Hi gs,

I totally agree with you. 10 years ago, San Diego was a vacation destination with no traffic and smog. Now San Diego is a high tech hub with defense, wireless and pharmaceutical research and drug development. Daily commute is a struggle for everyone and you do not need to go to LA to see smogs.

IMHO, the price will drop (we already see a 10% drop) a little further. But I just can’t see a drop more than 30%. I also do not think it will be a quick recovery. I see at least 5 years to get back to the peak in dollar amount.

Just my 2 cents.

Back to my jungles 🙂

The “Glamor City” argument has been put forth more than once, and I wouldn’t necessarily discount it as a whole. However, what exactly is it we’re saying when we say that people will always pay a lot more to live here? That’s basically saying that the demand outstrips the supply and that scarcity and competition between buyers is driving the prices. Meanwhile, we have net outmigration as people leave town, and they’re doing this at the same time that we have an ultra-high standing inventory of listings, with more in the pipeline. Some people may perceive there to be some scarcity but these wage/population trends appear to be demonstrating otherwise.

A true glamor city holds its ranking (if not its pricing) no matter what. How do they do that? Well, there are only so many ways to pay for that expensive housing. One way is to grow their buyers for these price ranges in the local economy. Jobs, businesses and wages. San Diego has done some of that, but only at a small fraction of what it would take to service the types of increases that have occurred. New York and San Francicso have much stronger employment situations to support their price levels.

The other way is to import your buyers, who have made their money elsewhere and are looking for their destination. No doubt some of the money used for housing purchases in the last few years has been money earned or inherited from outside the local economy. Again, it doesn’t look like the number of imports coming in would even be equal to the numbers that are leaving.

These prices will seek their own equilibrium, and maybe that equilibrium won’t be as low as the long term trendline. Maybe the average buyer will buy into the notion that in order to live in this “paradise” it’s worth it to them to spend 50%+ of their annual income. Even though they can buy the same house in Riverside County for about 35% less. Even though they can rent the same house in San Diego County for 50% less.

I do know that two of the main “fundamentals” driving the runup were speculation and fear, and that the departure from the market of those buyers have already been big factors in our recent declines. Glamor may be in there somewhere, too; but the money to pay for the glamor has to come from somewhere. So far, the sources of that money are proving to be very weak.

Another (often overlooked) point: There IS a housing shortage in SoCal (and in NY and SF, for that matter). The fact that we have high inventory and few sales only tells us that prices are too high, not that we don’t have potential buyers.

Two facts: one, the ratio of population to housing units is much higher in SoCal than in the rest of the US (it’s worst in LA County). And two, the percentage of people who own their homes in SoCal is way below the national average. That tells us that there is a gigantic pool of potential buyers out there. Prices are too high today for most of these people to afford anything. But the presence of an enormous pool of potentail buyers should not be taken lightly. Even if the entire SoCal inventory would sell tomorrow, we’d still need a lot more units to reach the national average on homeownership.