2013 San Diego real estate market forecast
The San Diego Real estate forecast for 2013 is probably going to be my toughest. Currently the number one topic is the approaching fiscal cliff set for January 1, 2013. No one knows the final outcome of what taxes are going to be increased what loopholes are going to be closed and what programs may be cut. So, there are many factors that can affect both residential and commercial real estate in California as well as throughout the country.
I guess it would be much easier if I was writing this forecast for real estate in 2013 sometime in mid January next year at least some of the unknown factors now would be out of the way then. The problem is that this is my forecast for real estate in 2013 and it really wouldn’t be fair to write it in January 2013.
So, here’s what I see particularly for the San Diego real estate market and the California real estate market in particular though naturally some of this will apply to the national real estate market as well.
First, let’s talk about the good factors affecting the San Diego California real estate market. San Diego real estate has been slowly but steadily improving throughout 2012. Also the hottest segment of the San Diego residential real estate market has been typically in the lower price ranges. Also, the residential real estate market inventory in San Diego is quite tight. Currently any entry priced home in decent condition put on the market in San Diego, usually generates multiple offers within the first week. Now, combine these factors with mortgage interest rates hovering around 3 1/2% and you have a lot of factors in place that portend to indicate that the San Diego real estate market will continue to improve into the New Year.
Okay, now let’s look at factors that can have a negative impact on the San Diego residential real estate market. No matter which way the physical cliff talks eventually turn out, one thing to me seems certain. That factor is that in some form or another mortgage interest rate write off deduction is soon just going to be a fond memory. Yes, I don’t believe it would be just out-right eliminated, but certainly it will be scaled back perhaps over a number of years or geared toward the total income of individual homeowners. What I’m referring to here, is that the government might very well say for anyone making over $200 or $250,000, the mortgage interest rate write off may just the 50% or 25% , while people who are making less than that, could still possibly have a full write off.
The second negative factor that could possibly affect California real estate market is a fact that this year is a first-year that the Democrats have won a majority in the state legislature. A matter-of-fact I don’t believe there’s any Republican left in any California political office of any consequence. As a consequence of this, there has already been talk of various ways to increase taxes for California residents. Yes even though if this last election California moved into the number one spot for the highest state taxes and also increased its sales tax rate, California has not really substantially cut back on spending programs or state employee compensation or extremely generous retirement benefits.
So just within days of the November tax increase elections, California legislators have already started talking about new ways to increase revenue. Obviously, this is just code for how can we tax residence of California for more money. One LA legislator has already proposed increasing the vehicle registration fees by 300%! But, let’s bring this down to real estate… Here the talk as been on how to eliminate or get around California’s proposition 13 which put a cap on residential real estate taxes.
It still might be somewhat difficult to eliminate proposition 13, so the insiders seem to be focusing on ways to get around proposition 13. Prior to the Democrats getting their supermajority, to pass local school bond issues it required a two thirds vote of the public. So, the talk now has been to pass legislation to reduce this two thirds to a simple majority. If this becomes reality, school districts could propose and pass bonds that will add substantially to homeowners’ tax bills. Here, even though proposition 13 itself would remain in place; the easier school bond simple majority will accomplish the same thing … raising taxes on California homeowners.
The third negative factor I see for California home ownership and the San Diego real estate market in particular, is California’s own cap and tax program set to go into effect in January 2013. Yes, this is California’s gift to the U-Haul one-way rental business and boost to the economies of our neighboring states.
I’ve been told that for a 20 foot U-Haul truck rental from San Francisco to San Antonio, Texas cost about $1700, while the one-way cost going back is approximately $985. Yes, a true example of supply and demand working at its best.
Now, for those who may not know, former Gov. Schwarzenegger, who originally believed other nearby states, including Arizona, Washington and Oregon would take part in this law, pushed through its passage without the any other states participating. It seems once the neighboring states read through the proposed legislation they realized how seriously this would affect their economies for what most scholars believe will be less than a minute fractional change in carbon emission over a 50 year period.
With Californians already paying approximately 50% more for their electricity than the average for the rest of the nation, this new law is guaranteed to widen that gap even more. Plus, California has increased its mandate so now 33% of electricity produced in or for California must be from renewable sources by 2020.
The way this affects real estate is on two fronts. Census data shows that from 2007 the 2010, California lost almost half 1 million people to other states. During the same time frame, Texas gained 394,000 people. So by making it much more expensive to produce products and services in California we are losing jobs and people that would otherwise be creating more demand for high-priced housing. Also, the increasing utility costs and higher taxes because of this new cap and tax legislation will reduce disposable income for all Californians. Disposable income is one of the main factors in mortgage qualification.
So, when I consider all the factors affecting San Diego and California real estate in 2013, I believe we will see continuing modest improvement that will most likely end up being single digit San Diego housing appreciation for the entire year.
For anyone who would like to see my prior year-end forecast going back to 2005, visit this link:
San Diego real estate market forecast
So far, my prior forecasts for the San Diego real estate market have been pretty accurate. I realize some may believe this current forecast for the San Diego real estate market in 2013 may be too conservative. Well, I hope they’re right and San Diego housing appreciation hits double digits for 2013. Naturally, everyone should draw their own conclusions and seek the counsel of their own real estate and economic advisers before acting on any of my expressed opinions.
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