Yesterday reader SBT asked,

I’m not in the real estate industry so maybe I’m missing something but does the fact that the ppsf is the same as ’05-’07 mean we are in a mini bubble?? Everything seems too expensive right now?  thoughts?

If it were a bubble, it would need to be “pop-able”.

The last bubble (and to some degree the late-1980s bubble) popped due to exotic financing.  We saw homeowners fleeing in mass numbers around Oceanside and other parts where subprime loans were prevalent.

The rising appreciation that we enjoyed from 1995 to 2007 became embedded – most thought it would last forever.  When it didn’t, those in more affluent areas bailed out over the thought of being ‘underwater’.

Those folks may be having some regrets today.

Today’s mortgages are the most conservatively underwritten financing we’ve had over the last 30 years.  Buyers are using sizable down payments in most cases, and their payments must be affordable to get a loan.

These are folks who plan to stay forever, regardless what happens to prices.

If prices were to drop, they won’t be selling – they live there.

How do we know?

Because they would be more tempted to move if prices went UP – and look how few sellers we have now.  Nobody wants to move at today’s prices, if they were lower they really wouldn’t move!

How can we support these prices when the SD median household income is $70,000?  Have lots of renters – the homeownership rate is 55% in the county.

It is a market for the affluent, and the thought of everyone enjoying the benefits of the American Dream is kaput.

Could a Baby Boomer Liquidation Sale disrupt the market with a flood of inventory?  I doubt it – not in prime coastal regions where the kids would rather move in, than give it away.  The houses are paid off – what would you rather have? Free housing or free money?  The government will provide enough money for food, but you are going to be on your own for housing.


Yet, today’s valuations aren’t as crazy as they seem – here is Rich Toscano’s latest comments and graph:

(T)he peak was over 8 years ago — nearly a decade now! — and since that time, both rents and per capita income in San Diego are up 20%.  “Peak pricing” in nominal terms just isn’t a meaningful number, when the purchasing power of money has been declining while nominal incomes and rents have been rising over that period.

rich toscano san_diego_housing_valuations_12_2013-1

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