The correction in the San Diego housing market has been extraordinary over the past 12-18 months. It has taken some by surprise and rewarded homeowners who have weathered the market correction of the last 8 years, as well as those who took risks and entered the market in the depths and despair of the market recovery. local.
A home that was bought for $ 300,000 in 2011 or 2012 would now be worth around $ 450,000 in 2014. This is due in part to an excessive market correction in the first place, but also in part to long-term real value. shortage of real estate prices; There are simply not enough homes to buy and the demand far exceeds the supply.
This article identifies what happened in the last 12 months and what to expect in the next 12.
The San Diego housing market started out incredibly strong in 2013, but sales hit an air bag once it became clear that the Federal Reserve’s intention was to reduce its monthly purchases of securities (also known as Quantitative Easing) to mid 2013.
The market was ON THE GO for the first six months of the year, but earlier-than-expected talk of “phasing out” by the Fed sent mortgage rates skyrocketing to 5% right in the middle of the key season of home purchase. Until that point, prices were rising each month at a rate reminiscent of the peak / boom years of 2004 to 2006, and when rising interest rates were combined with higher home prices, many potential buyers suddenly developed a case of coldness, which led to a slowdown in sales of new and used homes. (source: Wells Fargo)
At the same time, would-be home sellers saw houses on the street selling for prices they couldn’t believe. The market price of San Diego has fallen brutally since the great recession began in 2007. Some areas of San Diego experienced a 60% decline in the value of their real estate due to the huge amount of short sales, foreclosures and distressed properties that were a cause and effect of the recession. Many people lost their homes or made a short sale to the point where nearly 40% of the market between 2009 and 2012 was emergency market sales. There was a lot of fear and uncertainty throughout the market and the economy, both locally and nationally; Ironically, this was the best time to buy real estate.
At the height of the market in 2005-2006, there were about 5,000 homes on the market, and at the time people thought it was an incredibly low number of homes for sale. This number includes all homes and condos throughout the county, from the $ 50,000 condo in El Cajon to the multi-million dollar mansion in Del Mar. Buyers clamored for every property that hit the market; there were offers written on the hoods of the cars and a frenzy of bidding and demand. This was the mindset that, coupled with lax loan requirements, created the momentum for prices to rise as much as they did. We all know what happened after that.
Fast forward 7 years later and we are fully in recovery mode for 2013 in the San Diego market. As of April 2013, there were only 4,000 homes available in all of San Diego. This was a ridiculously low number of homes available for sale, even less than the 2005 market and at this time there were a lot more people and a lot more homes developed and built since 2005, making it that much more significant. Also at this time, mortgage rates were at record lows at the low 3%. (source San Diego Association of Realtors; Dataquick)
This time around, lending standards are strict and only buyers with good credit can buy, allowing for a more sensible approach to the market compared to the hype that preceded us in the boom years.
It was this environment of unbelievably low housing supply combined with unbelievably cheap money to borrow that drove the market red-hot in early 2013. It was only when prices rose rapidly throughout the year that interest rates began to rise. increase as a result of the general improvement in the national economy, as well as more announcements reaching the market where things started to change.
All homeowners who bought at or near the peak of the market, and who bit, fought and scratched to stay in their home and make payments and avoid foreclosure or short sale no matter what adversity they faced now realized a market where prices were back where they originally bought, and they were finally able to get a chance to sell and get out of the house that turned into a ball and chain.
Take, for example, a young couple who bought North Park in 2006: They bought their home, a 1,000-square-foot 2-bedroom, 2-bathroom residence for $ 625,000. They hoped to live there for a few years, save money, build capital, and then buy a bigger house where they could raise a child. Their mortgage is at 6.25% and they owe almost $ 550,000.
In 2011, your home is worth $ 425,000. They have a 2 year old son. The house is too small but they cost $ 125,000 underwater and $ 200,000 below what they originally paid for. This was the point where many people cut their losses and made a short sale or let the property go to foreclosure. However, this couple had a good $ 75,000 of their own money in the house and they would be doomed if they let that house go. They met their maturity, and now, in 2014, that house is worth $ 625,000 again. Now they can sell and carry the proceeds to a newer and bigger home so they can continue to build their family. There are many, many families like this in San Diego who just 12 months ago were nowhere near having the upgrade options that many salespeople have now. This, as well as record prices, prompted many new sellers to put their home on the market in mid to late 2013. The number of active listings increased to 8,000 properties, doubling the number for sale just a few months earlier. .
Rising interest rates, prices, and available properties served to liquidate the market in 2013 from its red-hot start.
As we move into winter, mortgage rates fell to less than 4.50% and employment conditions improved. Lots of listings were sold and demand picked up a bit towards the end of the year.
The total amount of transaction volume was the highest since the peak / boom years. Your average condo increased by 30% and your average home increased by almost 20% in value. By all accounts, 2013 was a banner year for real estate and homeowners’ net worth. (source voiceofsandiego.org)
We remain in a market with limited supply and this will continue for years to come. This is partly due to so many consecutive years in which no new properties were built or developed. Nationwide, the US needs to build 1.2 million homes to keep up with population growth and replace properties that are no longer habitable. Between 2007 and 2013, an average of 350,000 homes were built, leaving a housing deficit of almost one million homes over 6 years. This is why we have a housing shortage today, and we will continue to have a housing shortage for years to come as we build, develop and grow to achieve a full recovery. A typical market in San Diego would have between 15,000 and 18,000 homes for sale at any given time. Last April 2013 there were only 4,000. In November it was almost 8,000. As of January 2014, we have less than 6,000. This limited supply market will lead the San Diego real estate sector for the foreseeable future, as we cannot build new homes like it does. like Phoenix or the Inland Empire. Rather, we must resell our way out of this housing shortage. As long as we have a shortage of supply, we will continue to see prices rise to meet market demand. (source buffiniandcompany, yahoo news)
Rising home prices will encourage more homeowners to put their homes on the market, adding much-needed inventory to the market. As a result, the real estate industry appears to be generally optimistic for 2014. Homeowners also appear to be more optimistic.
With all this in mind, I expect prices to continue to rise throughout 2014. The level of increase will be tempered by rising interest rates and the fact that the government will not support the housing market as much. as they have been in years past.
2014 will be one of the most balanced and normalized markets of any year in the last decade. We will see prices approach and exceed the peak values seen in 2006 (if they haven’t happened in your neighborhood yet).
Rising buyers have the best chance of making a move this year; Up to this point, it has been the bottom of the market that has fully recovered, pushing its way up the affordability ladder to allow for more mobility for more expensive homes and potential. salespeople (including the North Park family example) and salespeople who have been waiting on the sidelines now have a great selling environment to take advantage of.
Many analysts predict that San Diego will see an appreciation in the 10-14% range, but I think we will see a more modest 6-9% improvement because the big moves have already been made and we have “corrected” the overcorrection.
However, the market and our economy are doing quite well as we move toward a long-term, broad-based economic recovery. For a wonderful and successful 2014.