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Is San Diego’s Housing Market Headed For Another Bubble?

Evening Edition

Aired 6/19/13 on KPBS Midday Edition.

GUESTS

Erik Bruvold, president National University System for Policy Research

Alan Gin, professor of economics at the University of San Diego, and author of USD's Index of Leading Economic Indicators.

Transcript

Economists are warning that there are signs that housing prices are going up a little too high, a little too quickly.

In May, San Diego home prices were up nearly 24 percent over last year's and California as a whole experienced the biggest year-to-year housing price jump in 33 years.

Alan Gin is a professor of economics at the University of San Diego and author of USD's Index of Leading Economic Indicators. He said the situation is better than when the housing market crashed several years ago.

"We're still below all-time highs and the economy is improving," Gin said.

Gin said key economic indicators like good job growth, low interest rates and lack of construction support the increase in home prices but we still should be cautious.

National University System for Policy Research president Erik Bruvold said he's looking at the ratio of income to home price in San Diego.

"It's usually a one-to-three ratio income to home prices in the rest of the country. In San Diego, it's always been a little bit higher, and now we're on a run up that is at the top of what's sustainable — a one-to-five ratio."

According to real estate market analyst Zillow, in the fourth quarter of 2012 San Diego had one of the highest income to home-price ratios in the country with homeowners paying 44.6 percent more than median incomes.

The problem with this is, if interest rates rise, those homes that seem affordable now will be too expensive for median-income San Diegans.

But Gin said there are safeguards in place. "Banks are more cautious. We don't have the problem with subprime loans," he said.

"It's not the same now," he added. "Less bad loans and less money being borrowed now makes things a little bit safer."

Comments

Avatar for user 'JeanMarc'

JeanMarc | June 19, 2013 at 2:35 p.m. ― 1 year, 3 months ago

Wait, wait. You mean this was a false recovery? But it was hyped up so much! It is almost like the media had an agenda to make it appear that savior obama was helping the economy recover.

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Avatar for user 'PM'

PM | June 19, 2013 at 11:03 p.m. ― 1 year, 3 months ago

I am a little skeptical about using the median Price/household income ratio to indicate normalcy in the market. One thing this stat doesn't capture is the quality of the inventory. I can't comment on the quality of inventory during a normal San Diego period of real-estate because I wasn't in the market then, but now I see a lot of ~600-1000sqft 2/1 houses(centrally located but with some in slightly questionable areas) going for 400K-500K depending on which part of the zip. These seem out of wack in light of comparable rent situations in the same neighborhoods even when you take into account the tax write-offs of owning. When evaluating a bubble I would like to see more emphasis on the value proposition of owning vs renting and how much speculation there is on the part of the buyer for what future prices are going to be. From a macro level it may not appear that we are in an abnormal market but if the inventory that is driving the median is coming from the bottom quartile of quality then in essence the true population median or previous benchmark is now being hidden. Would like to see some attempt to normalize inventory across at least square-footage and zip-code. Would love to see a quality metric comparing 2001-2005 with the last two years.

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Avatar for user 'DonWood'

DonWood | June 20, 2013 at 5:33 p.m. ― 1 year, 2 months ago

When interest rates go up, the Wall Street fast money guys will stop buying up homes here planning to flip them as prices go up. When that happens, and when the banks start putting more foreclosed homes back on the market, expect a significant drop in local housing prices. That may flush many of the speculators out of the market as they lose their shirts, then the market may stabilize at lower prices.

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Avatar for user 'JoshWinters'

JoshWinters | August 7, 2013 at 12:42 p.m. ― 1 year, 1 month ago

When you have so many skeptics, such as DonWood, PM, and JeanMarc, then there is no bubble! A bubble forms when everyone thinks prices cannot and will not go down.

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