Welcome to the "San Diego Housing Bubble" home page. This page highlights the fundamentals, not opinions, behind the current San Diego housing market.

Today it is almost impossible not to come across an article related to real estate: "Is the bubble going to burst?", "How to profit from the current market?", and so on and so on.

I personally have always taken a fundamental approach to investing. I tend to look for the cause and effect, the everything must have a meaning type of outlook. That is what drew me to this topic. I continually ask myself, why is this happening?

So for my first post, I've decided to address a few misconceptions that go against basic fundamentals.

Housing market misconceptions. (June 21, 2005)

I actually heard this today on fox news:

"If your house appreciates 50% over 2 years, and then the housing market drops 20%, you are still up 30%."

The scary thing is that I've heard this before.

Let say, for example, you purchased a home in 2003 for a modest $200,000. Through market appreciation, the house has gained 50%, or $100,000, giving your home a perceived market value of $300,000.

Now, lets consider that the market value of the home decreases by 20%, a conservative figure mentioned by many experts. So your $300,000 house depreciates $60,000, for a perceived market value of $240,000.

But wait a minute! When you take $240,000 from $200,000 you get $40,000, which is only a 20% gain from the original price of the home, not 30%.

My point is that some people do not take into consideration that the appreciation percentage of a home is taken from the original price, but the decrease is taken from the higher appreciated value.

Be careful when calculating the amount of equity you think you have, or think you may lose.