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July 14, 2008

2

San Diego Real Estate Pent-Up Demand .. It’s Real & About To Kick-In

by Bob Schwartz
San Diego MLS

The latest San Diego sales mantra goes like this: “Sure the market is down, but it’s been down for a few years now and there is terrific demand to purchase building up. Now could be the best time to get into the San Diego real estate market before that pent-up demand kicks in.”

Is this true? Sure it is, at least in the minds of the overly optimistic. The real facts may actually show that there is pent-up real estate demand, NOT to purchase real estate, but to SELL IT!

Yes, many San Diego homeowners have been holding off listing and selling their homes because they have been waiting and hoping for a market bottom and once the bottom is achieved, a quick up-turn in San Diego home values. In my opinion, the problem is that the San Diego market bottom may not be reached for another few years. Once achieved, San Diego home values are unlikely to make any type of quick rebound. It seems far more likely that home values will take years to build a solid base before any meaningful appreciation takes hold.

If my above scenario proves correct, the pent-up demand to sell will soon kick in to the real estate market, but this will have a very negative impact. How much longer can San Diego homeowners who desire to sell (home is too large/small, payments too high, commute too long, too much required maintenance, etc.) hold out for their perceived market bottom and resumption of double digit annual real estate appreciation?

The demand to sell will accelerate the depreciation of San Diego home values. Actually, such an occurrence may be a critical indicator that the San Diego real estate market may actually be near the ‘real’ bottom.

So, as you hear about the pent-up demand to purchase real estate in San Diego, keep in mind the same person espousing this opinion, in 2005 was probably saying: “there is no bubble in the San Diego real estate market.”  In 2006, they probably said, “this is not a downturn, but just a return to a ‘normal’ market from our overheated market of the past few years.” In 2007 they may have said “Sure the real estate market is down, but one should take advantage of the great values available before the market turns back to a seller’s market.” In 2008, you likely heard something like “The National Association of Realtors is calling for a turnaround for the second half of the year. This could be an excellent time to get a great San Diego real estate value before the market turns around.”

Although I wrote this article specifically about the San Diego real estate market, I believe it applies to all the ‘hot’ real estate markets of 2000-2005. Also, don’t get me wrong. I think optimism is great, but over-optimism, marked by refusal to heed definitive signs of change or just denial of reality, is a problem in real estate and many other sales businesses.       San Diego MLS listings

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2 Comments
  1. Jul 17 2008

    Good post. I know at least four neighbors in Chula Vista who have been wanting to sell, but waiting for the many listed homes in the area to sell.

    I think they will have to wait a long time.

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  2. The bottom of the real estate market will hit the over-whelming majority of housing markets in mid-2009, according to the newly issued Housing Predictor forecast.
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