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San Diego Real Estate: Facts Investors Can’t Afford To Ignore


San Diego skyline

There’s a lot going on in the San Diego real estate market. Stunning new developments, celebrity home listings, rising foreclosures, and housing costs are all catching media attention. So what do San Diego real estate investors need to be aware of when it comes to scouting investment opportunities, or even allowing some to slip between their fingers?

Pessimist or optimist – there is no denying that San Diego County real estate is hot. So why can’t San Diegans afford to pass up buying homes now, and where are the deals?

Distressed Real Estate is Still Here

San Diego foreclosures have reportedly changed direction and have risen in the second half of 2014. UT San Diego reports that some 50,000 San Diego homes are still underwater, even though this is considered one of the healthiest and strongest markets in the country. The recent listing of former Charger, Darren Sproles’ Santaluz home is a great snapshot of the market. Sproles purchased his SoCal residence in 2012 when Realtors say the bargains just began coming on the market. It is now listed at $2.78M. The agent says the couple just wants out. There is a good chance they may barely be able to achieve that in a traditional sale. Take out 10% real estate commissions, property taxes and closing costs and they’ll likely be walking away with less than they purchased the property for.

Still, CoreLogic and DataQuick report $1M plus home sales in San Diego County rose almost 13% in the first half of 2014 (1,876 units). The demand and cash to buy is certainly there. There is certainly room for growth too. However, investors and home buyers could still scoop better deals, and sellers may be able to find more appealing exits with a little more creative deal structuring.

To Commute or Not to Commute?

With the median home price in San Diego County hitting $627,500, many buyers are looking further afield. One media report shows many workers are having to make a 65 mile commute (each way) to get more house for their money. Regardless of their ability to pay more for housing, many buyers continue to prioritize space and single-family home living with a yard, over proximity. Even though some surveys have published contradicting answers, this is the way locals are actually voting with their hard earned dollars. This is a situation likely to be compounded by the rapid growth of remote working.

Eminent Domain

Eminent domain has been on the rise from coast to coast since the U.S. housing market began to rebound. It is being used to grab land in the Northeast, to roll out new projects with high property tax revenues in the Southeast, to control water in the Midwest and West, where the majority of land in some states is now controlled by the federal government. It’s alive and well in San Diego too. Most recently, it has been seen in Mission Bay and the city’s plan to evict 300 mobile home residents. Attorneys involved in the case claim a deal has been announced, which will pocket $7M in attorneys’ fees, plus $22M for the residents being evicted. This could continue to be a complicated situation, but this could technically fuel residents with over $73k each. That’s still some serious buying power and a lot of buyers in the air needing housing.

Fundamentals Still at Odds

Weak core fundamentals continue to worry some. Weak jobs, wages and affordability. San Diego’s popularity with the wealthiest global investors and buyers makes this market stand out from most of the rest, including NY, which many consider to be flailing in the air in attempts to shore up the bleed of capital and residents.

CoreLogic reports San Diego County’s median home price gained over 8% year-over-year to August 2014, picking up momentum from July. Home builders aren’t doing much to ease the situation either. Many continue to increase their portfolio of multifamily and rental properties versus adding to sales. This has been seen in prime waterfront areas, and means less to choose from for future buyers. It’s really a case of buy now or pay far more for the same property in a year from now.

Rising rents are also gaining steam in San Diego, CA. Experts predict they will rise even faster through 2019 than we have experienced in the last decade. This is great news for buy and hold investors.

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