San Diego Real Estate Professionals at eXp Realty

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Today a San Diego Union Tribune article entitled “Housing Called Undervalued” reported that the median price of all San Diego homes sold in the first quarter of 2009 was $327,300, which is 21.2 percent below historic norms. These statistics were compiled in a recent forecast by Global Insight, a financial analysis firm that has been consistently rated among the top-10 (often the top 1 or 2) economic forecasters in the world by MarketWatch, Reuters, The Wall Street Journal, and other reputable sources. Their research indicates that house prices are poised for a rebound. Local San Diego housing economists concur.

The Global Insight forecast evaluated home prices in the top 330 metropolitan areas in the United States. They found that recent price adjustments have overcompensated to the down side in most major real estate markets. The historical trend line determines the “normal” home prices by considering household income, appreciation, and affordability. Real estate markets are cyclical, and market supply and demand will naturally fluctuate above and below this theoretical norm. Market euphoria and tight supply leads to housing bubbles, while fear and excess inventory causes dips.

In 2005 the median price of homes in San Diego CA was $506,500, which was 40 percent above the historical norm of $327,300. Prices had risen dramatically from 1999 to 2005. The prior dip had bottomed in 1999 when house prices in San Diego were 21.9 percent below the historical norm. Today at 21.2 percent below the norm, the market is at the second-lowest level since Global Insight began keeping track. Orange County is only 10.9 percent below its historical norm of $457,000. Los Angeles is just 6.4% below its norm of $357,100. This suggests that San Diego has substantially overshot, and will likely be the first area in Southern California to experience a rebound.

Global Insight economist Jeannine Cataldi is quoted as saying “It’s definitely coming back…. [but] It depends on the home itself…. And the home is worth what someone is willing to pay for it.” Your San Diego real estate professionals agree. The old rule of location, location, location has proven to be very reliable in recent years. Beach houses in Del Mar, Rancho Santa Fe homes, and La Jolla Luxury homes will always be in short supply and in high demand from affluent people who can afford to live in those neighborhoods. But there are great opportunities to buy heavily discounted homes in every San Diego neighborhood right now, and bargain hunters are out in force.

Local San Diego housing economist Norm Miller at the University of San Diego agrees that the Global Insight forecast is soundly based upon market fundamentals. The Union Tribune quotes Professor Miller as saying: “We tend to always be moving toward the fundamentals…. When you see markets overshoot on the downside, they will head up.” He says that the Global Insight forecast is “as good a forecast as most” and “It does make sense in the long run that we will adjust in the other direction.”

Please note that the decision to buy a home or an investment property in San Diego, or anywhere else for that matter, should be based upon your own individual financial strength and comfort level. A big part of the problem in recent years stemmed from people overreaching for properties that they could not afford. No forecast can guarantee when or how much house prices will appreciate or depreciate. So only buy properties that you can afford to live in and/or maintain for the long run. Only then will you be making a smart investment in real estate.

5 Responses

  1. It would be great to buy a home on the ocean at this time!…sounds like great investments in San Diego…It is sad about the new Gay Marriage law… as I always thought California to be a liberal and open state… so many thing are changing in the state…

    Will be interesting to see how the values go over the next year…

    1. Beach homes in San Diego have come down in price in recent years, but beachfront homes have managed to hold their value better than most. It is the old rule of location x3… There is a very limited supply of beach property, and they aren’t making any more of it!
      California is still a very tolerant and diverse state, accepting and supportive of all people. You won’t find a more healthy mix anywhere in the United States. I don’t think that’s likely to change, even if people disagree over the legal definition of marriage. Thanks for your post!

  2. Nice article. My question is, how about the mid-range priced homes (700 to 130000). Have they managed to maintain their value in Del Mar, has their market value decreased? Or has in increased?

  3. total bs. just another entity picking irrelevant statistics to support a personal agenda. this article doesn’t even mention the impending alt-a option-arm recasts which will result in another massive foreclosure wave affecting higher priced areas than the subprime fallout did. sd won’t see a bottom until 2011.

    1. Perhaps that’s right Dan… But the median price of homes in San Diego CA has increased consistently over the past 5 months. That will likely be 6 months when the statistics come out for June. The entry level has clearly found support, with upward pressure on prices. The upper end is experiencing downward pressure due to tight lending requirements for jumbo loans. Also, the banks and appraisers are working together to lower property values. Appraisers who consistently overvalued upper-end homes from 2000 to 2006 are now consistently undervaluing the properties, perhaps in expectation of future events along the lines of what you suggest. But the market otherwise seems willing to pay higher market values if permitted to do so… which it isn’t thanks to the risk-averse banking sector.

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