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Is it a good time to buy in San Diego?

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Judging from the local news reports about the state of the housing market, it's no wonder that consumers are asking if the right time to buy a home in greater San Diego has passed. We had grown accustomed to double-digit growth in home values over the past few years, and many consumers viewed their homes as either a short-term investment or an ATM for withdrawing cash for cars, vacations or credit card debt.

The fast run-up in prices during the past five years has repositioned home ownership in our region so dramatically that some owners see themselves not as a person who "earns a living to buy a home" but as a person who expects to "buy a home to earn a living."

Tammy Harpster

Over the past year, we have seen the market turn, with more houses for sale, a longer sales cycle, lower prices and now a credit crunch that threatens to shut out subprime borrowers and decrease the size of the buying pool. This cooling in the market has discouraged many buyers who are taking a wait-and-see attitude on the possibility that prices will fall further.

To explain how this all happened and what's ahead for housing, you need only look at the history of the San Diego real estate market. It has always shown growth, but more so since our worst downturn in the early 1990s.

At the time, people who purchased their first home at the previous peak in 1989-1990 were nervous about buying at the top of the market, much like today's buyers. But over time, the value of their homes has increased significantly and will continue to increase in the long term for two simple reasons. First, there is restricted availability of land for new housing, and second, San Diego will continue to be a desirable place to live.

This chart illustrates the major swing in value.

Another positive indicator for the local real estate market is that interest rates continue to be historically low. The average 30-year fixed-rate loan fell to 6.1 percent as of Nov. 29. This is a tremendous deal if you lock in these low rates over the long term.

So how does this help today's buyer? Suppose a buyer wants to purchase a $500,000 home and can lock in a 6 percent, 30-year fixed mortgage, resulting in a monthly payment of $2,998. But he or she decides to wait, speculating that housing prices may drop over the next year. Meanwhile, mortgage rates may increase from their current historical lows. If the 30-year rates go up from 6 percent to 7 percent, the price of that $500,000 home would need to drop by almost 10 percent to $450,622 in order for the buyer to maintain that monthly payment of $2,998.

The Federal Reserve has lowered interest rates twice in the last 90 days, yet there is no way to predict where rates will be a year from now. Still, many believe that if inflation picks up, rates may rise again in 2008. The bottom line is that waiting for local housing prices to drop further may not make it easier to afford a home.

Above all, owning your own home is a long-term investment. Buyers looking for a real home, not a get-rich-quick scheme, need to take into account interest rate fluctuations as well as home prices. But with a low interest-rate environment and the market having experienced a noticeable correction so far, this may be a great time to buy in San Diego, one of the world's most desirable places to live.


Harpster is senior vice president with Phoenix Realty Group.

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