases it can miles apart in quality or compromise. So in the local SD market this helps to keep prices somewhat stable for those types of areas. Only so many houses for sale in the areas you mention and they are the places that are in higher demand.
You may need to make an adjustment on something: House size, proximity to jobs, school ratings
Call it a bubble if you want, but people are now putting 20% down or more, do you think they will walk away from their home if prices drop 20%? Probably not. We've also all heard of the all cash buyer running up prices. When prices fall, do you think they will not buy more, now they might even take a mortgage and buy more properties.
I think prices the last few years have been artificially low. Low down payment requirement , lack of proof of ability to pay, led to the initial run up in prices. Then lending got tight, even business couldn't get credit, no one could refinance, they couldn't afford their mortgage, jobs disappeared, they couldn't sell, they couldn't rent it for the mortgage payment, legislation was introduce to let people walk away without the previous burden of having to pay tax on a short sale, comp prices dropped, prices fell through the floor.
Though all of this rents didn't change as much as mortgage payments. If you could get your house mortgage, tax, ins, melo roos, post tax, close to your monthly rental, it makes sense.
When rates go up like everyone expects, many people also expect prices to fall. You can sit on sideline and be a happy renter like so many others as long as the money you are saving per month is more that the principal reduction of a would be mortgage.
Lending standards have been laxed, but we are now tightening up next year. We are basically stopping stated income loans. Interest only loans are also going away. This may lead to lower prices. Higher income will be required. marginal buyers will be pushed out of a competitive market and pushed to a lower priced house.
Buyers will have to come in with larger down payments on higher priced homes.
Also towards the end of the year and around tax time, when previous homeowners sold and became renters, they'll realize that don't get that nice tax refund and all of their money when to rent during an appreciating market. They may comeback, if they sold and prices dropped, they'll be sitting on a larger down payment than someone that just tried to save money for a down payment.
Just do the simple math and talk to an accountant. If the mortgage is a little more than the rent, then buy, if you are okay with the payment and house for the next 10 years.
Many will say rates are artificially low and we have see what happens when the rates move up just a tick from 3.3 to 4 on a 30 year loan. Sales hit a halt. All the late coming sellers asking 10% over the previous sales, just sat on the market.
The real estate market is very localized, I speak of the general metropolitan areas of Southern California where there are high paying jobs, and people willing to pay a lot in rent to live in an area slightly more desirable.
Even though the prices may be high, if the house is sitting on the market for a while , just make an offer for the price which you feel is the market price. Just because they are asking for 700 doesn't mean they wont take 650. Unlike the last couple of years , the people selling their homes have equity. The people doing short sales basically were giving away their house since their credit was already screwed.
I have been following the real estate market in San Diego area from a distance for about 3 years now. My wife and I are moving to San Diego in June and I have been getting discouraged looking at how quickly home values have risen over the past year. We have missed the buyer's market (not that you locals are crying for me!)
We recently got back from a scouting trip to the area and found a ton of homes in RP, RB, Scripps Ranch areas that I estimated would be around $500k. I return home, look at prices, and I can't find anything below $700k.
What is the prevailing feeling on the ground out there? From an outsider's perspective, it seems like it has risen too much, too quickly, to be completely organic. Any indication that this might be another bubble or does it seem to be built on solid fundamentals? Anyone bought a home lately and felt like lending standards have been relaxed?
I guess I'd say if you've been following real estate for 3 years now in San Diego then why are you surprised that houses in those areas are over $700k?
When you say "I have been following the real estate market in San Diego for 3 years now". What does that mean? Didn't you look at the prices? Or how were you following it?
Why were you estimating it would be $500k? Was that some % increase you were doing in your head vs. where you live now? Where did the $500k estimate come from? I'm just curious?
Definitely I do NOT think that the house price appreciation percentages are healthy the past year or so. It's not healthy for property prices to rise and fall this drastically in a short amount of time. I don't think anyone would try to argue that it's healthy at all.
I don't think I'd call it a "bubble" as it's NOT like the situation during the true bubble years where people were getting a mortgage without having the income or documentation to support it. However, it's not healthy to see values going up this quickly.
I am happy to see that for the most part people are putting down larger down payments and the FICO scores are generally good. However, I do think a lot of people are cashing out of their stock portfolios, borrowing from their 401K's, etc. to afford the down payments in the first place.
its a volatile, speculative, investor driven market. You have to connect the dots through a creative approach to see how it can make sense. But SD's market is not really driven by "normal" factors such as job and income growth, a big part of it is driven by much larger, more broad-based factors, like outside capital, global desirability, military & retiree presence, etc.
I would love to own a home in Carmel Mountain,Poway or Carlsbad.But i live in La Mesa because that's what i can afford.
O.P. It might be time to start looking for homes south of the 8 freeway
Lol earlyretirement- Yes, when I say "followed," I mean that I look at what price points get what house in what city. I have searches saved on Zillow that allow me to quickly see housing stock for given price points in certain areas. Every once in a while, I take a look and see what is going on. So my knowledge is limited to what shows up on those searches. So my $500k is based on my searches usually encompassing homes between $350k and 500k. Homes with these prices do exist in these markets, but naturally, they are more rare than higher-priced pads. My recent observation has been that, not only are the quantities of housing stock between my price points becoming more scarce, but the remaining ones are lower quality as well. Obviously, to some extent, it is to be expected coming out of a recession. It just seems a bit extreme.
Sassberto, I have also been following the Temecula market (family there). I have always looked between $200k-400k. Same story. The quantities, alone, have drastically reduced. I spoke with my brother about it and he seems to think that Temecula is an investor's dream right now. They have scooped up all of the recession's cheap properties- I can only assume the same thing is happening in San Diego.
As I was typing this reply, I got to thinking-I wonder how many of the houses I saw between my price points during the depths of the market were short sales. Often, Zillow didn't specifically identify short sales. I am assuming short sales have drastically slowed down out there? If so, I may have answered my own question.
Hitman, If you mean Eastlake or Bonita, I am all for it! Although I still have yet to determine which areas are Eastlake and which are Otay Ranch. My wife and I loved the subdivisions east of the 125 by Lower Otay Lake
Your problem may have been relying too much on Zillow as a research tool. Zillow is not the most reliable source of information.
I owned a place in Manhattan Beach in the 80s and 90s, and had a great time in all the southern California cities, especially the towns around San Diego. So, when I started researching places to retire, I kept an eye on various communities in southern California, thinking I might want to move back (if I could afford to retire there). As a result I've been watching California real estate for several decades now.
At least once a decade something will happen that will kick off a lot of talk about a bubble bursting. Prices will drop somewhat, and then you'll hear all sorts of assurances that "the bottom is about to fall out any day now" and prices will tumble big time when that happens. Only it never really happens. Sometimes there are moderate drops, but soon enough the market recovers again. Two big reasons:
1. Why would people who have invested $$$ in their houses sell their home for a huge loss? That's wishful thinking on the part of would be buyers, but not likely to happen. Those who are in desperate situations sell because they have to--prices may temporarily fall because of this, and those are the people that make it look like a big drop is imminent. But after that wave is done, what happens is the big drop never happens. Instead, most people find ways to ride it out or maybe rent out the house until the market recovers.
2. Face it, people love the weather in San Diego. Plus, people are always going to want to live near the beach, especially near a beach town that isn't in a hurricane zone or prone to nor'easters. You might not think of San Diego as a beach town, but people who live in the midwest and eastern states who have to drive all day to the beach (or maybe drive for several days) do.
For these two reasons, I don't think there would be much of a bubble burst in San Diego. I wish there would be, because boy oh boy would I take advantage of it. But alas, it's not likely. At the same time, I agree with earlyretirement that what's been happening with price appreciation in the past year is not healthy.
Caladium- I know that my realtor certainly loved to tell me that about Zillow! It often has horribly inaccurate home values (their zestimates), but it is a good tool for seeing what kinds of houses are priced at what.
Or at least it used to be. That was the assumption I was working under until my realtor told me that her company, the largest Real Estate brokerage in Kansas City, wouldn't allow their listings to be placed on Zillow any longer.
In Kansas City, we had realtors practically begging people to list their homes due to such a shortage of inventory. It just didn't seem to make much sense to me. 3 years after the market was flooded with foreclosures, the city is talking about a historic shortage? Crazy. I would love to see research into the consolidation of wealth and assets as a result of the mortgage crisis. The investors that didn't get burned were able to put themselves in a fairly enviable spot.
anecdotally, it seems to me rents have gone up as well just since I started checking this spring.
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But alas, it's not likely. At the same time, I agree with earlyretirement that what's been happening with price appreciation in the past year is not healthy.
