San Diego Real Estate Overpriced?

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Hi Bob,

My name is George. I’ve lived in San Diego all my life and I’ve always had the goal to one day own a home here. My wife and I make a decent living (Computer Programmer and a Regional Controller) but I don’t see how we can ever own a home in San Diego at these prices. Mira Mesa, Scripps Ranch, Penasquitos, and Tierrasanta are older neighborhoods that are falling apart and are way OVERpriced.

The only affordable newer development seems to be Eastlake however their “more affordable” prices are accompanied by a high HOA and Mello Roos.

I don’t understand how people are able to afford these houses? I also don’t understand why anyone would pay $350k – $500k for and old beat up house in Mira Mesa? I was thinking that after most of these foreclosures run their course, the market would stabilize and go back to the way things were prior to the boom. Is my thinking wrong? Should I change my outlook and forget about owning a nice home in San Diego? Thank you for your time. I’m a fan of your forecast videos.

George

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San Diego Real Estate

Hi Gabe, thanks for your e-mail. I receive many e-mails of a similar nature, and decided the answer you through this blog post so hopefully others will comment with their own opinion.

When I purchased my first home in San Diego, I called my Mom who was living in a very nice home near the New Jersey shore, and told her that I had just purchased $150,000 home and paid only $325,000 for it.

You see, home prices are all local and represent the epitome of free market supply and demand. Back in New Jersey, the 1,500 foot 25-year-old home that I purchased in San Diego, would have been worth about $150,000! Here in San Diego it was a good value at that time, at $325,000.

San Diego Real Estate Overpriced?

So when you ask if San Diego homes are still overpriced after our devastating correction, before I can accurately answer this, I have to ask you a question. So,Gabe, our San Diego home values are overpriced compared to what?

Now there is no doubt, San Diego is an expensive place to live. Not only are homes higher-priced here but so is the general cost-of-living. Not long ago I sold a condominium in La Jolla for $1,500,000. It was purchased as a second home for a couple that lived in the San Francisco Bay Area. To them, based on home values in their area, they perceived the La Jolla condominium as a good value.

So, what I’m getting at here, is San Diego home prices are all relative to your comparison area. Just across the Colorado River, you could probably buy that same La Jolla condominium for about $350,000 in Yuma. But, would you really want to live in Yuma?

Now that’s an extreme example, but the same is true if you wanted to buy a home in the Clairemont area versus a similar home in El Cajon. Obviously, the closer you get to the ocean, the more desirable and the higher priced it will be.

It’s my opinion, that San Diego saw the peak in real estate values in the summer of 2005. For almost 7 years now home values have deteriorated in San Diego. I would say, the average San Diego home lost about 30% of its worth compared to the summer of ’05. Plus, some condominium communities have lost almost 50% of their value during the same time.

So, I guess the big question is are today’s San Diego homes overpriced? Just last month, San Diego home values showed one of their first (tiny) median price increases. After seven years of devastating depreciation, San Diego home values may have started a base building period. Naturally, San Diego real estate and for that matter national real estate values are all being helped by the historic low interest rates. But, to ensure that home values have turned a corner, we must see improvement in the employment picture.

San Diego, in my opinion, will always have higher-priced housing when compared to the national average housing costs. So, you just have to wrap your mind around it, and decide for yourself whether it’s worth it to pay a premium for a home in San Diego versus buying a similar home in a less desirable location.

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