Is San Diego in a Housing Bubble?

Is San Diego in a housing bubble? Or are homes in the county just simply overvalued? In a study released by online real estate website Zillow, a majority of analysts said San Diego’s market is not in a bubble and would likely not be in one in the near future. So what’s happening in the San Diego real estate market?

While San Diego County home prices picked up in November, sales slowed.  The month-to-month increase in median home prices was 2.5%, but the sales pace dropped 18.4% from October. While it wasn’t the slowest November in terms of sales, it ranks as the ninth lowest for the month in 28 years.

That month-to-month sales decline, said CoreLogic research analyst Andrew LePage, was likely due to low inventory and lack of affordability. President of the Greater San Diego Association of Realtors Chris Anderson said the county has about two and a half months of inventory right now. “A healthy market is five to six months supply,” she said.

However, the quick rise in home prices did stir up some fears of a housing bubble. A bubble assumes housing prices are much overvalued and will eventually come crashing down. Real estate blogger Rich Toscano, who predicted the last housing crash, agrees that there’s no need to worry that there’s a housing bubble – valuations are only 19% over historic median levels and nowhere near the 75% reached in 2005.

“The last bubble was caused, in great part, by sub-prime mortgages, where people actually bought homes they probably shouldn’t have because they weren’t able to afford them,” said Zillow chief economist Svenja Gudell. “This time around, people are getting homes with fairly high down payments and have to go through very rigorous checks to get approved for that mortgage.”

Do you think the San Diego market is on the brink of a housing bubble? Let us know your thoughts.

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