National Realtors believe San Diego housing not on bubble!
Yahoo News Alert:
Echoing the belief of real estate agents within San Diego County that no housing bubble will burst, the National Association of Realtors reports that the local market is in good shape with a potential for significant housing equity gains, particularly for homebuyers who plan to remain in their house for the long run.
Although home prices have risen faster than income, which is often cited to imply that there is a housing market bubble, NAR referenced shortage of new housing units, increased job growth, mortgage rates and the county being a desirable place to live as reasons why the market is still strong.
"Home price declines are very rare. In fact, the national median home price has not declined since the Great Depression of the 1930s," the report said.
As of January the median home price in San Diego County was $605,600, a 0.3 percent jump over December 2005 and 4.4 percent higher than a year ago, which is a healthy increase, according to the California Association of Realtors (CAR). "We were living in la-la land for a few years when things (prices) just skyrocketed; it was unsustainable. ... Things are coming back to reality," said Rob McNelis, president of the East County Association of Realtors.
The lack of available housing is one factor that will enable home prices to continue to increase, although at a lesser rate, while the market begins to stabilize.
"You have to have a huge excess of inventory (for prices to decline) and we don't have that right now," said Charles Jolly, president of the San Diego Association of Realtors, adding that the only area in the county this might occur is in downtown San Diego.
According to the report, the region added 79,000 new housing units in the past five years, of which 46,000 were single-family units. However, the job market has been exceptionally strong as the report predicts the region will create 30,000 to 50,000 jobs over the next 24 months. Combine this with increasing population and large demand for housing still exists.
"For there to be meaningful decline (in home prices), we'd need a significant job loss," said Mark Scott, president of the Southwest Association of Realtors.
While no huge excess of inventory exists, the number of months needed to deplete the supply of homes on the market at the current sales rate has increased to six months as of January, according to CAR's Unsold Inventory Index, another sign the market is reaching stabilization, Scott indicated.
"When the market changes dramatically, it does concern people. ... They are more cautious when they buy and that's a good thing," Jolly said.
Some may think an increase in inventory should bring prices down; however, the climate and location of the county makes it a highly desirable place to live. This ensures affordability will continue to be a problem, as there will always be someone willing to pay for what some consider an overly expensive home. Combine this with mortgage rates and the multiple ways people can finance the purchase of a new home, and buying activity should remain healthy.
"The local market will benefit from second-home purchases by U.S. baby boomers as well by wealthy foreigners," the report stated.
Scott projected a single-digit increase in home prices, while McNelis forecasted a 3 percent to 4 percent jump over the year. Jolly said that if a single-digit increase were to occur, homebuyers would still be making a great investment.
"It's a better return than the stock market," Jolly commented.
The reported stated in the unlikely event of prices declining by 5 percent, most homeowners would still maintain sizable equity build-up in their homes. The market will experience such a decline only under extreme unlikely scenarios, such as mortgage rates rising to 7 percent in combination with 36,000 job losses.
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