In 2004, San Diego home prices were rising so fast that Joe Byrne began entertaining a life-changing prospect: Sell and move.
And that’s just what he did. He got double what he had paid for his Mira Mesa house and moved to Franklin, Tenn. There, he purchased a new home — in cash — with the equity he had gained.
“The move has been fantastic,” Byrne said. “It’s been a remarkably easy transition.”
Could a similar exodus be on the horizon?
Home prices are rising again because demand has been hot and the inventory of available homes is extremely low.
The last time this happened, many homeowners saw the value of their homes rise 50 percent — or more — in just a few years. That spike was enough to push many to move to less expensive parts of the nation, just as Byrne and his wife did.
The Byrnes made the move because selling worked out so well for them financially, he said. Other factors played roles, but the equity they gained gave them the ability to take the leap. Yes, San Diego is beautiful — the Byrnes come back to visit family — but other options exist.
“There are some pretty nice places in the rest of the world too,” he joked.
Today’s home prices have not reached the height of that past bubble, but they are closing in fast. In October, the median home price in San Diego County reached $498,000, up 7.1 percent from the prior year. The peak of the bubble was in 2005, when prices reached $517,500, only 4 percent higher than today.
Than Merrill, CEO and founder of the real estate investment company FortuneBuilders and former host of A&E’s “Flip This House,” said he thinks the previous high is the tipping point. “I maintain that home prices have yet to reach a point in which it’s too enticing not to sell,” he said. “I wouldn’t expect homeowners to consider selling until prices resemble that of the latter end of 2005, when the median home price eclipsed $517,000.”
Merrill said he thinks prices will continue to increase, but not everyone is so sure.
Norm Miller, a professor of real estate finance at University of San Diego’s Burnham-Moores Center for Real Estate, points to recent data from Collateral Analytics, a real estate valuation firm, which shows the market flattening.
Urban Land Institute’s Real Estate Consensus Forecast predicted that home prices will rise 5 percent nationwide in 2017, and rents will increase by only 3 percent.
San Diego is also expected to cool, but is still projected to outpace the nationwide average. CoStar, a real estate information group, predicted in October that San Diego rent prices will increase by 6.1 percent in 2017. Based on current projections, San Diego’s housing market will reach Merrill’s tipping point.
But that’s not necessarily a bad thing, according to Alan Nevin, director of economic and market research at the Xpera Group. Greater out-migration would bring some relief to what Nevin said is the biggest housing crunch he’s seen in his career.
“In a normal market, you have a six-month inventory of listings, and we are down well below three months, and in some areas it’s down to a two months’ supply,” Nevin said. “So, we have a dramatic shortage of existing inventory.
“There’s a formula that’s always been in place that says that every time you sell one new home, four existing homes sell. The reason why our market here has been in the dumps is we aren’t building any new homes, so people have no place to move up to, so they’re not listing their homes for sale.”
That’s one reason Nevin publicly supported Lilac Hills Ranch in the recent election. Measure B would have approved a 1,746-unit housing development north of Escondido. It lost with only 36 percent of voters supporting it.
There are few major new-home construction projects in the county. Civita, located in Mission Valley, will include more than 4,600 units when built out in 10 years. It’s reached about one-third of its housing goal thus far. Millenia, which started construction in September, will include 3,000 units. It is located in Otay Ranch.
Most housing units under construction are slated to be apartments. There are 8,000 units in the pipeline in East Village alone — plus 43 projects planned for other parts of San Diego. This is the region’s biggest success story, Nevin said. But a recent report finds that San Diego would need to add 170,000 units by 2025 to keep pace with population growth. The report by McKinsey Global Institute said housing construction would need to triple.
The alarming thing is that San Diego is not alone in this shortage, Nevin said. Several other geographic areas that offer good-paying jobs for millennials — think Seattle, Silicon Valley, Boston — are experiencing a similar fate.
“If you’re in Seattle or Silicon Valley, home prices there are silly as well, and they’re not building them there either,” Nevin said.
Millennials are more likely to migrate out of expensive regions, Trulia found. More than 50 percent of heads of households who move are 34 years old or younger. As rental prices increase, that number could grow. And that, experts warn, could lead to staffing problems for the region’s growing tech industry.
Baby boomers are not helping the situation.
“I think the number is 85 percent of seniors die in the home they’ve been living in,” Nevin said.
Baby boomers are reluctant to sell their homes because many feel they can’t afford to move elsewhere in such a market. One big incentive for them to stay in their homes is that Proposition 13 holds down property taxes. So, instead of downsizing, more are staying put.
“The senior population has not shown an inclination to sell their homes and move either out of state or into assisted living or a senior community,” Nevin said. “One of the fascinating things about San Diego is, you would think with our wonderful climate we would have a huge number of senior communities — not for sick seniors, for perfectly well seniors,” he said.
The lack of such choices may be why so few seniors here put their homes up for sale, Nevin said.