The correction in the San Diego housing market has been nothing short of extraordinary over the last 12 to 18 months. It has caught some by surprise and rewarded those homeowners who have weathered the market correction of the past 8 years, as well as those who took a chance and entered the market in the depths and desperation of the local market recovery.

A home that was purchased for $300,000 in 2011 or 2012 would now be worth about $450,000 in 2014. This is partly due to an excessive market correction in the first place, but also partly due to a long-term real estate listing. shortage; There simply aren’t enough houses to buy and demand far outstrips supply.

This article identifies what has happened in the last 12 months and what to expect in the next 12.

The San Diego real estate market started off incredibly strong in 2013, but sales tanked once it became clear that the Fed’s intention was to reduce its monthly security purchases (also known as quantitative easing) in mid-2013.

The market was ON for the first six months of the year, but earlier-than-expected talk of “cutting” by the FED saw mortgage rates briefly spike as high as 5% right in the middle of key buying season household. Up to that point, prices were rising every month at a rate reminiscent of the peak/boom years of 2004 to 2006, and when rising interest rates combined with higher home prices, many potential buyers suddenly developed a case of cold, which led to a slowdown in sales of new and existing homes. (source: Wells Fargo)

At the same time, prospective home sellers saw homes on their street sell for prices they couldn’t believe. The San Diego market has been brutally knocked down since the Great Recession began in 2007. Some areas of San Diego experienced a 60% drop in their real estate values ​​due to the massive amount of short sales, foreclosures and properties. in difficulties that were cause and effect of the recession. Many people lost their homes or went into a short sale to the point where almost 40% of the market between 2009 and 2012 were distressed market sales. There was a lot of fear and uncertainty in the market and the economy, both locally and nationally; ironically, this was the best time to buy real estate.

At the height of the market in 2005-2006, there were around 5,000 houses on the market, and at the time people thought that was an incredibly low number of houses for sale. This number includes all homes and condos in the entire county, from the $50,000 condo in El Cajon to the multi-million dollar mansion in Del Mar. Buyers clamored for every property that came on the market; there were offers written on the hoods of cars and a frenzy of supply demand. This was the mindset that, coupled with flexible lending requirements, created the impetus for prices to go as high as they did. We all know what happened after that.

Seven years later, we are fully in recovery mode for 2013 in the San Diego market. As of April 2013, there were only 4,000 available homes in all of San Diego. This was a ridiculously low number of houses available for sale, even less than the 2005 market and at this time there were a lot more people and a lot more houses developed and built since 2005 which makes it that much more significant. Also at this time, mortgage rates were at record lows in the low 3%. (source San Diego Association of Realtors; Dataquick)

This time around, lending standards are strict and only buyers with good credit can buy, allowing for a more sensible approach to the market compared to the hype that preceded us in the boom years.

It was this environment of incredibly low supply of homes combined with incredibly cheap money to borrow that drove the market red hot in early 2013. It was only when prices rose rapidly throughout the year that interest rates began to rise. as a result of the overall improvement in the national economy as well as more listings hitting the market where things began to change.

All the homeowners who bought at or near the peak of the market, and who bit, fought and scratched to stay in their home and make the payments and avoid foreclosure or short sale no matter what adversity they faced now account of a market where prices were back where they originally bought, and they might finally have a chance to sell and get out of the house that became a ball and chain.

Take for example a young couple who bought in 2006 in North Park: They bought their home, a 1,000 square foot, 2-bedroom, 2-bath residence for $625,000. They hoped to live there for a few years, save money, build capital, and then buy a bigger house where they could raise a child. Their mortgage is 6.25% and they owe almost $550,000.

In 2011, his house is worth $425,000. They have a 2 year old. The house is too small but they are $125,000 under the water and $200,000 below what they originally paid. This was the point where many people cut their losses and did a short sale or let the property go foreclosure. However, this couple had a good $75,000 of their own money in the house and they would be damned if they let that house go. They delivered, and now in 2014 that house is worth $625,000 again. Now they can sell and take the profits to a newer and bigger house so they can continue to build their family. There are many, many families like this in San Diego who just 12 months ago were nowhere near having the options for advancement that many vendors have now. This, coupled with record prices, saw many new sellers put their homes on the market in mid to late 2013. The number of active listings grew to 8,000 properties, doubling the number for sale just a few months earlier. .

Rising interest rates, prices, and available properties served to ground the market in 2013 from its hot start.

As we move into winter, mortgage rates have receded to less than 4.50% and working conditions have improved. Many listings were sold and demand revived a bit towards the end of the year.

The total amount of transaction volume was the highest since the peak/boom years. Her average condo increased by 30%, and her average home increased by nearly 20% in value. By all accounts, 2013 was a banner year for real estate and owner’s equity. (source voiceofsandiego.org)

We are still in a market with restricted supply, and this will continue for the next few years. This has been due in part to so many consecutive years in which no new properties were built or developed. Nationwide, the US needs to build 1.2 million homes to keep up with population growth and replace properties that are no longer livable. Between 2007 and 2013, an average of 350,000 homes were actually built, leaving a housing deficit of almost a million homes over 6 years. This is why we have a housing shortage today, and will continue to have a housing shortage for years to come as we build, develop and grow toward full recovery. A normal market in San Diego would have between 15,000 and 18,000 homes for sale at any given time. Last April 2013 there were only 4,000. In November, it was almost 8,000. As of January 2014, we are less than 6,000. This tight-supply market will lead San Diego real estate for the foreseeable future, as we cannot build new houses in the way that places like Phoenix or Inland Empire. Rather, we must resell to get out of this housing shortage. As long as we have a shortage of supply, we will continue to see prices rise to meet market demand. (source buffiniandcompany, yahoo news)

Rising home prices will encourage more homeowners to put their homes on the market, adding much-needed inventory to the market. As a result, the real estate industry appears to be generally optimistic heading into 2014. Homeowners also appear to be more optimistic.

With all this in mind, I expect prices to continue to rise throughout 2014. The level of increase will be tempered by high interest rate increases, as well as the fact that the government will not be as supportive of the credit market. the House. as they have been in years past.

2014 will be one of the most balanced and normalized markets than in any year in the last decade. We’ll see prices approach and exceed the highs seen in 2006 (if they haven’t already occurred in your neighborhood).

Moving buyers have the best chance of making a move this year; Up to this point, it has been the bottom of the market that has fully recovered, working its way up the affordability ladder to allow greater mobility for more expensive and potential homes. vendors (including the example of the family in North Park) and vendors who have been waiting on the sidelines now have a great sales environment to take advantage of.

Many analysts are predicting that San Diego will appreciate in the 10-14% range, but I think we will see a more modest 6-9% improvement because the big moves have already been made and we have “corrected” the overcorrection.

Nonetheless, the market and our economy are doing quite well as we move toward a long-term, broad-based economic recovery. For a wonderful and successful 2014.