An article published yesterday included some guesses about the future of the real estate market over the next five years. For those who thought it would be the usual expert opinions touting 3% appreciation per year, you won’t be disappointed, though Larry did throw in a possible 10% decline in California:
Yun foresees no major changes in purchase price tags on a nationwide level next year, with fluctuations of only about 5 percent one way or the other. The only exception is California, he says, where the market could see 10 percent declines: “Because it’s so expensive, California is always the most vulnerable to changes in interest rates.” This scenario is already playing out in the priciest areas in the state: For example, San Francisco median home prices are down 9.71 percent since last year, according to Redfin data. Overall, in five years, Yun expects prices to have appreciated a total of 15–25 percent.
McBride predicts home prices will average low- to mid-single-digit annual appreciation over the next five years. This rate of appreciation, he says, is consistent with the long-term average of home prices increasing by a rate that hovers a percentage point above the inflation rate.
https://finance.yahoo.com/news/housing-market-predictions-forecast-next-175441472.html
I think the North San Diego County coastal region will perform much better for the following reasons:
- Baby boomers aren’t dying fast enough. The capital-gains tax for long-time homeowners is so burdensome that heirs to the estate will insist on their elders aging-in-place, or renting out the home if their elder goes into a senior facility. This will prevent any concentrations of boomer liquidations, and sprinkle them over the next 20-25 years – keeping inventories low. (Half of boomers are still working!)
- The dollar continues to devalue – money isn’t worth what it used to be.
- San Diego is a premier destination spot for rich people. The affluent who tire of deteriorating conditions in their current town will be happy to join us – and pay whatever it takes.
The demand will stay strong and the inventory extremely tight. The realtor and lender populations will get cut in half (at least) and the fascinations about the real estate market will continue – but for almost everybody it will be from the sidelines.
The local Case-Shiller Index has risen 54% since March 2020.
I think we will see another +50% in the next five years, and in 2028 there won’t be a month when we have 100+ sales of detached homes between La Jolla and Carlsbad.
What do you think?
Hey Jim, what about the recession that is upon us, and the unaffordability of homes. Isn’t there only one solution – lower prices?
There will be occasional homes priced aggressively. There would need to be a slew of them to have a major impact.
The big difference between homeowners and stock holders is that in the event of a run, homeowners just wait longer, instead of getting out at a lower price.
At this point, the number of people who NEED to sell has never been lower.
Think about those who can’t afford their payment. They changed the accounting rules after the last meltdown, and now banks are not required to sell their REOs in a timely manner. In California, the Homeowners’ Bill of Rights made it practically impossible for lenders to foreclose, and by the time they get around to it, the homeowner will sell and cash out, instead of lose it. The last foreclosure crisis was caused by people having no equity or negative equity. Not this time.
Are their people who NEED to leave San Diego for Las Vegas or North Carolina? Judging by the inventory over the last 2-3 years, I’d say not many and we may have already seen the bulk of them leave.
A big factor that the talking heads don’t consider is that there is only one reason to sell your home and move from San Diego – money. Otherwise, nobody would leave.
But now moving to the cheaper areas aren’t as cheap as they were – they have all doubled in value too. You might think that it should all be relative, but there is a mental and emotional limit, and I’ll suggest that it is $1,000,000. If the only towns you like are now so expensive that a newer one-story home there is going to cost you more than a million dollars, it’s not so enticing.
Under $500,000? Ok then, let’s go. But those towns are so much worse than here that it’s easier just to shrug it off and stay put, rather than spend months exploring other areas, only to find out that the tradeoffs aren’t worth it.
I think my 50% number is still accurate.
You have to spend 50% more on your next house to get one nice enough to make it worth moving up, and 50% less to move down. Is anyone going to sell here for $2,200,000 and move out of the area and spend $1,800,000? No way, unless you were convinced that it was the perfect paradise to make it worth it. I’m not aware of any town that rivals the paradise of San Diego but I’m open if you have suggestions within the 48 states.
What about the investor meltdown when institutional owners flood the market? New York has effectively shut down the AirBnB market and it’s likely to happen in other areas too.
They won’t give them away. Most can survive as long-term rentals – they just won’t have those bragging rights around the BBQ about the killing they have been making.
Nobody is going to give it away when they have ample equity to lose. Little, none, or negative equity? Yes and back in the day they did because they had nothing to lose. But it is different now, and everyone has enough equity to put up a fight.
What are you saying here? Prices are going up 50% by 2028 or something else?
I think we will see another +50% in the next five years, and in 2028
Technology has made aging in place possible for more for longer for less.
• Tele-medicine
• Online banking, shopping, everything
• Home delivery
• Uber now, Self driving vehicles soon
I’m sure I missed a few. And don’t forget, remote work will keep people in the workforce longer as well.
Are there any stats for what percentage of AirBnBs in San Diego County are whole houses? Up here in Portland, owners of “accessory short term rentals” are required to live on the property for at least 270 days each year. Otherwise, the rental has to be licensed as a hotel.
The Austin article you posted tells a lot of the story. Anyone can get fired up on a perfect day in early October that just about anywhere in the country is a steal. Then a cold/hot season or other quality-of-life issues kick them in the pants. San Diego is far from perfect (speaking as a native) but the gap between people who talk of bailing and those who do is wide — wider if you count the boomerangs.
On another note Jim, you seem to be commenting more on one storey desirability than ever before. Has demand accelerated recently with demographic shifts or some other factor?
What you call equity is spurious value. The same way it inflated on the way up,it can deflate on the way down. It’s the same house as 5 years ago, only older and in a worse shape, there is no reason for it to be twice more expensive.
What you call equity is spurious value. The same way it inflated on the way up,it can deflate on the way down. It’s the same house as 5 years ago, only older and in a worse shape, there is no reason for it to be twice more expensive.
You get lost in your reminiscing and don’t see today’s reality. A lot of rich people want to live here, and they don’t mind spending the money. They have plenty. Have you also noticed that every house around you that sells for crazy money then gets remodeled for another 3-6 months too? Many tear out everything.
On another note Jim, you seem to be commenting more on one storey desirability than ever before. Has demand accelerated recently with demographic shifts or some other factor?
There are two markets; one-story and everything else. You can have a two-story that is a much better buy right next door to an one-story and seniors won’t even consider buying it at any price. It’s not a fair depiction to lump all houses together when analyzing the trends. I really need to split them up.
What are you saying here? Prices are going up 50% by 2028 or something else?
Yes, +50% in the next five years. It will be choppy! We will probably be -5% in the next five months so hang on to your hats.
I think you’ve got it right.
Me too. If we can do 54% in 3.5 years when nobody expected it, then 50% in five years when people are used to it seems conservative.