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Real Estate Summit Part 2: Where is the San Diego Condo Market Headed?

By Mike in Downtown San Diego Real Estate|Downtown San Diego Real Estate Market Analysis|September 2013 with 0 Comments

In an earlier blog Real Estate Summit Part 1, we introduced the statistics and current information on how the San Diego Real Estate Market has grown over the last year.   We examined how this growth affected the increase of values on the Micro level of the Downtown San Diego condo market and the macro level of the San Diego condo market as a whole.   Panelists from every niche of real estate gave their opinions of how they thought the San Diego Real estate market would continue to grow. Depending on the perspective…there were differing opinions of growth and how fast or slow it was going to happen, and what the driving factors would be.

Where is the San Diego Condo Market Headed  

Even though there was much agreement from the panelists on the current state of the San Diego real estate market, there was of course some differing opinions on where the market would be going over the next several years.   The buzz words that each touched on were all pretty similar:  Inventory Levels, Supply, Demand, New Construction, Rates, and public policy in the form of regulations that will keep the San Diego Real estate market moving in the right direction.   Here are some of the highlights:

1.  The recovery of the last year many argued was based on Supply and less on Demand.   This means that the value increases were stimulated more from a lack of inventory rather than demand from homeowners.  This is due the fact that there were a significant number of investors in the market driving prices upward.   In order for there to be sustainable growth in the San Diego Real estate market…demand from homeowners purchasing their primary residences will have to shift to the driving force of values increasing

2.  Even though market resales increased, many of the panelists were concerned with the % of Downtown San Diego condo owners who still did not have equity.   They estimated that 20% or 30% of homeowners in Downtown still did not have equity in their condos.  These Downtown San Diego condo owners purchased in 2003 thru 2007 as the area was growing rapidly.   In order for there to more sustainable growth, this number was going to have to change for the better.  Equity in a Downtown San Diego condo will allow owners to sell, trade, and move up.   This will stimulate even more activity and more access to the market

3.  Inventory will be a big driver of new Condo Sales in Downtown San Diego.  This new inventory of Downtown San Diego Condos will more than likely come from condo conversions of rental inventory.   Currently there are no new condo projects underway in Downtown San Diego except for residential rental complexes.   Developers have had difficulty finding financing for new construction unless it is rental based.   Rather than a “building boom” for Downtown San Diego in the near future, many panelists argued for a “conversion boom” of the existing complexes with rental units

4.  It was interesting to note that most panelists agreed that interest rates will continue to go up as San Diego Condo prices continue to rise.   The discrepancy was how much and why they would continue to rise.   Interest rates have to rise as home values increase to avoid over inflation and “bubble” conditions in the local real estate markets.  Currently, the interest rates have been at “artificially” low levels to stimulate growth.   The Fed and economists argue that true sustainable growth has to occur on it’s own, rather than with the aid of banks and economic policy.  As rates continue to rise and prices of Downtown San Diego condos continue to rise…many analysts caution that affordability will have an affect on first time home buyers and move up buyers without equity.   As the interest rates go up…there will need to be a “loosening” of underwriting conditions and new programs which will allow more for more affordability and more access to mortgage qualification.