San Diego Real Estate Feeling “Bubbly” Already?
Here’s some good commentary from local real estate experts Fidelity Pacific in San Diego:
“In February San Diego home prices surged up and increased over last year by almost 20%. All home size ranges increased by double digits except for the 2500 to 2800 sq ft range which increased by about 4%.. Since October the San Diego housing market has had ever increasing double digit year over year price increases. This is long enough a period to establish a trend and by any rational evaluation this would be a price bubble. The causes of todays’ price increases is different than the past bubble period but the result is the same. In the earlier bubble the demand was stimulated by sub-prime mortgages and the overall lending practices in general. Today, at least so far, lending has been tighter but the demand is being stimulated by artificially low interest rates. The issue becomes will the result of different forms of artificial stimulation end in the same result?”
The Fed might just get their “wealth effect” after all. I am sure it will end differently this time. :-)
Cullen Roche
Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.
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11 Comments
San Francisco is already bubbly. Bids of 30%/300k over list are common, with 30 offers.
I’m in San Francisco too. This is happening in many, many areas around the country. I was convinced prices couldn’t come back like this because debt to income and debt to equity is still so high – but I hadn’t taken into debt PAYMENTS to income and equity into consideration. The fact of the matter is that low interest rates have brought affordability down to levels LOWER than what started the last bubble.
What’s more, those with cash are pouring into RE markets – and that includes foreign buyers trying to protect their wealth. We SF’ers have been hearing about wealthy Asian buyers buying sight unseen in markets like NYC, but hadn’t seen a much of that here – well, that’s changing, they was just a sight-unseen bidding war on a multi-million property by two different foreign Asian all cash buyers.
So we’ve got two significant tail winds in RE right now – low interest rates, and a ton of cash chasing both yield and safety. My guess is we are repeating the 2003 thru 2008 period all over again, and we’re in 2004 right now. If this does continue, then yes, we’re inflating the bubble – which of course will have much the same ending as the same one, except this time what can save us? 2% mortgage rates?
really need an edit button – I sound like English is my second language
“My guess is we are repeating the 2003 thru 2008 period all over again, and we’re in 2004 right now.”
What if we are really in the middle of 2006? I am becoming concerned that the process is much further along the timeline than 2004 because prices have risen so fast….I hope I am wrong…
I say 2004 because affordability leaves a lot of upside from here. And there are all kinds of other trends that are early and/or in the right direction – jobs are continuing on the upswing which means more buyers. Loan criteria is still very tight, but only starting to ease which will create even more buyers. If total debt increases we know that’s good for the economy (at least short term) which should help jobs even more. The stock market being up means access to cash for down payments.
Of course this all depends interest rates staying low – and I’m sure we can expect that for at least 2 more years. But the bottom line is I think you can keep track of affordability (effected by home prices and interest rates) to know when to get the hell out of the way.
I did say watch and learn.
My first invetsment in property was in a barn conversion in 1974 and I stuck with property right up to Nov 2007 albeit in different forms than that original small venture. Three major busts and some minis. Every time I hear and see the same thing,most of it crap ,because it always repeats the same mistake of failing to understand the basic psychology of people and their ‘caves’.
why is it that no one is calling the gas price in CA is a bubble? We just love $4 gas?
Pete,
I really did not expect this type of question from you. You can call gas an investment when people start to buy it and keep in barrels in the basement to flip in few months.
KB, the point I am making is that if the Fed is doing this QE thing continuously, a lot things are going up in prices., including wages, food, gas, college tuition, medical bills, others and selective real estate markets. I am actually sick of high gas prices. Flipping gas is a seasonal trading game by the big players, not really an investment.
Keep in mind though that QE doesn’t actually change the equity on anybody’s balance sheet. There may be some distortion in asset prices (as you refer to), but QE is not free money distributed to banks or anybody else, and the Fed isn’t twisting anybody’s arm to sell… those people were most likely planning to sell their Treasury security anyway:
http://brown-blog-5.blogspot.com/2013/03/banking-example-3-capital-requirements.html
Do not include wages here, they are not going up just yet. When they will, it would be a different story.
Your point about QE is right, and, actually, many people do call current oil/gas prices a bubble.