For the first time since the mid-90s, San Diego County experienced a net out-migration from July 2003 to July 2004. So why are home prices going up? Because this real estate market is not being driven by fundamentals… yet.

The Union-Tribune today ran an article concerning the fact that, for the first time since the mid-90s, San Diego County experienced a net out-migration from July 2003 to July 2004 (in other words, during that period, more people moved out to other parts of the country than moved in from other parts of the country).

This actually is a bit of a non-event, real estate market-wise. As I’ve noted many times, San Diego’s real estate runup has had very little to do with population growth and everything to do with low rates, easy mortgage credit, and manic levels of homebuyer optimism. Whether people are moving into or out of San Diego is just not very relevant, because that’s not what this market is about. In fact, it is interesting to note that the market reached its very hottest at a time when San Diego had been experiencing a net out-migration for almost a year!

While this out-migration data might not tell us much about where the market is headed in the short term, it does serve as just one more nail in the coffin of the ubiquitous “everyone wants to live in San Diego” thesis. This theory, as you may recall, postulates that climatological conditions can override the laws of economics, as home prices forever continue to grow ten times faster than local wages because San Diego has nice weather.

Unsurprisingly, my perspective is not shared by those interviewed in the article. One economist, for instance, flatly denies that the out-migration data could be correct! How could there have been an out-migration pattern, he argues, when the housing market was so strong?

A SANDAG demographer disagrees, maintaining that the out-migration will only get worse “because the housing prices aren’t going down”–as if home prices will just keep rising forever even as everyone moves out of San Diego, until there is just one guy left who’s living in a really, really expensive house.

So, the first guy believes that fundamentals are driving the market. The second believes that fundamentals will never drive the market.

Both men are both mistaken. It is clear that fundamentals are not driving this real estate market—but it is just as clear they someday will. In the end, they always do.