San Diego real estate performed exactly as I thought it would in 2008; the lower-priced homes (under $500,000) dropped like a ball off a table while the mid-priced homes ($500,000-$1,000,000) declined and the luxury homes($1,000,000 plus) were soft. The key theme for the San Diego housing market decline in 2008 was foreclosure activity. Loans were made to borrowers who had no chance of paying them. Those failed loans resulted in increased inventory. That market’s key financing component (non-prime loans) dried up so fewer buyers could buy the lower-priced homes; priced dropped…a lot.
In my 2009 San Diego Housing Industry Forecast, I said:
I mentioned on another post, that weblog since disappeared, that the San Diego County housing market would bifurcate. I suspected that any income growth would happen on the top end and that the bottom half would see little to no income growth. Combine that with a liquidity crisis and the lower-end homes would get slaughtered while the upper-end would just decline a bit. That happened in San Diego County; lower priced homes are starting to make lots of sense right now.
I explain in my 2009 San Diego Real Estate Outlook that the low end of San Diego’s housing stock is actually approaching reasonable prices:
Communities like Oceanside, Vista, San Marcos, and Escondido in the North County declined as much as 55%, peak to trough. The entire South Bay experienced severe declines. Lower income areas of the City of San Diego and the East County experienced steep declines. Some areas declined so much that their prices have retreated to point where investment makes complete sense. The fundamental value of those properties, as measured by the price to rent ratio, is such that it’s less expensive to own rather than to rent; we haven’t seen that phenomenon in San Diego County since 1999. Continue reading this post