Where is this market going

Question

Having been in San Diego my entire life I am perplexed by the rapid growth over the last year. Hot does not even begin to describe it. My daughter is interested in buying. I understand that it is a sellers market. The competition is tough on a property. How long will this run last? Nobody knows for sure. I thought I would post and see what the experts here see moving forward. I am set personally and market up or down does not really move me one way or another. Thanks

Glen

Dan H. · Answer

In addition to the UT article, Zillow also showed a slight decline last month for YOY for San Diego county. It could be that we are about at the local plateau when it comes to San Diego RE prices. Note each of these local plateaus get eclipsed as some point in the future.If your daughter purchases now, she should not be expecting the appreciation of the last almost 10 years. If she gets it, great. I think the more likely scenario is the next 5 years appreciates about the same as the inflation rate.In reality no one know. 1.5 years ago I was recommending increased caution due to the uncertainty of COVID. I still believe it was a good recommendation, but we know in hindsight that virtually any purchase done at that time would be up significantly.If she plans to live in the house at least 10 years, the house is likely to be better option than renting. At 5 years in the house, there is some risk that renting is the better option. At less than 5 years, renting will likely be the better option due to rents being below initial purchase costs (purchase costs, maintenance, cap ex, taxes, insurance, etc.) as well as the costs associated with selling.Good luck

Mark Frattini · Answer

@Glen GalloAccording to months of supply, days on market and median sales price San Diego has been a sellers market for ~10 years. What we didn't expect is for a black swan event to make the market exponentially unbalanced in the sellers favor. Most of this is not specific to San Diego. It's happening all around the country. The good news: We did finally see a tiny dip in prices for July and a slight uptick in days on market. Things are definitely way different than they were earlier this year. There is much less competition on the buy side of the transaction. Some properties are only getting a handful of offers vs. 20-40. I am having much better success getting offers countered/accepted than just a few months ago. I don't expect to see a significant drop in prices especially with historically low interest rates. Now that kids are back in school it can be a good time for your daughter to start looking again. I send out weekly emails that discuss the local market in detail if you're interested. Take care.

Maxwell Ventura · Answer

@Glen GalloSupply & Demand tells the story. Although we're up from .7 MSI (months supply of inventory) to 1.0 as of the most recent data, we're still in a predominantly sellers market. Things have softened a bit over the last 6 weeks. Slightly longer market times, less offers on property, and slightly more inventory. To address your comments above, SD's economy is bringing in tens of thousands of tech & life science careers over the next decade. It's no wonder we've had a surge of these industries coming to SD over the past 14 months from the Bay area & the rest of the Pacific northwest, Boston, NY, and even Texas. Two thirds of people coming to SD have a bachelors degree or higher. We are continuing to become younger, richer, and more educated. Now that our economy is really making leaps and bounds you can easily make an argument it's the most attractive place to live in the US, considering everything else SD has to offer. I believe we are San Francisco 2.0. The demand is through the roof, and as long as the supply stays low (which it is forecasted to remain so relative to our population for the next decade) we should stay in a similar market moving forward. I don't except to continue to have appreciation gains as we've seen over the last year. It's simply not sustainable. However, we're still nowhere near some of the most expensive city's in the US and I would expect the top 1% to continue to flock here. Hope this helps.

Jonathan Minerick · Answer

Good question - article in the Union-Tribune this morning: https://www.sandiegouniontribune.com/business/real-estate/story/2021-08-18/san-diego-home-price-drops-for-first-time-in-months-why-it-doesnt-mean-much

Thom MacFarlane · Answer

The supply of homes available for sale have increased (slowly) but the demand for San Diego housing is still exceeding supply. At present I don't foresee any changes to these dynamics. Low supply, high demand and low interest rates are fueling the valuation increases. Even if interest rates increase the supply is still not there to meet demand. Your daughter should continue home shopping and hopefully score a home as there isn't any price easing in sight in my opinion.

Stephen Bernard · Answer

@Glen Gallo In a more normative approach to the data, it's always a good time to buy. The trick today, especially in our local market, is to not put money in above the actual value of the house-- that's taking a bet on equity does not yet exist, like spending the money you plan on earning. For some, that risk makes sense; for most, it doesn't. I doubt we will see a decrease in housing prices, as those above have reinforced, the demand for housing has remained and will remain higher than the supply. If nothing else, the buying power of the individual will decrease as mortgage rates increase. We will also see appreciation slow, but not stop.All said, for your daughter, definitely compete in the market. There are deals to be had. Just run the numbers and submit offers that make sense. It may mean multiple offers, it may mean evaluating and reevaluating 'wants' vs 'needs', but it will mean a sound purchase of SOCAL real estate.

Jason Mileshko · Answer

Well... it certainly can't last forever, the question is what is your risk tolerance and long term goal.