San Diego?s Real Estate Market to Have a Great 2nd Half of the Year After a Slow Start to 2011
The last couple months in San Diego?s real estate market have been fairly mellow. The transactions that were put under contract in the late part of 2010 and the very beginning of 2011 are now closing, yet total sales have dropped fairly consistently in terms of overall activity since last October. We typically see a lull in activity in February, as this is (seasonally adjusted) the slowest month on the calendar for real estate, however these last couple months have felt oddly sluggish. Why?
Some people point to Libya. Others chalk it up to the major earthquake in Japan. Yet some others take into account the larger socio-economic challenges that the US is currently facing with a recovering economy mired in debt. Does any of this stuff even matter? I think it has to at some level, but all real estate is local, and the absolute effects from Libya, the earthquake and the economy will be negligent in terms of the San Diego real estate market, however, it will have some effect on the overall consensus of the market, and the PERCEPTION of the buyers in the marketplace, which indirectly affect buyer?s overall thoughts and actions.
Take one look at any news channel?s program and you would think that the end of days is near. Prepare for the apocalypse, start hoarding water and foodstuffs so you can survive. It?s pretty serious stuff because you would be made to think that we are living in a country that is a sinking ship and we are all doomed. The Fear and Worry that is being spoon-fed to the general populous is sickening, but this topic is for another article altogether. What?s good to know is that a lot of good is being performed out there. The recovery is well on its way, and there are substantially positive outlooks with regards not only to real estate but the general economy as well. Certainly, the tough political issues we face are both challenging and immense, and they will no doubt have lingering effects for decades, yet I implore everyone to take a look around the world and challenge the fact that this country is still the best place to live, the best place to do business, and arguably the best country in the world. It?s so easy to get caught up with what?s wrong, when we should always be taking into account, appreciating, and not taking for granted what is right in our world today.
That being said, I have felt a momentum change within the San Diego real estate market over the past couple months, and when winter fully clears, and these global issues subside, and when most people realize that prices are great, interest rates are even better, and that buying a home is a solid financial move, this market is going to ABSOLUTELY POP.
Interesting studies were performed by Wells Fargo this last year to get an idea of buyer sentiment in the marketplace. The studies found that over 2/3 of buyers out there still believe that buying a home is a good idea and a sound financial decision even if the home was to decrease in value to some extent. In other words, the majority of people in this country firmly believe that the best investment on earth is?well? earth! That the majority of buyers feel this way is both exciting and predictive of a shift in overall thinking and consensus of buying a home in this market.
Nationally, things are looking OK. In San Diego however, things are only looking better. Since we were one of the first cities that corrected going into the recession, it?s easy to see that we would be among the first to come out strong. San Diego has an economy that is balanced with several well paying industries that employ the jobs that substantiate the values for local home prices. We are bolstered by a thriving telecom, biotech, and computational industries that were nonexistent 15-20 years ago. The defense and aerospace industry companies here are as strong as they have ever been, and tourism has really come on as a backbone that supports this local economy as well. On top of all of this, San Diego is the depository of the largest military presence in the entire country, and we are truly fortunate to have these revenues coming in as a result of our military proclivities that benefit all San Diegans in many ways, not just real estate related.
San Diego has a strong demand for housing because of these growing industries, and as the job sector continues to grow, and demand for employment increases, the market for housing will improve along with it. In fact, San Diego job growth has been positive and growing consistently, and is now at a 5 year high, at the same levels since before the recession.
Unlike cities built in the desert (like Las Vegas and Phoenix), there is very little build-able space remaining in San Diego County, and as a result we have a limited supply of land on which to build new housing. Now, here is where it gets interesting. Because we have a growing economy and a growing population, and because there is no real large tracts of land left to build on, and because there has been literally zero new construction created since the downturn in the economy, and because prices have decreased on average 25% from their peak, and because interests rates and the cost of money has been trending at 30 year lows, and because there IS NO SHADOW INVENTORY OF SAN DIEGO REAL ESTATE being held by banks, this city and county is poised to recover quite nicely over the next couple years.
If ever there was a perfect storm ? a perfect opportunity where a buyer could get in on the bottom floor of a recovery and ride the wave of ownership to financial independence, I believe this is it. The consensus of local industry professionals is quite good for the future outlook of this city and the real estate market. Yet, it seems after taking into account all of these macro-economic phenomenons that are currently in process, the market still finds itself in a lull.
Personally, if I am a buyer right now in this market, I can make aggressive offers and get a good deal without having to manage too much competition. This will all soon change. The fed will stop buying debt which will move to run up interest rates, and the inflation that they have been worrying about will begin to settle in ? although most people dont understand this enough to act on it now, they soon will once the higher prices and higher cost of money effects buying power.
There is a herd-mentality for buyers in real estate, and this was showcased especially in the running up of prices when they peaked in 2006. The same thing holds true today ? when a friends asks me how I doing (in business) and I respond with ?things are great!?, they then reply, ?wow?in this market?!?? I?ve often wondered why this is, but now I know that It?s because the herd thinks the market is supposed to be bad. Don?t be a part of the herd!
Understandably so, most people think that the market still sucks, and that is why in San Diego we have seen this 3 month lull in activity from the past couple months. Surely people believe in the value of home-ownership, but they think that this particular market ? right here ? right now ? is not great. This is the herd mentality in its quintessential form.
Once common consensus is reached that we have fully recovered, it?s easy to see how quickly prices will increase and this overall economy improves because real estate is the straw that stirs the drink of this economy, and everyone will tend to want to get into the game and gravitate back to real estate. Evidently all the prerequisites for a market recovery are coming into place. The question is, what are you doing to take advantage of the opportunity at hand today?
I wrote an article last year about the prediction for the 2011 San Diego Real Estate Market and how I felt that by the end of the year, we would end up in a positive single-digit growth percentage rate year-over-year for San Diego as a whole. My main concerns that would hinder a full-blown recovery were Unemployment, Excess Inventory, and People?s Perception of the market as a whole.
As I mentioned earlier, signs are truly positive with respect to San Diego employers as job growth is at 5 year highs. With regards to excess inventory, 2011 will be the year of the short sale for San Diego, but there is NO SHADOW INVENTORY in San Diego from past foreclosed properties. Foreclosed homes represent 1 of every 10 home sales in San Diego. Foreclosure activity is down over 30% from last year, in which 2010 was a off year from the foreclosure activity peak from the year before. Banks are not holding homes in San Diego. They may be elsewhere but not here. The excess inventory will be fully absorbed as a result of the growing demand and supply limits from the lack of new construction in San Diego over the past couple years. That leaves us with people?s perception of the market. This is the last piece of the puzzle that needs to be addressed. The local and national media does not help with this either, but the internet and social media will really come into its own and allow a clear message to emerge: that San Diego real estate is for up for sale and the opportunity at hand today is simply amazing.
This dynamic will not last for long, and it?s the herd mentality that is slowing the majority consensus that buying a home today is not only a good financial idea; it?s also a great opportunity, and needs to be acted upon sooner rather than later. Opportunities like this have only come a few times in the past several decades. This one so happens to be my generation?s opportunity to really take hold of one?s financial future and lay claim to financial independence and well being for our children and our retirement.
My hope for you is that if you are able to act, that you do so. If you are unable currently, then you work towards getting into a position to do so as quickly as you are able. This window is open, but not for long. I hope that you can make this market work for you in the best possible way.
Michael Wolf is a Realtor, GRI and author of ?The First Time Homebuyer Book? and currently practices in the San Diego area. His company is Ascent Real Estate, and his business partner and wife Jessica are located in Bankers Hill. Michael and Jessica specialize in San Diego county real estate, with emphasis in Foreclosure and Short Sale distressed property. Aside from residential purchases and sales, Michael and Jessica have helped several investors with multi-unit and commercial residential income investment properties. Their team represents a passion for service and follow up that cannot be out done. contact him at: wolf@ascentrealestate.net
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