Is there a real estate “bubble”?

By your real estate dude

One of the questions I am asked most often is “do you think there’s a real estate bubble?” followed by “when is the bubble going to pop?”. As a matter of fact, I was asked that very series of questions this morning while standing in line for breakfast at the San Diego East County Chamber of Commerce Meeting.

The answer is not all that simple. If you line up any 10 real estate professionals and asked them if there is a real estate bubble you would probably get an evenly split group of 5 “yes” and 5 “no”. The problem seems to be that no one has really defined a “bubble”.

That being said, what is a “bubble” anyway? In my humble opinion (and keep in mind I do not have a PHD in economics) a “bubble” refers to the phenomenon of having unrealistic growth in an industry or investment based upon nothing. In other words, a rapid increase in the value of something caused mainly by perception rather than reality. My grandfather use to say that perception is 90% of reality for most folks and I have discovered that he was right.

Take the internet explosion for example. I was involved in that “bubble”. And it truly was value based upon nothing but perception in most cases. For example: I was hired as a Business Development Director for an internet startup that produced nothing, sold nothing and generated not one dime of revenue in the seven months I was there. In fact, I was never tasked with the goal of generating revenue. It took only a few months before it became clear that the only reason the company existed was for the purpose of creating the impression that it was worth something so that it might be sold at a profit for the investors. The vast majority of internet companies that I know of were of that ilk. They had the appearance of value without any substance to justify it.

While that was the case with internet companies, it surely is not the case with real estate. Just as houses are built on foundations, the real estate market has a strong footing that supports its value as an investment. I am almost 50 and real estate in southern California has a trend of increasing in value that goes back many decades before I was born. Indeed, my grandfather was investing in southern California real estate in the 1930s for that very reason. There have always been ups and downs in the market, but there has never been a “bubble” that I am aware of and I do not believe there is one now. The market has slowed down recently, but that is simply a normal cycle in the market. Prices may even go down temporarily. But, if history is any indicator, San Diego real estate, when measured over years, will continue to increase in value as it always has.