These days, it’s hard to make statements about the economy without being specific as to the location. There is talk of another housing bubble, talk of all the Hedge Fund buying, etc. etc.
What we do know in San Diego is that, according to the Case Schiller index (unadjusted seasonally or for inflation), San Diego houses are 30% below their peak in 2006 and the 30 year fixed rate loan is now at 4% vs. 6.7% in June 2006. That distills to: houses
are 30% below their high, price wise, and are 40% below monthly cost, mortgage wise, from where they were at the high. Apartment rents are not appreciably higher, and I do not have data on housing rents, but it “feels” like houses are more expensive than in 2006 and I have seen data that shows that currently a rental house costs as much as 20% more than that same house if owned.
Construction of residential properties is certainly on the upswing and material costs have shown some startling increases. Labor cost increases will soon follow, but the flip side to that is that employment is better.
Mortgages have been very difficult to obtain since 2008 due to stringent underwriting. These new buyers have great credit and it follows that they don’t want to lose it. The Hedge Funds are not worried about credit since they pay cash, but they are worried about their track record, so they won’t be dumping assets willy nilly. Most of the foreclosures have worked their way through, and the rising prices are slowly and quietly bailing out the underwater owners and their lenders. In short, there is very little to suggest “bubble” in my mind as long as San Diego is not suffering from net out-migration.
Certainly, the easy money has been made. Buying distressed real estate in San Diego from 2009 to 2011 was a great play for those that had the ability and the fortitude to do it. It is harder in 2013. Entry level “flipping” is over. Renovations need to be bigger and better. Development of new housing is always hard, but appears to be very profitable now because there is very little new housing and the resale market is good enough to produce some move up buyers. As usual, one must adjust with the market.