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.