Lots of people are nervous about what’s going to happen with the real estate market. Is the presidential election going to have an effect on home values? Should they buy now, or is there another bubble that’s going to burst?
Renowned real estate economist Alan Nevin was asked these questions and more at a real estate conference this week, and his responses were satisfyingly reasoned and hyper-local to San Diego.
Alan Nevin was introduced as “the Oracle,” because he apparently always gets it right. He’s got a pretty impressive resume, he’s a local expert witness who testifies to real estate values and market trends in San Diego law suits, and he seems to have a knack for simplifying a complicated subject.
He doesn’t mince words, and his advice was specifically based on his extensive knowledge and experience with the San Diego real estate market. There was no candy coating.
Stocks Are Overpriced
One of the biggest reasons I hear that people are nervous about buying real estate right now is an over-inflated stock market, suggesting another recession will naturally result. Nevin swiftly dispelled that concern with respect to the San Diego real estate market, stating, “Stocks are overpriced, but that makes no difference. Jobs drive the economy."
While the nation as a whole might be pulling an average or even stalling rate of new job creation, Nevin emphasized how the West Coast is carrying the nation, with California bringing in much higher job creation than elsewhere. CNBC recently commented on how San Diego is now challenging Silicon Valley as a growing hub for technology startups.
As Nevin put it, “the market is local.” California gained 350,000 residents last year, has been adding 350,000 new jobs per year, and the majority of those jobs are in “labor-intensive” industries (companies like Google and Facebook, where as much as 80-85% of costs are devoted to employee salaries), as opposed to “capital-intensive” jobs (such as airlines and automobile manufacturing, where labor costs are much lower).
San Diego County is a strong contributor to those numbers. In fact, the only “weak link” in the local economy, according to Nevin, is the lack of available housing.
Lack of Available Homes Will Keep Driving Prices Up
The lack of available housing is the single most important factor driving the real estate market, per Nevin. We’re about 50,000 units shy of what we should be developing in terms of new housing each year. And the issue is not money available to build, but a shortage of "shovel-ready” dirt to build on. That is what has been driving the increase in home prices in San Diego, and per Nevin, will continue to drive prices up for the next few years at least.
While this is great news for people who are thinking of selling their homes and those with the money to capitalize, Nevin laments the squeeze this perfect storm is putting on the middle class: more people looking for housing, more money coming into the County, and few affordable homes to choose from. People are spending a larger percentage of their income (40-50%!) on housing whether it’s via rent or mortgage, and that’s not going to change as long as there’s a shortage of available homes.
“We’ve got the people, we’ve got the jobs, and the only thing we’re missing is housing."
Will the Presidential Election Have an Effect on Home Values?
Nevin laughed this question off. It won’t make an ounce of difference. “Unless it goes one way,” he jokes.
The bottom line, Nevin’s message for anyone who has the means to buy a home but has been worried about what the market’s going to do, is that the market is going to keep going up. Rates are low, and even if they go up a quarter of a percent, demand will continue to exceed the supply of housing.
"If you don't buy now, you're not going to be able to in a few years."
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