By Rob McNelis
If you are watching the news these days, it is easy to get confused as to what is really going on in the housing market. You can see one report that says new home sales and values are up, and another that says existing sales and loan applications are down. But what does it all really mean to us?
Let’s start by once again stating that all real estate markets truly are local. Meaning what is happening in Detroit, Mi. is not what is happening in Santee, Ca. So when we see big headlines in the news, they are usually national averages or state averages and are rarely broken down any further.
When we look at our region here in San Diego, we have a number of differences as compared to even other counties in the state. The biggest of which may be while other counties are still seeing an exodus, San Diego County continues to grow in net population and is expected to continue at a pace of 2.3-3.1% a year depending on the economist. A large contributor to this is the world-renowned San Diego weather. With an average annual temperature of 70.5 degrees, this is a coveted region to live in.
Now that we have talked about population increase, let’s talk about housing for these new citizens. Even though the population has continued to quietly grow over the last 6 years, the new housing stock has not. When the market crashed most all builders seemed to have gone into hiding, afraid that they would not be able to sell their homes if they built them.
Add to that the thousands of homes that were upside down in value and could not be sold without damaging ones credit, and you have a recipe for a real housing shortage.
That is where we still sit today. Even though things have slowed down a bit due to higher interest rates, we have to keep in mind that there is still not enough housing inventory for the people we have already living here, not to mention all those that continue to move here from other places. This is most easily seen when looking at the unsold inventory index of any city in San Diego.
In a “Normal” market, we would see about a 6 month inventory of housing for a city. Too much more than that becomes an oversupply of housing. Right now the county is at approximately a 1.8 month supply as a whole with many cities having as little as a month (Santee is currently at 0.6).
Until that is brought into a closer balance we can rest assured that there is no looming bubble. As interest rates stabilize we are finding ourselves closer and closer to a traditional market (something we have not seen in a number of years).
I also believe that home loan rates will remain within a half a point +/- of where they are now for the near future. There are sure to be many ups and downs from one day to the next for rates in the coming year, but the net result should stay in this trading pattern.
Reach out to Rob McNelis for more information.