Thursday, August 14, 2014

Don't believe me. Believe San Diego.

San Diego real estate cools off: Will rest of California follow?

California is often seen as a barometer for the rest of the nation's housing market. If that is the case, then housing this fall is not looking good. Southern California home sales fell to a three-year low in July, according to CoreLogic DataQuick, a research firm, with San Diego leading the way.

San Diego sales volume fell 18.5 percent in July from a year ago, a far deeper slide than the rest of the state. Prices are still higher than last year, but the gains are easing. The median price of a San Diego home hit $445,000 in July, up 6.6 percent from a year ago. The streak of double-digit annual home price appreciation in much of California ended in June.

You know what could really help this problem? A rise in interest rates.

1 comment:

  1. A couple of thoughts on this one. First, lets address the lavk of double digit returns. This statement is a bit misleading because it's only looking at appreciation. I'm not sure what the rents for $500,000 homes are going for in your neighborhood, but lets ballpark it at $2,500 per month since I know that wWe're getting $2k per month on $250k homes in Antioch. With $30,000 a year in cash flow you're looking at a 6 percent yield. If you assume that it sits empty 2 months and you spend $5k on improvements, you're still hitting close to double digits in total return.

    My second thought is that you can't really use San Diego as a proxy for the larger housing market. Once a home hits $500k, it takes a huge jump in income for people to take it to a million. Going from one million to two is an even bigger jump. Taking a house from $200k to $400k doesn't require as much of an improvement in wages. The majority of the country can continue to see robust returns without $300k salaries. It's natural for things to start to taper on the high end after so many years of gains. That cash flow from the rents isn't jeopardized in the meantime.

    Finally, from an antedoctal perspective (since I know you love these things) in the last year, I've seen bay area traffic get worse and worse. Yesterday, it took 3.5 hours to go 45 miles in the middle of the workday. Today, I spent 4.5 hours to go 150 miles with no stops. That's basically 35mph the whole way. I wasn't hear for the dotcom boom but know that traffic was used as a barometer for the local economy's health. If traffic kerps up like this, I could see someone justifying a huge increase in their mortgage payment just to cut their commute. I'm nit sure hoe to quantify this antedoctal evidence, but my gut tells me homeowners have nothing to worry about for the foreseeable future. DF