California Real Estate Prices Soar! - What's Next Nationally? What's Next for San Diego?
Everywhere in the news today, talk is of the real estate market rebound, its impressive performance in many areas, and
WILL IT CONTINUE and
WILL IT LAST? What people really want to know is is this a good time to buy real estate or is it a good time to take profits and sell? This discussion addresses these questions on a national level and with regard to San Diego, California, as a case study.
IN THE NEWS.
Real estate is definitely back in the news in a favorable light, after several years of reports of doom and gloom, homeowners being "underwater" and the mounting numbers of short sales and foreclosures - both in California and Nationally.
CHANGING TIDES.
The tides have changed for many markets and so has the tone of the news reports - FINALLY!
Bloomberg reported on June 17, 2013 in its headlines that "California Home Prices Up Most in 33 Years, Realtors Say." Many other news sources have also been reporting about the real estate rebound.
WHAT IS NEXT FOR HOME PRICES?
The truth is nobody
really knows what will happen with real estate values, either in California or with national real estate markets. What we can do is look at those factors, which have historically affected real estate prices, and make an educated guess, an anticipated determination or prediction of the direction of property values.
WHY AND WHAT MAKES PEOPLE BUY REAL ESTATE?
It is helpful to know
why people buy, and
when and
where people buy. In my experience, everybody wants what everybody wants - and nobody wants what nobody wants. Currently, people seem to want to buy properties - houses, condos, multi-unit and vacant land.
The
California Association of Realtors identified the top reasons
why people are buying property in California in today's market. 33.7% of those polled believe real estate is a good investment and with good profit potential. Approximately one-quarter like the discounted prices. Almost 10% want to take advantage of the historically low interest rates.
Just over 5% of the people who responded to C.A.R.'s poll are buying property for
personal reasons. Again, from my experience:
- people prefer owning their home over renting,
- they enjoy the tax benefits of owning real estate,
- they wish to secure their financial future with home ownership or with real estate investments,
- many have received a promotion and wish to up-size or buy an investment property, or
- there has been a change in the family, such as a new baby or perhaps a family member has moved out to attend college or to get married.
And finally, on the list of the top five reasons for buying now, is
location - not surprising that this factor made the list.
Below is a discussion of a primary factor in any debate regarding real estate -
LOCATION.
Please bookmark this article and check back as further considerations will be discussed, such as those listed below.
WHAT WE DO KNOW - LOCATION, LOCATION, LOCATION!
What we do know is what we have always known about real estate, and a primary consideration for any question about real estate, are those
3 magic words - LOCATION, LOCATION, LOCATION. That remains especially true in today's market as well.
Real estate markets, and whether they are appreciating, depreciating and how rapidly they are going up or down in price is very much localized. This means, it depends on what area of the United States you are concerned with:
East Coast, West Coast, Midwest, the
Mountains, the
North or
South.
In comparing locations, we must also consider which
state you are looking to, the
city and the
neighborhood within this city.
Generally, states which appreciated the most and the fastest during the last period of appreciation, from the late 90s to 2006, fell hard and have bounced back quite substantially. That same generalization could be said for cities and neighborhoods within cities, which have appreciated and dipped and subsequently rebounded.
But, I would reiterate my main point here, and that is that ALL real estate markets are localized and cannot be generalized with much accuracy. There
are rules or generalizations that can be made, such as those made below. But, as a caution, there are also exceptions and exceptions to these exceptions.
SOME LOCATIONS BECOME MORE DESIRABLE.
Some cities are entering a period of Renaissance, whereby they are finally being discovered or rediscovered by the nation or even the world and are now seen as more desirable cities in which to live, to invest, to retire, for second homes or for rental properties. Other cities are continuing their Renaissance period where they left off before the real estate market took its dip in terms of prices and desirability.
CASE STUDY: SAN DIEGO, CALIFORNIA.
One example of a city experiencing its Renaissance is the city I call home, San Diego, California. In 1987, when I moved here to attend law school, this town was primarily blue collar, hugely military and a sprinkle of aerospace and ship-building.
This little town has grown up since then and is considered by many to be a world-class and cosmopolitan city.
SO MUCH TO SEE AND DO.
Personally, I love Balboa Park (my backyard), the ocean, the beaches, the bay, as well as the diversity of people, communities, properties, topographies and climates.
In San Diego, we enjoy the ocean to the West and the valleys, foothills, mountains and deserts to the West of the city. Each of these areas enjoy their own weather systems or
micro-climates, as we call them. The cool Pacific Ocean acts as our natural air-conditioning on the coast, with its steady and cool breezes, which also keeps San Diego's weather moderate in the winter seasons as well as in the summer seasons. The desert enjoys the warmer breezes ... with everything in-between. The mountains are quite warm in the summertime, but it snows in the winter. Sometimes you must hurry up to the mountains if you want to experience the snow because the warm Southern California suns melts the "fun" rather quickly.
Each area also offers their unique outdoor 365-days a year activities, such as sailing, surfing, whale and dolphin watching, snorkeling and scuba diving on the beautiful Pacific Ocean. We also have amazing hiking and biking everywhere, with streams, lakes and, yes, waterfalls in the back-country areas and sledding, mountain climbing and skiing in the mountains.
A GROWING DIVERSITY OF EMPLOYMENT OPPORTUNITIES.
This little town is no longer restricted in its industry. Firms includes medical research companies, cleantech, biomedical and biotechnology and a Silicon Valley-like area we call Sorrento Valley, which is the address to many successful high-tech start-ups and technology giants. San Diego also serves the software, telecommunications and security sectors.
The military and defense maintains a strong and prominent presence here, as well as ship-building and repairing. Oh, and increasingly, San Diego is a destination for multiple cruise ships, with its natural harbor - one of California's five major ports of entry.
A CITY OF GROWING CULTURE.
Although, some still maintain the opinion that this town doesn't have the culture of a world-class city. But, I believe, most agree that cultural opportunities are growing and expanding as the city does the same.
The cultural diversity also continues to improve as the demographics grow and vary. San Diego is overwhelming the choice for international visitors and investors from Europe, China, Brasil and Russia.
San Diego is home of the
San Diego Padres and the
San Diego Chargers. Soccer is huge here and growing in popularity at a quickening rate! This is home to the
San Diego Zoo and
Wild Animal Park Safari and
SeaWorld, as well as other parks and recreation destinations.
San Diego also supports its live theater, big-screen film industry, opera and symphony. The
La Jolla Playhouse Theaters and
The Old Globe Theaters, each having three theaters, oftentimes debuts performances, which end up on Broadway and earning multiple Tony Award nominations and wins.
San Diego has always boasted forever beaches perfect to suit anyones' particular tastes from hippie to yuppie, party to serene, and even clothing optional. The beach communities are an incredible boost for the tourism industry and appeal to the "Hollywood-types" who like to escape the LA jungle with just a 40 minute flight or an-hour-and-forty minute drive South. Many tourists and movie-stars buy and maintain homes and investment properties in San Diego.
Opinions and tastes differ, but the fact remains, people love living in, visiting, investing, conventioning and moving to San Diego.
SAN DIEGO HAS NATIONAL AND INTERNATIONAL APPEAL.
San Diego is close enough to Los Angeles, but does not have the traffic and congestion that LA experiences -
not even during rush hours. Gone are the days although, when you could get to any part of San Diego in less than 20 minutes, pretty much no matter in which part of the city you needed to be. But again, the traffic moves here, albeit slowly if there is a major occurrence on the freeways.
San Diego's ever-expanding International Airport, located 3 minutes North of downtown makes it easy for jet-setters to skip off to other parts of the country and world or those from other parts of the world to land close to the postcard-perfect, picturesque city for an extended weekend of fun, activities, culture and relaxation.
There are many other cities throughout the U.S. which are also increasing in their desirability for people relocating, investing, retiring or in search of a second home. Atlanta, Georgia and Austin, Texas have also been on this radar. Detroit, Michigan, once a business and cultural mecca of sorts, is being rediscovered and shows signs of recovery after a long period of abandonment and neglect.
The desirability of an area greatly affects its real estate values and whether the market can maintain a sustainable level of appreciation of its property values.
Increasingly, people are putting their money to work in these desirable cities and neighborhoods and buying homes, condominiums, multi-unit properties and wonderful estate properties while prices and interest rates are discounted.
OTHER CONSIDERATIONS
NOTE: Please bookmark this article and check back as these consideration will be discussed further.
Other considerations are:
- Mortgage interest rates - generally, appear to be on the rise.
- Mortgage lenders' willingness to lend - generally, are beginning to show signs of becoming less restrictive and more reasonable in approving home loans.
- Percentage and trends of equity sales versus distressed sales (foreclosures and short sales) - generally, equity sales are trending up and distressed sales are trending down.
- Supply and demand - generally, extremely location specific.
- International supply and demand - generally, extremely location specific.
- Employment opportunities created and being created - generally, extremely location specific.
- National consumer confidence - generally, extremely location specific.
- International consumer confidence - generally, extremely location specific.
There are also numerous sub-categories within the above considerations. For example, when considering demand, one must also consider the cost of renting and its short and long-term outlook. If rents have increased sharply and are expected to continue in that direction, you can be certain that more people will be looking into buying a home to avoid these rising rents.
As a further example, there has been a lot of talk of lenders' unwillingness to lend lately. They have been, understandably, denying mortgage loans to those with challenged credit scores and those with little savings for down payments, closing costs and for emergency reserves. However, buyers with good or fair credit scores have also unreasonably, in my opinion, been denied loans since the tightening of lender requirements. There seems to be a shift in this trend.
Recently, the conversations have shifted to loosening credit to allow more approvals for buyers who would like to secure loans to purchase homes or investment properties. This is expected by many to initiate a further wave of demand and thus further pushing up prices in desirable markets. This must be balanced with an eye for reasonable regulation so as not to repeat the last mortgage mayhem.
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Mark Harbaugh, J.D. has been a licensed REALTOR® in California since 1998. He is a real estate Broker, holds a Bachelors Degree and a Law Degree.Since 1998, Mark has been providing expert representation to buyers and sellers of homes, condos, multi-unit properties and multi-million dollar estates. His clients include friends - old and new - colleagues, professional football and basketball players, original founders of Fortune 500 companies and other high-profile personalities, who value their privacy and anonymity. Mark has also consulted Nationally and Internationally with many interested in buying and selling real estate.Mark can be reached at 619-246-2860.Email: markonthemark@gmail.com
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