'Neutral Marketplace' Returns to SD Residential

SAN DIEGO—It is equally advantageous right now for a seller to sell and a buyer to buy a home in San Diego, Ryan Judson, director, luxury division, White Label Home Collective for Berkshire Hathaway | Home Services, tells GlobeSt.com exclusively. We spoke with Judson following the release of his Q1 2015 San Diego market update to get his take on the residential market here.

GlobeSt.com: What are the most interesting things happening within San Diego's residential real estate market?

Judson:Oddly enough, the most interesting thing happening in San Diego's residential real estate sector is that we are finally seeing the return of a more-balanced and “normalized” real estate market. Because of its desirability, San Diego falls into a small category where demand outpaces supply. This is great news for anyone looking to purchase because the probability that prices will decline in our market is slim to none. With the recent economic stabilization in real estate, a “neutral marketplace” has returned, meaning it is equally advantageous for a seller to sell and a buyer to buy. Albeit due to the light inventory, the leverage is in the seller's pocket, thus allowing for a seller's market.

It seems that everyone is looking right now, and people are finding it difficult to find exactly what they want. And, even when they do, by the time they make an offer, they may be second or third in line, missing out on their chance to purchase. We've been having a lot of success lately finding people off-market properties. Stirring up expired listings, word-of-mouth “pocket listings” or simply contacting an owner of the “perfect property” for your clients and encouraging them to sell their home are additional reasons people should work with a real estate agent in the market instead of just searching on the Internet.

GlobeSt.com: Which submarkets here are strongest for residential real estate?

Judson:North County and the coastal corridor continue to see healthy and steady growth, especially in the Carlsbad/Oceanside area trickling into Vista, San Marcos and Encinitas. Downtown San Diego has stabilized a bit with heavier growth in the North Park, Hillcrest and Kensington areas. It's also worth pointing out that there has been a significant decline in quick housing flips, partially due to sellers being aware of the returning equity in their home, and also due to heavy competition among first-time buyers and long-term buy-and-hold investors. Housing flips have also pushed into our less-than-desirable markets or submarkets, thus creating a nice little wave of gentrification in neighborhoods that typically wouldn't be the first choice for a family to purchase a home and further reinforcing and increasing average home prices in San Diego. Certain pockets in San Diego, such as City Heights (92105), made the top-10 list in the nation for having more than 25% of all sales last quarter composed of flips. We are also beginning to see increased movement in the luxury areas of Rancho Santa Fe as well, where the average medium list price is just shy of $3.5 million and where the average days on market is trending downward.

GlobeSt.com: How is the residential arena matching the high demand for apartments in this market?

Judson:The demand for high-density living (apartments/condominiums) and affordable housing remains an issue in San Diego, specifically in North County with the lack of available land in the most-desirable areas. Builders are left with small infill projects such as the Lofts at Moonlight Beach in Encinitas, a unique development that includes residential units at the top, offices in the middle and retail on the bottom level. Highly desirable condominiums such as these are rare and therefore fetch a premium once they hit the market. Even new developers are facing strong opposition from the neighbors whenever they propose a high-density project. Everybody agrees that it's a problem and that we do need more affordable housing, but no one wants it in their own backyard. Affordability is also a tough realization for many young locals looking to purchase their first home. Because of this, rental prices have increased to incredible heights, thus spurring a multifamily-investor feeding frenzy as rents per unit garner exceptional annual cap rates. The buy-and-hold model for multifamily investments is worth its weight in gold. But just like the detached-SFR marketplace, these prices will hit their premiums sooner than later, so it's time to get in now or forever hold your peace—or at least until the next cycle. Also, you've got to pay to play if you want to be on the coast, or else you may have to start looking inland.

GlobeSt.com: What else should our readers know about San Diego residential real estate?

Judson:The thing about San Diego is that everyone wants to be here—including the investors, out-of-towners, foreigners and locals (who don't want to leave). It is arguably the number-one city in America, which has always meant a strong demand. This demand, combined with below-average supply, high rents, low interest rates and improving economy, is the reason experts are predicting a 23.9% uptick in values in the next five years for San Diego. It's expensive down here, but it's worth every penny, with plenty of equity to have or embed into the coming years.