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| Why the Real Estate
Bubble Isn't San Diego has been a key player in California’s latest gold rush. In the past five years, plummeting interest rates have pushed real estate prices upward, transforming moderately priced homes into million dollar estates. Now, as bargain basement interest rates inch upward, analysts say the real estate market in San Diego is a bubble on the verge of bursting. Other experts say not so fast. County Assessor Gregory Smith is one observer who believes San Diego’s Real Estate market is healthy; current prices are sustainable and more growth is on the way. His explanation; bolstered by more that 22 years of assessing local property values, is well-founded. “This isn’t Buffalo, is it?” Smith said. “This is San Diego, first-time home buyers, move-up buyers, out-of-town buyers, everyone wants to come to San Diego.” The view from Smith’s office underpins his assertion. Sailboats dot the bay, joggers run along the Embarcadero and a bride and groom exchange vows on the lawn. San Diego’s intrinsic appeal is evident, but that appeal was insufficient in staving off a steep decline in real estate prices during the 1990’s. What makes the current situation different? According to Smith, it’s Economics 101. Supply is limited, demand is strong, and 5.5 to 6 percent interest rates are still historically low. “That’s why I still think today is the best of times. You have a buyer’s market, and you have low interest rates.” Smith said. “This is the time to buy.” “If all of a sudden, interest rates go up to 8 or 9 percent, everything I said is a moot point. But that’s not going to happen. They’re going to go up gradually, and I think a year from now, we’ll look at interest rates in the 6.0 to 6.5 range. Historically still great, still wonderful.” When the real estate market collapsed in the 1990’s interest rates were between 8.5 and 9.0 percent, and San Diego was feeling the drastic effects of the savings and loan crisis. A loss in military population from massive deployments to support the Gulf War and a loss of jobs with the departure of General Dynamics and Convair exacerbated the financial situation. Developers who had speculatively built many houses at once to cut costs were left with large unsold inventories. This time, San Diego has a steady flow of newcomers, jobs are being created, the local economy is more diversified, and developers are building tracts in small phases that are pre-sold to prevent a bubble of unsold inventory. The bottom line, Smith says, is low supply, high demand, and great interest rates. “For years, we had tremendous population increases, but we never produced enough housing for our population.” Smith said, “This has caused too many people chasing too few homes, which is why prices are so high.” “People want to buy a home,” he said. “And that’s the first step, and the best investment you can make.” - Article provided by Signature Funding
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