The Wall Street Journal has an article today titled, "How to Tell if Your Housing Market has Hit Bottom."
They profile a couple of solid markets, Cambridge, MA and Denton, TX, and find the three key factors are employment, rents, and foreclosures. How does Encinitas stack up?
Employment
Encinitas' unemployment rate is 7.3%, much better than the California rate of around 12%, and also better than the national rate of around 9%. Encinitas has good and diverse employment in the area, from UCSD to Qualcomm and biotechs, and business centers from Carlsbad to UTC and San Diego. Employment is a big positive for Encinitas' property values.
Rents
There's an old rule of thumb in real estate: buy when the prices are 10x annual rents, and sell when the prices are 20x annual rents. Sit down before you do the math on your house. Chances are your house value is at least 20x, if not pushing 30x, the annual rent. You could argue that coastal properties will always have a premium price-to-rent, but we're still pushing the boundaries. Price-to-rent is a big negative for Encinitas' property values.
Foreclosures
If you're in the market to "steal one from the bank" as Jim the Realtor says, good luck to you. There are very few foreclosures in Encinitas (perhaps 1% of houses with mortgages went through foreclosure last year, judging from some mortgage and census data Jim helped me with), and the foreclosures that do come on the market generally attract bidding wars and sell for near retail price. The lack of foreclosures and the eagerness of investors and first-time buyers to snap them up are a big positive for Encinitas' property values.
On the other hand
The jumbo market seems to be drying up, and there's a lot of $1 million-plus inventory in Encinitas Ranch and Olivenhain. I wouldn't be surprised to see the McMansions dropping out of the low $1 millions cause squishdown on older houses in the sub-$1 million range.
But on the bright side
We've got prime placement for high energy prices. Our coastal climate minimizes heating costs in the winter and cooling costs in the summer. We can walk or bike around town for shopping and restaurants. And if the price of gas gets really ugly, we're on a great public transit line in the Coaster.
Most importantly, this is a great place to live. Your house isn't an investment. It's a home. Whether you rent or own, stop worrying about property values, and start enjoying where you live!
Starting to see houses listed w/ mortgage + taxes near equivalent rental prices. Not many and they don't last long, but they're showing up at least. Another year of mildly falling prices and buying should at least break even.
ReplyDeleteA lot of economists predict the fall will go far below equilibrium and then rebound. That probably depends more on another economic crisis, which is certainly possible.
Great info. Real estate can get pretty complicated, can't it?
ReplyDeleteWhat happens when interest rates rise?
ReplyDeleteWhen interest rates rise, I would expect it's because we are going into an inflation and devaluation of the dollar.
ReplyDeleteCash buyers and foreigners would probably step in at that time and houses would probably be OK in nominal terms.