I listened intently yesterday to a speach by San Diego County Assessor Gregory Smith. The subject was about the strengths of the San Diego real estate compared to the bubble that burst in the 1990’s.
The following is the exact text that was distributed at the meeting:
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, some analysts say the real estate market in San Diego is a bubble on the verge of bursting. Other experts disagree. 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 than 22 years of assessing local property values. is well-founded. “This isn’t Buffalo,” Smith said. “This is San Diego. First-time home buyers. move-up buyers. out-of-town buyers, everyone wants to live in 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 1990s. What makes the current situation different?
According to Smith, it’s Economics 10 1. 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 a great time to buy a home. You have a buyer’s market, prices are stabilizing, and interest rates are still at historical lows,” Smith said. “This is the time to buy.” “If interest rates suddenly go up to S or 9 percent, everything I said is a moot point,” he said. “But that’s not going to happen, they’re going to go up gradually. I think a year from now we’ll look at interest rates in the 6 to 6.5 percent ranges. Historically still great, still wonderful.”
When the real estate market collapsed in the 1990s, interest rates were between 8.5 and 9 percent, and San Diego was feeling the drastic effects of the savings and loan crisis. A decrease in military population due to massive deployments to the Gulf War and a loss of jobs from the departure of General Dynamics / Convair exacerbated the financial situation These factors left developers. who had speculatively built many houses all at once to reduce costs. with large unsold inventories. San Diego is now better prepared. The area has a steady flow of newcomers: jobs are being created. not cut: the local economy is more diversified; and developers are now building tracts in small phases 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 people.” Smith said. “So now we’re in a position where too many people are chasing too few homes. which is why prices are so high.” “People want to buy a home.” he said. “And that’s the fist step, and the best investment you can make.”
By Jaclyn Slagle - August 2005 -
