The funny thing about counting on the past as a future predictor is how some will attribute circumstances to history that simply belong in a piece of fiction. Here’s a challenge. Tell me how the last eight years is repeating any part of our San Diego or California real estate history. Take yer time.
Give yourself a break and don’t waste precious weekend time on what amounts to a bar bet. We on the west coast have relied on one common thread, regardless of whatever slowdown was our current reality.
Here’s a speed of light review of the last 30+ years of San Diego real estate history.
Downturn in ’74-75 — followed by the quickest rise in SD real estate values since the end of WW II.
Downturn in the last quarter of ’79 through most of ’83. Followed by a run up lasting until the end of ’89 more or less.
Downturn in the early to mid ’90′s led of course by the infamous S & L Crisis. Crisis indeed. Huge carnage ensued, making life incredibly tough for any but the most experienced survivor. This was followed by a slow but sure return to the Planet Normal, whatever the heck that is. Which was followed by the new biggest run up in SD real estate values since WW II.
Downturn in the beginning of ’06 — which hasn’t ended yet, and we’re approaching the middle of ’08.
San Diego (and California) real estate investors look at that history and say, “It goes down some, then goes up like crazy. It’s how things work in this neck of the woods.” Never mind that there were major differences in the origins of these ups and downs. There was pure inflation. One brought stagflation. There were interest rates above 15% in one downturn. The number 15, when it comes to interest rates, is three levels beyond the point where everyone stopped payin’ attention. Know what I mean, Verne? The current downturn finds us with historically low rates. Historically? Let me put it into chronological perspective.
I was in the business for over three decades before I saw an interest rate in the 6′s. Really. When several years ago the 30 year conforming rate dropped below 5% for an afternoon I thought I’d died and was living in some perverse parallel universe.
See the trend here? There is no real historical trend — with the lone exception of rising property values over the long haul. Those who invest based upon the assumption the next 10 years will offer the same script as last time will wonder what happened, instead of adjusting to the ever changing reality of real estate markets.
Real estate is leading the economy’s troubles today. This hasn’t been the case before. On the contrary, real estate has always been either a casualty or a beneficiary of the economy’s behavior, not the generator of it’s problems.
Show me where you studied history to predict what’s happening now, and/or what’s been happening the last several years. It’s all new. The universal surprise exhibited by economists, Wall Streeters, and the rest aren’t feigning their ‘lost in space’ mindset. They’re figuring this thing out as they go. Why?
‘Cuz history didn’t lead them to believe this was in the cards — no way, no how.
What does this mean to the real estate investor lookin’ to make the right move?
I’ve learned my lessons well. Early on I was taught the hard way to look at the Physics of Economics. Say what? A comparison to the physics you learned in school would be something like the principle of gravity and the principle of supply & demand. Ever seen gravity fail to produce the expected result? Ever see rising demand not increase the price of the object of that demand? Unless artificially and forcefully compromised, the results of both are eminently predictable.
This is exactly why those insisting on keeping their equity in the general California market in general, and places like San Diego specifically, will miss the opportunities available elsewhere. They’re used to everyone coming to them. San Diego was always a great investment. The keyword there? Was.
Prices in SD are far lower than they were in the fall of ’05. Yet even with the lower prices they still require very large down payments merely to break even — forget cash flow. Why would anyone buy a small multi-family property when it takes 30-50% down in order not to lose money every month?
They wouldn’t — they won’t — and for the most part they aren’t.
The mistake of allowing history to color your expectations for the future can have a ruinous impact on your retirement goals/plans. Look at each market with open eyes and, to the extent possible, without subjective bias. You might be surprised at your conclusions.
When Gettin’ Outa Dodge strikes you as an idea worth pursuing, find me and we’ll talk. This time you’ll be able to predict the future based upon what you’ve learned about me in the past. 
I would’ve been tickled to talk to you two years ago, and still will be today.
jeff@brownandbrowninc.com will find me every time.
Meanwhile, back at BawldGuy Ranch, here’s some weekend tunes you’ll probably find under rock ‘n roll history. Most of this sorta music didn’t predict the future of music much either, no matter what they tell you. This particular song is a perfect example of the San Diego real estate investor still in love with their local income properties. They don’t stand a chance. Does San Diego have a hold on you? How many of you remember this one?
Related posts:
- San Diego Real Estate Investors Try To Avoid Saying ‘What Was I Thinkin” 5 Years From Now
- San Diego Real Estate Investors — How’s That Income Property Workin’ For Ya So Far?
- San Diego Real Estate Investors — Some Reasons to Invest Out of State — Try Texas
- Why Are Real Estate Investors Leaving San Diego?
- A Few BawldGuy Axioms NOT Just For California Real Estate Investors
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