Why are Pacific Beach real estate prices so high?

Pacific Beach homes are some of the most expensive real estate in San Diego. I hear all the time, “Why is Pacific Beach and San Diego so damn expensive?” and “Who can afford to buy homes here?”

I have a lot of co-workers, friends and family members that would love to buy a home in Pacific Beach or San Diego. They just cant. Making an average salary, they may not qualify for a loan to match home prices in their neighborhood. Loan programs for a $700,000 home could require down payments of $50,000-$140,000.

A lot of people wonder, “Who has that much money lying around?”

Why has Pacific Beach become so expensive that some locals cant afford it?

Read more about the numbers behind the Pacific Beach real estate market here.

What determines the market price for a home in Pacific Beach?

Economics 101: Supply and demand determine price.

If the number of Sellers in a marketplace increases, and all other variables remain constant, prices will go down.

If the number of Buyers in a marketplace increases, and all other variables remain constant, prices will go up.

Pacific Beach has local, domestic and international demand. With the recent bull run (longest in history), prices have soared to historic highs.

If the demand for Pacific Beach real estate only came from people that live here, prices would be much more affordable.

But, that’s not the case.

Why do so many people want to buy Pacific Beach homes?

Who buys expensive real estate? The majority of the workers that make up Pacific Beach’s most popular industries (tourism and restaurants/bars) sure cant. At least not without help.

You have the investors who buy up approximately 44% of Mission Beach, to rent homes out on a short term basis to maximize profits.

You have a surplus of cash in wealthy people’s accounts, from the recent bull run, and they want a vacation home that they only use for a couple weeks and leave vacant the rest of the year.

You have people all over the US, who want to escape the Arizona heat, or Northern snow, and buy vacation homes in San Diego.

You have international investors that are looking for somewhere safe to put their cash. Investors who make their money in China, Malaysia, or other locations, might not like their domestic markets, and figure a San Diego beach house is a nice place to park their cash. Real Estate is relatively safe. San Diego is a relatively safe location. So our international demand is high.

Also, there’s a number of people that actually live here, and that number is increasing. San Diego in general is becoming more popular. San Diego State University is becoming more popular. When people move to San Diego, for college or work, Pacific Beach is a popular place for people to look. They have heard about it from friends, have visited here before, and like the idea of living close to the beach while they’re in San Diego.

Why is the supply of homes in Pacific Beach so low?

The supply of homes for long term residents in Pacific Beach has decreased substantially over the last 5 years.

AirBnB (and others) have made the process of renting your home to vacationers a lot easier. These homes that were zoned for “residential use” were previously used for long term tenants and primary residence home owners, are now used as investment properties.

These homes meant for residents have now effectively become hotels.

For an example, if there were 10,000 homes available for residents before, and that number is cut to 7,5000, the prices of those 7,500 homes will have to increase because they have become more scarce.

The rental income produced from residential homes has increased, so investors are making more money, making them hesitant to sell.

So, with a decrease in the limited number of homes available to be lived in by residents (SUPPLY), and an increase in the number of people that want to live here (DEMAND), prices go UP.

This is why Pacific Beach home prices are relatively high.

Expensive real estate attracts international demand, plus it has to be available for the locals to live in.

Read about how the recent Coronavirus pandemic may affect Pacific Beach real estate prices and make it more affordable to buy a home.

If you’re interested in talking with us to learn more about the market, or finding more affordable locations within San Diego, schedule a consultation with a local realtor.