What’s a million dollars get you in San Diego?
As I was out showing property yesterday to a client relocating from out of town, we spend more than a little time discussing how prices and values vary among communities. “Why is La Jolla more expensive than Del Mar?” she asked, noting that they are both coastal communities, both enjoy well-respected schools, and are each within striking distance of employment centers. After making all of the logical arguments, arguments not seeming all that logical to my friend riding shotgun, I had to resort to the “it just is” explanation.
So let’s assume you have $1 million burning a hole in your pocket. What can you buy in San Diego? First, it is important to remember that we used to routinely use the word “million” as in “they are asking a half-million.” Today, a half-million is five-hundred thousand, and a million is one-thousand thousand. A million bucks isn’t what it used to be.
For my purposes here, I took the last recorded sale from our Sandicor Multiple Listing Service (MLS) where the sale price was hovering around $1 million. I had hoped to compare this scenario to 2000 prices but, alas, our MLS does not include photos for this bygone era. Case-Shiller I’m not, but suffice it to say that your money went a lot farther back then.
And a couple more…
Fortunately, I am not burdened with this million-dollar decision. I have opted to spend my retirement account at the gas pump.
ABOUT THE AUTHOR Kris Berg is Co-Owner and Designated Broker of San Diego Castles Realty. If not-so static web sites are your thing, go here at once where you will find loads of real estate information including homes for sale, market trends, floor plans and more. Kris's hobbies include fencing and spot welding. She likes kittens. 
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{ 10 comments… read them below or add one }
There’s some deals to be found. Recently I found a listing for this nice house in La Jolla that was up on the hill for just under a million. It was about 2000 sqft and had a tiny pool. I think it’s pending now, but I wish I had held onto the address. Me and a friend were discussing buying it together.
Speaking of prices, here’s an OddTodd video that was played on ABC news with some very good charts over the last 100 years of housing prices:
http://tinyurl.com/3wjpp8
Hi Sven – Fun chart/video you found. I had not seen it. The relatively recent and dramatic uptick in values obviously coincides with the now bygone “free money” era. So we are adjusting our way back to sane home purchase decisions and while painful for many, we knew it had to happen. Interesting that the chart showed the peak of values but did not show the downward adjustment that has occurred for almost three years now. Nor did it offer a projection forward in time relative to the “average” trend line. While history is factual, prognostications are far more fun to debate and discuss.
FWIW, not to make this more complicated than it needs to be, it should be noted that the chart showed home values relative to inflation, even though home values are not a part of that calculation. This should clear things up for everyone.
Sven – Sorry, one more thing to consider. I forgot to mention that the method for calculating the CPI/inflation has changed at least three times over the past 30 or 40 years, so I’m not sure how that is accounted for in the long term chart.
I’m not sure how he factored that in. The chart was created by Shiller (economist at Yale), and you would hope to assume that for sake of preserving academic integrity that he made an honest assessment factoring in the changes to the CPI calculations. The chart was definitely created at or before 2005 because I found several blog posts referring to it in 2005. I believe it was published in Shiller’s book “Irrational Exuberance 2nd Edition” which was published in 2005.
So the chart doesn’t include the last 3 years, but I have to say based on what happened the last three years compared to what expectations were 3 years ago, he was right on. Here is a link to the same chart extended 2.5 years to the middle of 2007.
http://tinyurl.com/2phcy4
Also that chart is only existing homes sales only. Here is a chart of ~40 years of new home sales: http://tinyurl.com/5bzelb
Actually, if you factor in that historically (ommitting the last 10 years) housing has averaged the same gains as inflation, that makes perfect sense. If housing grows faster than inflation, it means that we are inevitably gradually becoming more of a nation of renters and vice versa. Wages go up with inflation and that increases what people can afford and therefore increases the price of houses.
Now to worry about the gasoline bubble. All the fast money (hedge funds) have been dumping large sums into oil futures lately artificially raising the price. If you want to make some money right now, buy a drilling stock or an oil future based ETF. Just remember to get out before that pops. Might want to get Kris to sell her bug and buy a hybrid because we’ll be looking at $6/gallon gas soon.
Sven – Kris squeezes out about 28 mpg (22 City) on that Bug. I’m the one who needs the hybrid since she has me running all over town for her.
I do not intend to go toe-to-toe with the Shiller statistical analysis. I have looked at their equations and even if they were wrong, there would be no way for me to know it, or worse yet, prove it. So I will have to take your (and Shiller’s) word for its validity.
Maybe it’s almost time to short the energy complex.
Don’t short it yet. If there’s one truth about today’s investing (bubble) generation is that things tend to get ridiculous before they can crash. Oil is up 70% in the last year. That’s a lot, but it’s not there yet. Right now there’s a ton of oil that’s just off the shore of California, the gulf of Mexico, and up in Alaska. Not to mention there are many sources that just weren’t economical to tap into before, and they are now.
If gas prices go up another 100%, we’ll start to see a public outcry to begin tapping into the resources here. When the supply chain starts opening up, the speculators will jump out of the market, and we’ll have a crash in oil prices. This could take 5 years, so don’t hold your breath.
I am a realtor in arizona and I think that we have seen the worst of the realty market. I hope I am right but I think we will see growth in the real estate market in 09. greg moser
Greg – Not before, IMO.
Kris
I personally predict prices will continue to slide through 08 and 09 with the rate of reduction slowly in 09 to almost a flat line in 2010. (but 2010 could still be slightly negative) After that, prices will underperform inflation for a couple of years at least. We’ll probably never see 20% YOY gains again in our lifetime.
Volume on the other hand will start to go up next year compared YOY with this year, but that’s like saying we’ll discover an animal faster than a turtle.