Reader tj and the bear asked:
Do you perceive a difference in the relative value of ocean view and/or proximate RRE post-2000 vs. pre-2000? I can’t shake the feeling that even though everything went up, the premium on coast properties went through the roof and has remained comparatively higher overall than it had been.
The long answer:
The market around here ramped up in 1997 when they enacted the “2 out of 5 year” property tax exclusion. The thought of making up to $500,000 tax-free for just living in a house super-charged the marketplace – and greed took over. People saw and heard the stories of others moving every two years and banking big money, and they wanted their piece too. By 2004-2005, when anyone could get a loan, the market was thrown into a full tilt boogie.
The result was a disregard for long-term consequences. For about ten years (1997-2007), anyone who got in trouble through divorce, job-loss, etc. could just sell and start over. People thought they couldn’t lose – how much could it change in two years?
The music stopped in mid-2007, and we found out.
I think the market has done a 180-degree turn over the last three years. Those who own the prime coastal properties appreciate them now more than ever, and are holding them. Buyers have decided that only the best will do, and are very reluctant to compromise. They are investing big money too – San Diego County detached and attached MLS sales between June 1 and Sept. 30th:
For comparison, the NSD County Coastal sales between June 1 and Sept. 30th:
The number of all-cash purchases is unprecedented – sure, many of those in SD County are flippers, but in the La Jolla-to-Carlsbad corridor we don’t see that many flippers buying off the MLS. To invest that much capital, the cash buys have to be bought by purchasers who are planning on staying a while – a healthy sign for the market.
I think the demand today is as pure as ever – the non-cash buyers must legitimately qualify for a mortgage, which hasn’t been the case since I’ve been in the business (1984). They are able to do most of their own research, and are more knowledgeable than ever about home values. Plus, they are being extremely picky and patient – a real turnaround from the frenzy years when people would compromise, just to get in the game.
So, yes I would agree that premium coastal properties are holding their value better, and can be summed up as a “flight to quality”. But there has to be more to it than that, for so much cash to be pouring in. Can it just be investors looking for a better annual yield? Maybe, but I think the bulk of the premium properties are owner-occupiers.
I think the battle between the so-called haves and havenots is fully engaged.
I’ll see if I can find some good comparables to illustrate the differences between this boom/bust and others, but in the past the price declines have only been around 50% of the previous boom increases.