Special Op-Ed by
Kevin Atto, REALTOR®
CalBRE #01935513

THE BUBBLE

The above rendering is a smashing new residential tower popping up in San Diego soon. There are many new high rise towers slated to change the San Diego skyline over the next five years. Developers are currently investing hard in SD.

While I typically like to say “hi” to you with some inspiration, an issue has started to bother me in real estate so severely that I thought I’d take a rare moment to tell you what I know. There have been so many misinformed people discussing the San Diego housing market lately, and I need to clear the air. **It is crucial that I clarify that every aspect of this discussion relates to the San Diego residential housing market only; what I’m about to tell is absolutely not indicative of any commercial real estate market nor any housing market other than San Diego**

Do prices seem high? YES!

Is this an amazing time to sell? NO!!!!!!!!!!!!!!!!!! Please don’t do it.

I’m one of the only real estate agents on the planet who, when a client in San Diego calls me and wants to list her home for sale, I try to talk her out of it.

The San Diego housing market has a number of current factors that are going to cause a ridiculous spike in prices over the next 15 years. We’re talking crazy San Francisco prices coming our way. “Double your money” kinds of increases.

As an expert in the San Diego residential real estate market, I constantly refer to both local and nationwide residential real estate economists to know where my local market is headed so I know how to properly advise my clients. The three gentlemen who have given me the greatest deal of insight on this topic are Gary London, Lawrence Yun, and Alan Nevin. I also base my conclusions on local real estate studies done by J.P. Morgan Chase, along with a number of detailed deep discussions I’ve had with multiple experts who have worked in different aspects of both UCSD’s and the City of San Diego’s development plans. Please take a look at the works all the aforementioned have published if you want further clarification. I’m a firm believer in backing up my words with data (since that’s the closest thing you can find to a fact,) and the info I’m about to share comes in great part from reading and hearing these economists’ reports, studies, and observations regarding San Diego specifically.

Some of the residential real estate markets that have already seen major price surges in the past two years have been Portland (OR), Seattle, Dallas, and Denver. San Diego still isn’t quite on the radar nationally in terms of price spikes because most people already think prices here are absurd. But, as Bachman-Turner Overdrive said, “You ain’t seen nothin’ yet!”

There are a number of factors that go into the drastic residential property value increases coming to San Diego.

  1. Supply and demand: there are significantly more people moving to SD than housing units being built. Right now we are building fewer than 10,000 new units per year while some estimates have more than 25,000 people relocating here annually. San Diego is also out of green space.
  2. Geography: San Diego has Mexico to the south, ocean to the west, Camp Pendleton to the north, and mountains and desert to the east and northeast. There’s very little opportunity to spread the urban sprawl.
  3. Money: With the tech boom we’ve lived through for the past 20+ years, folks are finding many ways to make big money while working remotely. I know far too many entrepreneurs and high income producing professionals who now can work from almost anywhere that has an internet connection. The idea is to make substantial income without ever having to put on a pair of pants or leave your living room.
  4. Comps: Buyers are fighting over properties in San Diego right now. Most buyers I represent have to get involved in bidding wars, and sale prices are ending well above list prices. Many new luxury condo buildings are going up around town charging seemingly ludicrous prices per square foot, some in excess of Manhattan prices. Who’s buying these? Folks with very high income or net worth, foreign investors, and cash buyers…most of whom have already made their money or are working remotely. There’s no question in my mind that the current job market in SD cannot support these real estate hikes. These new and even higher sales will in short time have a staggering ripple effect on surrounding property values as folks use these comps to valuate their homes.
  5. Climate: Do I even need to say anything?
  6. Population explosion: There are more people alive today than have died throughout all of human history. There are more millennials alive today than baby boomers. And with the attractive scenery and other aspects of San Diego that make this place “America’s Finest City,” you can bet the house (I know…cliché!) that housing is going to greatly increase in value.
  7. Prices are high and still rising: Housing prices have risen since the last bubble burst. What’s risen even more are rents in our area. But take a look at other factors: health care costs have risen at a more staggering rate than rents, and the most significant increases have taken place with tuition at all education levels, not just college undergrad. Last year in the United States, the average age of a first time home buyer was 35. Nationwide property value increases are now proving to be an even more challenging barrier to overcome when coupled with increases in rent, health care, and tuition.

Please don’t confuse my comments with the idea that there will never again in San Diego be bubble bursts or market corrections. That is an impossibility. The phenomenon I describe here regarding San Diego simply states that next time the residential real estate prices correct themselves, the dip will not come back down to where prices stand today (not even close.) There certainly will be ups and downs in the market forever, and right now is the lowest that San Diego residential real estate prices will ever be again.

If you have interest in ever owning residential real estate in San Diego, I strongly urge you to BUY NOW. **Barring an act of God, war, or some other unforeseen catastrophe, prices in San Diego will never again be as LOW as they are today. EVER.** If you don’t have the money, find it. If you don’t own real estate now, and if you don’t plan to have a household income in the top 1% anytime soon, then the time to act is now. Otherwise, you will forever be priced out of the San Diego real estate market.

If you already own property here in San Diego, keep holding it if you can. There are some situations where it makes sense to sell, but I said some. “Few” might be a better word. Buy more and keep what you have. You’ll be set for life once you have these properties paid off and producing you rental income free and clear for the rest of your life. And don’t forget about the equity you’ll build due to the price increases that are imminent.

Are my comments risky? Of course! Welcome to the life of Kev. There is no guarantee in life. But take it from someone who is in the trenches: the time to buy in San Diego is now. And if you don’t believe me, then why would I try to talk folks out of listing their homes? I mean, WHO DOES THAT?

This might be the first time I’ve ever talked real estate in one of my emails to you. I just had to clear the air because I hear lots of buyers and uninformed agents all the time say people should wait to buy until prices are manageable again. This is not going to happen; please look at the data from the resources I’ve cited. If making smart decisions is a goal of yours, then please hear what I’ve said.

Please share your comments with me. I always love the great feedback you all give me, and I hope my words always inspire you.