Real Estate Millionaires Welcome Fires

After ten flat years, the San Diego real estate market exploded in 1998 and posted double digit increases for eight years in a row, reaching its peak in 2006. This has been one of the hottest real estate markets on the planet. At the height of the boom, speculators bought homes like commodities futures. They snapped up units in subdivisions that still only existed on paper because they could count on reselling the properties just a year later, realizing tens of thousands of dollars in profit on each one. The median price of a single-family home rose from about $200,000 to more than $600,000 in less than a decade.

In the last year and a half, prices have begun to fall, though not as steeply as elsewhere in the country. When variable rate mortgages began to index higher, more and more homeowners defaulted on their loans and inventories grew, slowing the rise in prices. Then the credit squeeze precipitated by the sub-prime mortgage crisis drove many buyers out of the market, turning a slowdown into a decline. Still, home prices remain astronomical, with fewer than ten percent of families in the county able to afford the average-priced home. As a result, the rate of sales has declined sharply, throwing the industry into a crisis. There have been massive layoffs in the real estate finance and construction industries. And sales at big-box home-improvement stores have declined sharply.

In this upside-down world, the firestorm of 2007 came as a breath of fresh air. Less than a week after the fires were out, San Diego economists and market prognosticators started flogging the theory that the destruction would be good for business. Kelly Cunningham, an economist with the San Diego Institute for Policy Research told the Union Tribune, “from an economic standpoint, the negative impact from disasters usually isn't long-lasting. Things look negative right now, but there will be a dip and then a rebound. Rebuilding spurs the economy.”

This is wishful thinking at best. The 1700 houses that burned represent about .34 percent of the nearly 500,000 housing units in the county. Meanwhile, the unsold inventory of houses and condominiums has reached nearly 16,000 units, nearly four times what was was available just three years ago. Most of the homeowners who were burned out will rent for a year or two while rebuilding on their own lots. In other words, the fires will do nothing to increase demand for ridiculously overpriced houses. Nor will they loosen lending policies at banks carrying billions in worthless loans. If anything, they will drive up rental prices and displace working class families, pushing some onto the streets where they will join the city's 10,000 homeless scrambling for just 2,000 beds in shelters.

Rebuilding expected to spur economy