value as of the end of last year will be worth between 2 percent and 4 percent more in 2016, indicating a distinct lack of the skyrocketing values that tend to precede a real estate bubble. So where is all the “bubble buzz” about San Diego coming from? For starters, one cannot really say the words “Cali- fornia real estate” without at least giving a passing thought to bubble potential. Much of the state is completely outside of the realm of affordability for the av- erage homebuyer on an average national income, and there is no sign that this will change in the near future. As Zillow chief economist Svenja Gudell explained at a recent panel that addressed, among other things, a poten- tial bubble in San Diego, “A handful of markets … are very hot right now, and it’s possible home values may actually begin to fall somewhat in these places as more residents are priced out amid affordability concerns.” If prices start falling too quickly and too many homeowners react by throw- ing their homes on the market to cash out while they can, a bubble scenario certainly does become a possibility. However, during that same panel and a corresponding survey conducted by Zillow and Pulsenomics, about two- thirds of experts asked about a San Diego bubble specifically said that it would not happen in the next five years, if at all. Instead, they cited Miami, Los Angeles, Houston, Seattle and Boston as being in “some danger.” A second component in any real estate bubble involves a significant overvaluing of real estate in a given region. Stick- ing with San Diego, recall the crash in that area in 2005, when prices fell from $517,500 in November and plummeted over the next four years to $280,000 in January 2009. This bust was precipitated by skyrocketing home prices that could

number was 75 percent, so homes are likely not overvalued enough, if at all, to tip the market in the near future. So how should investors look to be involved in San Diego real estate? Although wholesaling volumes are down in the area these days (and the media has been saying flipping is “dead” in the region for the past two years), the reality is that San Diego is one of a very few in-demand, high-profile California markets where the deals, such as they are, are still both available and, rela-

not hold up and by borrowers happily paying those prices despite an inability to pay the mortgages that came with those price tags. A projected annual 2 percent or 3 per- cent appreciation rate is, by comparison, quite staid and safe and does not indicate a high likelihood of mass overpricing in the San Diego area in the next 12 months. Furthermore, median home prices in San Diego are, at present, about 19 percent over historic median levels. By comparison, in November 2005, that

68 | think realty magazine | mar :: apr 2016

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