All San Diegans should consider reading the Money Magazine article entitled Boomtown USA to get an understanding of what’s happening in our city. The article concerns San Diego’s multi-year housing runup in general, but in particular it spends a lot of time detailing the resulting perceptual distortions on the part of our citizenry.
Homeowner after homeowner is interviewed with the same outcome: each has made a bundle in housing, and each is positively champing at the bit to leverage his or her profits to the hilt in order to trade up to the next level. No one considers taking any money off the table. No one entertains the idea that prices could drop or even flatten out. No one (besides the author, that is) seems puzzled that San Diego home prices rose 24% in 2004 against a 1% rise in San Diego incomes and a net out-migration for the first half of the year (and probably for the second half as well, although that data is not yet available).
I highly recommend reading the whole thing, but I can’t help but highlight a few quotes:
- “Where else can you turn a huge profit on a house in eight months? The possibilities in San Diego are unreal,” says the owner of a $780,000 home a thousand yards from the Lindbergh Field runway.
- “It’s a merry-go-round in San Diego. You’ve got to get on the ride. One house parlays into the next,” says a gentleman who just put $850,000 worth of upgrades into his $1.35 million McMansion.
- “There is just so much money to be made in this market, it’s hard to pass up,” says the proud owner of $400,000 “fixer-upper” in La Mesa that essentially needs to be gutted.
The funniest interview is with a woman who received an offer on her Carmel Valley home for only $1.2 million, versus the $1.3 million asking price. The woman was apparently berated by her neighbor, who claimed that settling for less than $1.25 million would “screw up the comps” for when the neighbor sells in two year’s time.
These vignettes typify the stubborn, deeply ingrained optimism that tends to become commonplace in long-in-the-tooth speculative manias. No thought whatsoever is given to the question of what’s actually driving the market, nor to how things could go wrong, nor to why it might be a questionable strategy to borrow heavily and maximize exposure to an asset that is far, far more expensive than it’s ever been. Why waste time on such depressing topics when you could be out flipping properties?