Are San Diego area home prices really rising? Is the worst over in the San Diego home market? Should you buy now?
And most importantly, if you own a home in San Diego right now, should you wait to sell, waiting until you get back the “lost equity” that you’ve lost during the past two to three years?
Don’t get HUNG up on statistics and numbers
Sean Purcell, a friend and mortgage lender here in San Diego, penned a very interesting article last week. His article, meant mostly for real estate aficionados and just interesting people in general, asked us to consider whether things are always what they seem to be…including in real estate.
Here was a story he told within the story. It’s the The Unexpected Hanging Paradox. Enjoy…..
A judge tells a condemned prisoner that he will be hanged at noon on one weekday in the following week but that the execution will be a surprise to the prisoner. He will not know the day of the hanging until the executioner knocks on his cell door at noon that day.
Having reflected on his sentence, the prisoner draws the conclusion that he will escape from the hanging. His reasoning is in several parts. He begins by concluding that the “surprise hanging” can’t be on a Friday, as if he hasn’t been hanged by Thursday, there is only one day left – and so it won’t be a surprise if he’s hanged on a Friday. Since the judge’s sentence stipulated that the hanging would be a surprise to him, he concludes it cannot occur on Friday.
He then reasons that the surprise hanging cannot be on Thursday either, because Friday has already been eliminated and if he hasn’t been hanged by Wednesday night, the hanging must occur on Thursday, making a Thursday hanging not a surprise either. By similar reasoning he concludes that the hanging can also not occur on Wednesday, Tuesday or Monday. Joyfully he retires to his cell confident that the hanging will not occur at all.
The next week, the prisoner is hanged anyway, despite all the above. That’s the surprise…
Real Estate Moral of the Story…..San Diego Prices aren’t going up any time soon
Surprised? Well, I think you may in fact be, and with some conflicting reasons why. Just recently, for example, CNN reported that in California we seemed to be weathering the real estate downturn fairly well. The article claimed that in San Diego home prices had risen 11.2% to a median price of $389,000. Isn’t that a sign, or simply a fact, that prices are indeed going up?
My answer: NO! Don’t get hung up on a couple of statistics. If you do, like the prisoner above, you’ll get a surprise that you didn’t see coming, don’t want, and probably don’t deserve.
San Diego’s Real Estate History from the last downturn tells the Rest of the Story
Just reflect for a couple of minutes on the last real downturn in San Diego home prices. This occurred during the recession in the 1990’s, when a more typical recession occurred. General Dynamics moved out of San Diego. Numerous aerospace jobs moved from the Los Angeles area, and the recession and ensuing lack of jobs depressed San Diego home prices about 25%.
So how long did it take San Diego home prices to come back to their pre recession values? Eight full years. Not two. Not five. Eight.
And please remember that the recession then was based solely on job losses. Contrast that with our current recession, based first on greed and fraud, added to by bank ineptitude and consumer frenzy, and finally by real, horrible, very high unemployment (AKA a standard recession). The road back on this journey will be (IMO) at least ten years total, probably eight years from now.
San Diego Home Prices Will Rise Again, Later This Decade, and Perhaps with Much Higher Mortgage Rates and Regulations
I predict, based on history and our current economic situation, that the great city of San Diego, including North County San Diego and the cities and communities I serve, will continue a status quo pricing structure for a very long time. Government interference has delayed the natural process of stabilization, and an era of no confidence in our politicians has added to the conservative approach to once again seeing homes as THE ultimate American goal.
I conclude, therefore, that NOW is the time to sell if for any reason you want to relocate, move to another area, downsize, upsize, go to one story versus two story, etc. The price you’ll get for your home today is going to be the price you’ll get for your home for well into the future. The mortgage rates you could utilize to buy another property, however, cannot and will not continue to be at historic lows for well into the future. Ultimately inflation will cast its shadow on us, and the market for buyers will decrease with increasing interest rates.
I ask that you contact me if any of this makes sense to you. I’ll talk with you if it doesn’t make sense, too. Opinions are just that, opinions. But I believe you don’t have to be surprised like the prisoner who was ultimately hanged. Be logical. Get the facts. Look at where the good news and bad news is coming from. Call me.