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Updated over 8 years ago on . Most recent reply

San Diego- Bubble or Healthy Market?
Hi Everybody!
Newbie here trying to learn from the masters ;-)
I am curious about your opinions regarding the near future of San Diego housing market?
The prices in San Diego has been skyrocketing due to low inventory. Any good properties in trendy neighborhoods like North Park and Normal Heights are sold within a week after being listed on MLS.
The banks seems to be much more restrictive in the mortgage lending process (correct me if I am wrong ;-) And plus the mortgage rates are super low.
What do you guys think? Is San Diego a healthy market or a bubble is coming?
Most Popular Reply

Originally posted by @Dan H.:
I have invested in San Diego real estate for quite a few years and my family even longer. I have purchased near market highs and near market lows. Each purchase, except for the home I live in (purchased in 2004), has had a good to great ROI. In addition, when the market crashed the rents in my areas barely moved.
My point is that I do not pretend to know the current cycle or the short-term ROI from San Diego buy and hold. However, history tells me that the long term ROI for San Diego properties will be very tough to beat. A SFR that I purchased in 1992 near the height of the market that initially had over 10% depreciation has had a very good ROI. Look at the history. What is the appreciation of a San Diego home purchased 50 years ago? In 1969 my parents purchased a starter home for $19.5K that today is worth over $500K. Appreciation for a purchase 40 years ago? In 1977 my parents purchased a move up home for $72K that is worth over $700K today. 25 years ago? In 1992 I purchased a starter home for $167K that today is worth over $500K. 20 years ago? In circa 1998 (not sure of exact year) my parents purchased a duplex for $360K that is worth over $1M today.
5 years ago? In 2010, I purchased a duplex for $303K that is worth almost $600K today. Some of these purchases initially had some short-term depreciation.
History tells me that if I purchase a San Diego property today that in the long-term it is very likely to appreciate regardless of the cycle and any short-term depreciation. Therefore I do not try to time the market as much as find properties that provide an opportunity for instant equity (either via rehab, rent increases, or below market price) that at least comes close to cash flowing. If there were a property in my area of expertise that I could have 10% near term equity gain I would purchase it and not worry if the market depreciates greater than my near term gain in the short-term. The caveat is that an investor must be able to hold through a depreciating cycle (i.e. do not over leverage such that you will need to sell at or near the market low).
So the prices seem high, but I am still looking for good REIs in my area of expertise and expect in the long term any REI purchase that I do today will have a good ROI.
I completely agree ... and to echo what I think are the key points:
- Always be looking for a good deal. They are always out there, but they will never just fall into your lap, they must be actively found.
- If you find a good deal (relative to the current market) then buy it without too much worry about the market cycle, which are impossible to predict in the short term with any sort of accuracy as to when, where, and how much things may dip.
- If you do NOT find a good deal, do NOT buy, no matter how strong the market looks . This is essentially rule #2 applied in the opposite direction.
- As a bonus, rules #2 & 3 will effectively do your market timing for you, since deals tend to be more plentiful at market bottoms than they are market tops. Volatility can be your friend, not always your enemy, as it will allow you to pick up even more amazing deals when the market is cold than you would otherwise be able to do if there were no volatility.
- If and when you do buy, do it in such a way that you can stay in and hold through any short term down cycle that may occur and won't be forced to sell at the worse time. A good deal will insulate you to some degree from the short term market cycles, as will not over leveraging.
- Keep a long term mindset with your investments. Over the long term, San Diego has been a winner and will likely continue to be a winner in the long term future since it is a place where people want to and are willing and able to pay a premium to live, and housing supply is perpetually limited.