The Good News Is The Bubble's Temporary

Two analysts see a housing bubble in San Diego, but expect different outcomes. "'Generally good news in terms of San Diego, we will outperform California and the rest of the nation,' (said) Alan Gin, an associate professor of economics. Housing prices should appreciate by about 5 percent or less, and the time it takes to sell a house is expected to increase, Gin said." "'Almost everywhere I go, people ask me if we're in a housing bubble here in San Diego,' Gin said. 'My answer is yes, but the bubble isn't going to burst.'" "Housing demand should continue to outstrip availability, because the relatively strong job market, he said. Downtown, however, may have an oversupply of condominiums." But Rich Toscano sees it this way. "The conventional wisdom among both real estate industry insiders and the populace at large goes something like this: San Diego has not built enough houses to support population growth. San Diego continues to not build enough houses to support population growth. San Diego will never build enough houses to support population growth. And that's why housing is, and will ever be, so expensive." "The San Diego housing supply has more than kept pace with population growth in recent years. Therefore, the sharp increase in home prices is not explained by a housing shortage as is widely believed. As it happens, I entirely agree that there is a severe housing affordability problem in San Diego. Put another way, San Diego housing is overpriced. Really, really overpriced." "Even at the very peak of the late-1980s housing bubble, people were paying about 10 times per capita income to purchase a median-priced home, compared to almost 15 times per capita income now. The good news is that the affordability problem is, by its very nature, temporary." "Consider the fact that San Diego scored an eight on the California Association of Realtors' most recent Affordability Index reading. Only the highest-paid 8 percent of San Diegans can afford the median-priced home. Does this really seem like a sustainable situation?" "Home equity withdrawal and loose lending have served as props under the San Diego housing market, allowing home prices to remain far above what local wages would normally allow. Were home prices to remain flat and lenders to substantially tighten their standards, these artificial props under the housing market would be removed, resulting in a situation where very few people were able, let alone willing, to purchase homes at current prices." "We live in an uncertain world, but I say the following with great confidence: unless wages start rising very fast, San Diego home prices will eventually have to fall. One way or another, the housing affordability problem will fix itself."