Market Conditions for San Diego County, California

Market Trend: The San Diego real estate market is strengthening dramatically. After stabilizing last year to approximately 2004 levels, it’s as if someone blew the whistle and there are buyers everywhere. Most neighborhoods are seeing reasonably priced listings garnering multiple offers, sometimes driving the price significantly over asking price. Frankly, it seems like the more below market the property is listed, the more attention it gets and the higher above market it sells. It’s simply an auction.

Inventory is low in many pockets of San Diego County right now. Hedge funds have entered the market and some have adopted the business plan of buy, fix, and rent for 5 years. They are not too picky on the pricing since they think the values will be much higher later and they have a lot of cash to get out. This has effectively destroyed the entry level fixer flipper market since the profit margins have been squeezed so much.

Some of our borrowers recognized this trend early on and have moved to higher priced locations. It takes more money, more renovation skill, and more time to cycle the product, but the reward for a job well done is higher. Pacific Horizon is currently underwriting a loan in Rancho Santa Fe and there are 4 pending listings and one recently sold listing within ½ mile of the subject property!! Eighteen months ago, you probably would not have found 1. We have been in the La Jolla marketplace since mid-2012 and the values and activity in La Jolla have been rapidly increasing. To be sure, these are not paint and carpet markets. It takes sensitivity to current buyer tastes, significant floor plan improvements, high quality trim, and tasteful exterior improvements.

Additionally, I expect to see a major increase in new construction this year! That is terrific in that it will get much of our construction force back to work and further spur our local economy. It would be good to see full restaurants all over town again. The numbers (profit) for new housing are very significant for builders who either held their land through the depression, or picked up land over a year ago. Land has really increased in value lately. It also seems that the planning and building departments are even tougher now then they were last cycle. Woe be the developer that is starting with unentitled land – it will be a long row to hoe!

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