Strong demand for San Diego condos continues its four year trend of reducing the supply of available condos. This reduction in supply has resulted in buyers paying higher prices for the few remaining choices of the shrinking inventory. Average sold prices per square foot for downtown San Diego condos have increased 4% in the first six months of 2011 compared to the first six months of last year. At this pace downtown San Diego could see its condo prices rise 8% for the year. It’s not uncommon for condo sellers to receive multiple offers these days. The pendulum has swung to the sellers’ favor in 2011, according to Mark Mills, Downtown Condo Expert with RE/MAX Real Estate Consultants.
There is a lot of talk in the news these days about declining real estate prices. Downtown San Diego real estate is performing better than most cities because it offers the best weather in America, several thousand condos less than 10 years old, low crime rate, you can walk to everything and feel like you’re on vacation year round?
Downtown San Diego condo for-sale inventory has shrunk to less than 3% of the total condo supply. There are not many markets like this anywhere in America where supply is so limited. This is bad news for buyers and even worse, no new condos are under construction. The next condo to be built is expected to be built by Bosa Development, another luxury high rise tower that is scheduled to be ready for occupancy in 2015.
There are a lot of forces that influence housing prices, location, interest rates, down payment requirements, availability of local jobs, weather, etc. San Diego condo shoppers must realize that San Diego is a “vacation city” and a lot of buyers are second home buyers or buyers planning to retire here. So the state of the local economy with regard to unemployment figures for example has no effect on the demand from these buyers. In fact 40% of condos bought in 2011 were bought with buyers paying cash.
Supply is influenced by available land, availability of building permits, construction financing terms, builder confidence and faith that future housing demand will be strong enough to sell their brand new condos for a profit. Playing an increasing role in developers’ minds these days is the rise in raw materials costs (concrete, metals, etc) that need to be recovered through higher sales prices. When you look at downtown San Diego, you have very little land left to build on, difficulty getting building permits due to strict City guidelines on what they want built on the available land, strict and difficult construction loan terms for a developer to meet, etc, etc. So don’t expect to see new condo inventory for another four years at the earliest. All this uncertainty and the limitations of available construction financing is great for sellers as they will have very little new inventory to compete with over the next five to seven years.