Play Live Radio
Next Up:
0:00
0:00
Available On Air Stations
KPBS Midday Edition

What's Ahead For San Diego Housing Prices In 2016

Latest Case-Shiller housing report shows home prices were up this year

What's Ahead For San Diego Housing Prices In 2016
GUESTS: Dana Kuhn, real estate lecturer, San Diego State University Gary London, real estate economist, London Group Realty Advisors

Our top story and Midday Edition, the highly respected case Shiller home Price Index came out this morning and of course it had more good news. In October home prices nationwide rose 5.2% over October of the previous year. Prices went up slightly over the month before. In San Diego the story was much the same. October prices up 6.2% over the previous year. But hang on and let's remember the Fed has begun raising interest rates giving us at least one reason to think buying homes will get harder. Real estate prices have been going up for years and much faster than the rate of inflation. When will it stop and how will it stop? Joining me to talk about the reality of the real estate market and what might happen next year are Dana Kuhn and Gary London. Dana is Vice President of Sunwood Ventures a real estate development company and also a lecturer at San Diego State. And Gary London is a real estate economist with London Group Realty Advisors. Hello, Gary. Good morning. How are you? I'm doing good. Let's talk about housing prices. I will ask both of you to characterize what kind of a housing market you think we are in. Dana, why don't you go first? We are in steady single-digit territory which is the best case for both sides of the coin. The good news characterization is of course for those already in the market, not those trying to get in. To have prices continue to increase at more than 4% or 5% will make things incredibly hard for those people trying to get in. What about you, Gary, what kind of a housing market are we looking at? It depends where you stand in the market from the standpoint of housing owners and people already in the market. These kinds of gradual increases in prices and valuations are a good thing particularly if you intend at some point to trade up. If you are not in the housing market, it continues to be a more difficult environment for you. One that probably is not going to get any better if you are outside looking in over the coming year. How to the latest figures for San Diego in the case Shiller housing index compared to the rising prices we've seen the past few years? I should mention month over mice -- month prices in October in San Diego were down slightly. Gary, what about you? How do the new numbers compared to the old numbers? We don't look at month to month as having any import at all. The housing market moves at a snails pace so month-to-month doesn't matter. Year-to-year matters more in from the perspective of this year compared to last we have slow down in terms of price increase. From low double-digit territory to single-digit territory particularly along the coastlines where most action has occurred. I think the coming year is one where we will see probably a slight slowdown in the increase in sales prices. I think it will be a positive figure going forward this year as well. I don't see any end to the mild increase in pricing or housing activity this year. Dana, how do prices generally by Hayes around the holidays? Typically they are down and the decrease you mention month over month is probably from a non-seasonally adjusted data . -- seasonally adjusted is probably up nominally. How are we doing in San Diego? Are we still short of houses for people to buy? Yes. In the listing markets, listings are up a little bit. If you are in the market there are homes out there available to you and I wouldn't call it a shortage right now. There are several months supply. If you are looking at new homes, we had a better year this year in terms of building permits, both single-family and multifamily units, higher than the previous few years. But still way beyond what the demand is which suggests we will continue to be behind the eight ball with respect to the supply and demand. It's very much in balance toward demand with much greater than supply in San Diego and that suggests they continue a bid up in prices. Do you agree? Absolutely. We can't generate enough housing to match the demand as dictated by increase in households. Why are we having so few new houses built wax is at the regulatory process is so onerous that it's difficult to build? That's a big part of it and the leadtime to get something approved and built is years. Another part of it is the construction costs when people look at housing prices and think, developers and builders must be making a mint. Not really because what has happened to construction cost is amazing. The framers, plumbers, and drywall or's, those subcontractors are short of labor and have to play people more than they used to. This is a story I of her before that as a result of the housing downturn in the great recession, a lot of guys got out of the construction business. Absolutely. They either went into other trades or oil and gas are moved to other markets where there was more employment or even back to Mexico. Some left the industry for good and some retired and will never be back. Those who were 18 years old at the beginning of the recession never learned how to become a plumber, they learned something else. Now we have no 28-year-olds with those skills. Gary, we have seen home prices go up for quite a few years. Are we going to see that labor situation turn around anytime soon? I don't expect that we will. I think we will always have a shortage of labor relative to the gold/go years of 20/go years of 2005. I would put the blame on the entitlement. Even last year when we permitted regionwide 8000 housing units which was almost double the previous year in terms of permits, that's half of what the demand is in San Diego. The blame falls squarely on the inability of developers to get permission from the cities and from the County of San Diego. I don't see that situation as ever-changing. In fact I think it getting much worse. That's the nature of our politics. There are lots of objections to having more houses built close to you. And imagining traffic problems getting worse as a result of that. It's even worse now because San Diego is going through a sea change in terms of the housing we are delivering and where we need to deliver which is in the already existing communities. What we have seen his opposition already in place in these communities. One developers come in a proposed density and height, essentially they are proposing change. There is very little constituency for change. That suggests that there is a long and laborious entitlement process. Projects get smaller and fewer are proposed. The one exception is downtown San Diego. There is very little housing being delivered around the region that close to the demand given the level of economic strength we've had in the region over the last few years. You're listening to Midday Edition on KPBS and I'm Tom Fudge my guests are Dana Kuhn Vice President of Sunwood Ventures and lecturer at San Diego State and on the phone joining me is Gary London a real estate economist with London Group Realty Advisors. Were talking about the cost of housing. We talked about the strong demand and relatively low supply but there are a couple of things that could slow the housing market in 2016 and prevent further increases in prices. First of all is the notion that the price of a home in San Diego is overinflated. There has also been that interest rate bump we saw over the past month. Dana, how much influence do you think that fed Rick Hite is going to have over the affordability of homes in San Diego? The one that has taken place was already priced into the mortgage market. A friend of mine Mark Goldman said rates went down slightly after the Fed rate bump. Overall in the long-term, yes, the short-term rates set by the Fed does affect mortgage rates. Various experts have predicted another couple of quarter-point pumps in the next 3 to 9 months. Gary, where do you think interest rates are going? I expect they will go up gradually over the coming year. I suggest that even though every time interest rates go up there are a number of people that are taken out of the market in terms of prospects to buy, the flip side is as interest rates go up I think the underlying -- underwriting standards will loosen a little at the bank. It might suggest more people will be in a position to qualify for loans as banks find putting out loans are more profitable with higher interest rates. It remains to be seen whether the interest rate pumps are a good thing or bad thing. I agree with Dana that it's gradual regardless. What about the cost of real estate? There are people that suggest not necessarily San Diego but other communities in California like San Francisco might be in the housing price bubble? Our home prices too high and do they have to fall for that reason? There is no one definition of a bubble. If you think of a bubble as pricing based on irrational demand, I would agree that San Francisco is there. I don't think we are in Southern California. Gary, are we in a housing bubble? No. We are the cheapest coastal California market and nowhere near as expensive as San Francisco. We don't have such an imbalance of demand and nothing at the level we have experience prior in 2007. There's no chance of a housing bubble given the numbers we see today. I think that's ridiculous. Gary, how does a normal healthy housing market correct when prices get too high? Are we hoping they will plateau or drop a little bit? What will happen is the best case scenario is we will see a decrease in the increase of housing prices. We will see modest increase in prices and there will be an economic cycle turn. When that happens, that will suggest housing demand will go to the sidelines for the period of the downturn. What we want is a plot period in the future or maybe a slight dip, but I don't think we will see it -- any significant decreases. A decrease in the increases, when you look in your crystal ball Dana is that what you see? Yes. I think it's already happening. For the coming year something between 3% and 4%. Perhaps even lower the following year. When we do the shows we try to give a little bit of advice to first-time homebuyers. What advice would you offer to them, Dana? Is it a good time to get in the market or not? The people who are renting now are having a hard time saving any money because of the rents. Because rents are high? White. I would advise them to adopt a spartan lifestyle and get enough money to get into the market. Gary, that doesn't sound like much fun, spartan lifestyle. What advice would you give to people who are renting and thinking of buying a house? The best financial decision that I ever made was when I bought my first house. I think that goes for most people. If you can do anything you can to buy a house, be it a starter condominium or whatever, that's the way to go. I don't think waiting makes any sense at all. Even if the market correct slightly downward, it always goes back up. The pricing we are seeing today are just about at the peak of the bubble market from 2007. The numbers always to recover. My guests during this part of Midday Edition have been Dana Kuhn and Gary London. Terry who joined us by phone is a real estate economist with London Group Realty Advisors. Thank you Gary. You are very welcome. And Tran17's Vice President of Sunwood Ventures a real estate development company and also a business lecturer at San Diego State. Thank you for having me.

Our top story and Midday Edition, the highly respected case Shiller home Price Index came out this morning and of course it had more good news. In October home prices nationwide rose 5.2% over October of the previous year. Prices went up slightly over the month before. In San Diego the story was much the same. October prices up 6.2% over the previous year. But hang on and let's remember the Fed has begun raising interest rates giving us at least one reason to think buying homes will get harder. Real estate prices have been going up for years and much faster than the rate of inflation. When will it stop and how will it stop? Joining me to talk about the reality of the real estate market and what might happen next year are Dana Kuhn and Gary London. Dana is Vice President of Sunwood Ventures a real estate development company and also a lecturer at San Diego State. And Gary London is a real estate economist with London Group Realty Advisors. Hello, Gary. Good morning. How are you? I'm doing good. Let's talk about housing prices. I will ask both of you to characterize what kind of a housing market you think we are in. Dana, why don't you go first? We are in steady single-digit territory which is the best case for both sides of the coin. The good news characterization is of course for those already in the market, not those trying to get in. To have prices continue to increase at more than 4% or 5% will make things incredibly hard for those people trying to get in. What about you, Gary, what kind of a housing market are we looking at? It depends where you stand in the market from the standpoint of housing owners and people already in the market. These kinds of gradual increases in prices and valuations are a good thing particularly if you intend at some point to trade up. If you are not in the housing market, it continues to be a more difficult environment for you. One that probably is not going to get any better if you are outside looking in over the coming year. How to the latest figures for San Diego in the case Shiller housing index compared to the rising prices we've seen the past few years? I should mention month over mice -- month prices in October in San Diego were down slightly. Gary, what about you? How do the new numbers compared to the old numbers? We don't look at month to month as having any import at all. The housing market moves at a snails pace so month-to-month doesn't matter. Year-to-year matters more in from the perspective of this year compared to last we have slow down in terms of price increase. From low double-digit territory to single-digit territory particularly along the coastlines where most action has occurred. I think the coming year is one where we will see probably a slight slowdown in the increase in sales prices. I think it will be a positive figure going forward this year as well. I don't see any end to the mild increase in pricing or housing activity this year. Dana, how do prices generally by Hayes around the holidays? Typically they are down and the decrease you mention month over month is probably from a non-seasonally adjusted data . -- seasonally adjusted is probably up nominally. How are we doing in San Diego? Are we still short of houses for people to buy? Yes. In the listing markets, listings are up a little bit. If you are in the market there are homes out there available to you and I wouldn't call it a shortage right now. There are several months supply. If you are looking at new homes, we had a better year this year in terms of building permits, both single-family and multifamily units, higher than the previous few years. But still way beyond what the demand is which suggests we will continue to be behind the eight ball with respect to the supply and demand. It's very much in balance toward demand with much greater than supply in San Diego and that suggests they continue a bid up in prices. Do you agree? Absolutely. We can't generate enough housing to match the demand as dictated by increase in households. Why are we having so few new houses built wax is at the regulatory process is so onerous that it's difficult to build? That's a big part of it and the leadtime to get something approved and built is years. Another part of it is the construction costs when people look at housing prices and think, developers and builders must be making a mint. Not really because what has happened to construction cost is amazing. The framers, plumbers, and drywall or's, those subcontractors are short of labor and have to play people more than they used to. This is a story I of her before that as a result of the housing downturn in the great recession, a lot of guys got out of the construction business. Absolutely. They either went into other trades or oil and gas are moved to other markets where there was more employment or even back to Mexico. Some left the industry for good and some retired and will never be back. Those who were 18 years old at the beginning of the recession never learned how to become a plumber, they learned something else. Now we have no 28-year-olds with those skills. Gary, we have seen home prices go up for quite a few years. Are we going to see that labor situation turn around anytime soon? I don't expect that we will. I think we will always have a shortage of labor relative to the gold/go years of 20/go years of 2005. I would put the blame on the entitlement. Even last year when we permitted regionwide 8000 housing units which was almost double the previous year in terms of permits, that's half of what the demand is in San Diego. The blame falls squarely on the inability of developers to get permission from the cities and from the County of San Diego. I don't see that situation as ever-changing. In fact I think it getting much worse. That's the nature of our politics. There are lots of objections to having more houses built close to you. And imagining traffic problems getting worse as a result of that. It's even worse now because San Diego is going through a sea change in terms of the housing we are delivering and where we need to deliver which is in the already existing communities. What we have seen his opposition already in place in these communities. One developers come in a proposed density and height, essentially they are proposing change. There is very little constituency for change. That suggests that there is a long and laborious entitlement process. Projects get smaller and fewer are proposed. The one exception is downtown San Diego. There is very little housing being delivered around the region that close to the demand given the level of economic strength we've had in the region over the last few years. You're listening to Midday Edition on KPBS and I'm Tom Fudge my guests are Dana Kuhn Vice President of Sunwood Ventures and lecturer at San Diego State and on the phone joining me is Gary London a real estate economist with London Group Realty Advisors. Were talking about the cost of housing. We talked about the strong demand and relatively low supply but there are a couple of things that could slow the housing market in 2016 and prevent further increases in prices. First of all is the notion that the price of a home in San Diego is overinflated. There has also been that interest rate bump we saw over the past month. Dana, how much influence do you think that fed Rick Hite is going to have over the affordability of homes in San Diego? The one that has taken place was already priced into the mortgage market. A friend of mine Mark Goldman said rates went down slightly after the Fed rate bump. Overall in the long-term, yes, the short-term rates set by the Fed does affect mortgage rates. Various experts have predicted another couple of quarter-point pumps in the next 3 to 9 months. Gary, where do you think interest rates are going? I expect they will go up gradually over the coming year. I suggest that even though every time interest rates go up there are a number of people that are taken out of the market in terms of prospects to buy, the flip side is as interest rates go up I think the underlying -- underwriting standards will loosen a little at the bank. It might suggest more people will be in a position to qualify for loans as banks find putting out loans are more profitable with higher interest rates. It remains to be seen whether the interest rate pumps are a good thing or bad thing. I agree with Dana that it's gradual regardless. What about the cost of real estate? There are people that suggest not necessarily San Diego but other communities in California like San Francisco might be in the housing price bubble? Our home prices too high and do they have to fall for that reason? There is no one definition of a bubble. If you think of a bubble as pricing based on irrational demand, I would agree that San Francisco is there. I don't think we are in Southern California. Gary, are we in a housing bubble? No. We are the cheapest coastal California market and nowhere near as expensive as San Francisco. We don't have such an imbalance of demand and nothing at the level we have experience prior in 2007. There's no chance of a housing bubble given the numbers we see today. I think that's ridiculous. Gary, how does a normal healthy housing market correct when prices get too high? Are we hoping they will plateau or drop a little bit? What will happen is the best case scenario is we will see a decrease in the increase of housing prices. We will see modest increase in prices and there will be an economic cycle turn. When that happens, that will suggest housing demand will go to the sidelines for the period of the downturn. What we want is a plot period in the future or maybe a slight dip, but I don't think we will see it -- any significant decreases. A decrease in the increases, when you look in your crystal ball Dana is that what you see? Yes. I think it's already happening. For the coming year something between 3% and 4%. Perhaps even lower the following year. When we do the shows we try to give a little bit of advice to first-time homebuyers. What advice would you offer to them, Dana? Is it a good time to get in the market or not? The people who are renting now are having a hard time saving any money because of the rents. Because rents are high? White. I would advise them to adopt a spartan lifestyle and get enough money to get into the market. Gary, that doesn't sound like much fun, spartan lifestyle. What advice would you give to people who are renting and thinking of buying a house? The best financial decision that I ever made was when I bought my first house. I think that goes for most people. If you can do anything you can to buy a house, be it a starter condominium or whatever, that's the way to go. I don't think waiting makes any sense at all. Even if the market correct slightly downward, it always goes back up. The pricing we are seeing today are just about at the peak of the bubble market from 2007. The numbers always to recover. My guests during this part of Midday Edition have been Dana Kuhn and Gary London. Terry who joined us by phone is a real estate economist with London Group Realty Advisors. Thank you Gary. You are very welcome. And Tran17's Vice President of Sunwood Ventures a real estate development company and also a business lecturer at San Diego State. Thank you for having me.

San Diego home prices slipped slighting in the fall, but they're still up from last year.

Home prices in San Diego dipped 0.3 percent in October from the month before, and rose 6.2 percent over October 2014, according to the Standard & Poor's Case-Shiller Home Price Index released Tuesday.

Case-Shiller created its indices by taking home prices in 20 large cities in January 2000, assigning them a value of 100, and tracking their subsequent rise and fall.

San Diego's index stood at 215.75 in October — meaning that home values more than doubled over almost 16 years. The increase is the third fastest in the U.S., behind Los Angeles and San Francisco.

The composite 20-city index was at 182.83 in October, up 0.1 percent for the month and 5.5 percent higher since October 2014.

"Generally good economic conditions continue to support gains in home prices," said David Blitzer, managing director and chairman of the Index Committee at S&P Dow Jones Indices.

"Among the positive factors are consumers' expectations of low inflation and further economic growth, as well as recent increases in residential construction, including single-family housing starts," Blitzer said.

He said the recent hike in the federal funds rate by the Federal Reserve probably won't lead to "runaway mortgage interest rates" for those contemplating buying a home.

Despite Blitzer's optimism, a recent survey by the real estate website Zillow shows a handful of experts believe San Diego's housing market is experiencing a bubble.