In the 92107 zip that I track closely, the 1.2m+ range was slow 2012-2015 even as the mid to low end of that market was very hot. In mid-2016, the high end joined the rest of the market and you started seeing lots of sales in that range, and average time to sell $1.2m houses go pretty suddenly from ~6 months to 1.5-2 months.
June 30 saw two different $2.5m sales in one day, one a tear-down and new construction, the other one a 1912 7,000 sf mansion that had been on and off the market for years.
As for inflation, I disagree that it is higher than what the government reports. People have a cognitive bias where they remember prices that are going up better than prices going down. A number of private efforts to measure US inflation all come very close to the official US Gov number, which itself is one of several measures that are all pretty close to each other (CPI-U, GDP deflater, etc).[/quote]
You could be right regarding high-end properties. My only evidence is based on looking at Redfin. I live in Bay Ho, and there are not many houses for sale (all under 1million). When I scroll across to La Jolla there seem to be lots and lots of houses for sale (all above 1 million).
I always judge inflation studies with a little suspicion after reading “The 2 income trap”. I guess Warren convinced me that ‘necessities’ have outstripped the published inflation rate: such as utilities, housing, education, healthcare and childcare. Whereas ‘wants’ such as cars, fast food, restaurants, and consumer goods have all been in deflation.
As far as normal, usually if everything else is in balance, real estate prices should track increases in personal income.
As there have been so many extraordinary factors in the SD market in the past 20 years, there has been excessive volatility which has created both massive wealth destruction and creation.
So when I say normal, which SD will likely never be completely, its more like what would it take for the market to be driven entirely be fundamentals such as incomes/rental values and not speculation or a reaction to short term rates.
If speculation and low rates play a lesser role, then things are more normal.
Some markets go through long periods of stagnation after long periods of increases.
I spent years in Germany in the early 90s and recall how prices were increasing greatly there only to stop in the late 90s and not move for over a decade.
Prices in Berlin got really cheap at 5 times annual rent around 2004-05.
Now, they’ve almost doubled again. That was partly driven by capital flows out of Germany to other parts of the EU prior to the financial crisis.
The closest comparison I can think of in the US would be for investors to realize the cash on cash return (non appreciation) is so much higher in other parts of the US that the market in places like SD becomes more focused on the owner occupied rather than investor crowd.
The graph does not mention San Diego nor do I intend to imply that 2017 is/was normal. But it is normal for real estate to go up and then down. We are in a similar situation as 2005, when people thought it couldn’t keep going up and yet it did until it didn’t anymore. Rates are obviously much lower now than they were then so things could continue on for some time possibly.
I’m in real estate. There’s definitely buzz about resetting home mod loans defaulting. This could bring some more inventory to the market. Definitely building inventory in the above average home price here. And plenty of higher end luxury homes to choose from (buyers market). There is a shift coming to this area, not sure how SD will play out but personally don’t see how the sunshine salaries are going to keep the housing market so propped up. Love to hear different points of views on this.
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