The euphoria that comes from the creation of wealth is quite mesmerizing. Home values in San Diego have been on a meteoric rise the past couple years, but some people forget, this is not unprecedented. We have seen home values go up this quickly before and I don’t need to remind you how that went.
To be crystal clear here, I don’t believe home values in San Diego will go down significantly, but I do believe they are done going up for at least the next 3 years and here’s why…
Capitulation in the Bond Markets has already began. Check out this story – ‘Unprecedented’ $80 Billion pulled from Bond Funds – This has not only caused mortgage rates to rise a full percentage point in less than a week, but is also causing Wall Street money to “pucker-up” a bit. I expect less investor money to be in the equation soon, which has been a big reason why prices have gone up so much so quickly.
Won’t the rigid mortgage standards protect the market from a down-turn? Yes, it will keep us from seeing another 2008 scenario, but doesn’t affect the supply/demand equation that ultimately drives prices higher or lower. There has been so much investor demand recently on top of the already high demand from consumers that prices had to go higher sharply. At some point, people just can’t afford to buy anymore and somewhere near that time, Investors no longer turn a profit on these homes. I think that time is very near.
Shouldn’t I wait until the market flattens out before we sell? If everyone did that, then it would cause a major downturn. San Diego home values are rising right now because people don’t want to sell. You can’t blame them! Just sitting around each day watching prices go higher is easy to get used to. But when that stops and prices flatten out or even go down, then homeowners start to think about selling. That can really upset the supply portion of the supply/demand equation which will only send prices one direction….lower. At best, they stay put.
What about all the bidding wars for homes? This is very difficult to gauge. If there are 10 homes and each gets 10 offers, then you would think there are 100 buyers. However, we don’t know how many people have made an offer on each home! Maybe there are only 20 buyers total for those 10 homes. If that’s the case, then it would be a much different discussion vs. 100 buyers making offers on those properties. I don’t think we can factor this in because of the huge gray area involved.
In conclusion, I believe disappearing Investors, rapidly rising interest rates, and home values going up too much too quickly has now put the TOP in the San Diego housing market. The perfect time to sell a home. I still believe it’s smart to own real estate if you have a long-term plan to live there, but if you want to sell a home in San Diego for any reason, I think you will make more money this summer than any point in the next 3 years. (at least)
Disagree? I’d love to hear your thoughts…
Big thank you today for a great discussion on this topic during today’s Mr. Credit Radio Show. Thank you Credit Repair Mike, Jon Jerotz, and Miguel Bush for your participation. You should know they ALL disagreed with me, so it was pretty entertaining. Listen to the podcast of today’s show here: 7-3-13