The skyrocketing of residential real estate prices is a multi-year trend home sellers likely love and buyers dread throughout San Diego County.
Locals don’t need to look far to see evidence. Both ZIP codes that cover Rancho Bernardo — 92127 and 92128 — were among the top 10 hottest for single-family home prices going up the most over the past two years, according to a recent San Diego Union-Tribune story.
Rancho Bernardo 92127 was No. 5 for having a median home price of $2.1 million and a two-year percentage increase of 82.6 percent.
Rancho Bernardo 92128 was No. 9 for having a median home price of $1.29 million and a two-year percentage increase of 69.5 percent.
Median means half of the homes were above the price and half below.
“Crazy” was the word some local Realtors said when describing what they are witnessing. This was in reference to selling prices, usually well over asking, and frenzy as first-time buyers compete with investors seeking rentals or homes to flip.
Three Rancho Bernardo Realtors who have lived and worked in RB for decades said they were not surprised the two RB ZIP codes were on the list, but said the data needs to be put in context.
Realtor George Cooke said while both ZIP codes were only identified with Rancho Bernardo, they also include newer communities where home prices are impacting the data, especially in 92127. It includes Rancho Bernardo west of Interstate 15 and 4S Ranch and Santa Fe Valley (both unincorporated county) along with Del Sur and Santaluz (the Black Mountain Ranch area in the City of San Diego).
There is a lot of new home construction happening on the western side, which is increasing the median price, he said.
The 92128 ZIP code includes Rancho Bernardo east of the freeway, Carmel Mountain Ranch and Sabre Springs.
“It’s not just the newer communities accounting for the higher prices,” Cooke said. “The percentage increase is very high in all of RB.”
Cooke, who is with Coldwell Banker Realty in Rancho Bernardo, has been a Realtor for 18 years and RB resident in High Country West for 41 years. He mostly works with sellers.
While sellers can get excited about seeing such high prices, Realtor Peri Cunefare, of Keller Williams Realty San Diego North Inland, said they must also be realistic about their property. Cunefare, a Seven Oaks resident, has worked in real estate for 38 years and lived in RB for 30 years. Her focus is on the age-restricted Seven Oaks and Oaks North neighborhoods, both in 92128.
“I want to emphasize to all … in a senior community that they have a ceiling,” Cunefare said. “When there is an age restriction, a certain percentage of the population is excluded (from buying).”
With the earliest Seven Oaks homes built in 1963 and Oaks North development starting in 1978, “they are not exactly new products,” Cunefare said. “The houses that have been updated and remodeled are capturing the highest prices.”
According to Cunefare, the market for investors who buy “ugly houses” is mostly gone, especially after the last couple of years during the pandemic. “Those houses have already been bought up by investors.”
Realtor Nancy Canfield, who is with Windermere Homes & Estates in RB, has been selling homes for 19 years and lived in RB’s Westwood neighborhood for 37 years. About three-fourths of her clients are sellers, one-fourth buyers.
Canfield said prices vary in Rancho Bernardo due to a number of reasons, including whether it is a family neighborhood versus senior, and if homes overlook one of RB’s many golf courses.
“In The Greens and Gatewood (both 92128), they tend to … be larger, good-sized homes … with larger lots,” Canfield said. Bigger yards not only appeal to families, but those interested in building an accessory dwelling unit, aka a granny flat.
“It gives them the opportunity to turn a one dwelling property into multiple … as long as it meets sewer and setback (rules),” Canfield said. “That is the big attraction for large properties.”
If the lot is a “good” size and ideal location — such as close to schools — Canfield said some buy intending to tear down and rebuild or do a major remodel.
In 92127, Westwood and High Country West each has an elementary school, a draw for young families, Canfield said. They do not have Mello-Roos like newer neighborhoods and have low HOA fees. She said lenders consider fees when determining loans because they are part of one’s income-to-debt ratio.
This 4-bedroom, 1,395-square-foot single-family house in Rancho Bernardo’s Westwood neighborhood is listed at $969,000.
(Elizabeth Marie Himchak)
“Median prices are up for reasons including COVID and the shutdown,” Cooke said. “People are moving away from the city and getting into larger homes. They want more space so they do not feel packed in their houses.”
“That Rancho Bernardo went up a lot in the last couple years is interesting, but the reason it is up so much is because there is no inventory, yet a demand,” Cooke said. “Buyers are desperate to move, so there are bidding wars that are pushing the prices up. The question is how sustainable is that?”
Cooke said with prices rising over the past decade the region is due for a correction, which might come with increased interest rates. He said a couple years ago mortgage rates were at 2 percent, but are now more volatile.
“Only this year, for the past couple months where interest rates were in the 3s and 4s they are now 5,” Cooke said, adding he has not yet seen rising rates slow the market.
He said a 1 percent interest rate hike can mean a monthly mortgage payment rising 10 percent.
“I would not want to be a buyer and I am a Realtor,” Cunefare said. “I cannot imagine this can go on … it is crazy.”
Cunefare said the pandemic is partially responsible, because it inspired people to buy, but investors have also been a significant factor in driving up prices.
“I just had six offers in five days, all cash,” Cunefare said. “Two were real people, four investors. I really see investors infiltrated in real estate.”
The interest is not only for single-family homes. Canfield said she listed a condo on Caminto Campana overlooking the Rancho Bernardo Inn’s golf course April 14 for $779,000. By Monday she received three offers, all over asking. Five years ago, a similar unit would have sold in the $300,000 to $400,00 range.
“All of these offers were from those looking to move in,” Canfield added.
“This is a very different market than in 2008 and a few years after (the Great Recession),” Cooke said. “The big difference between then and now is that now there is no inventory. … During the crash in 2008 there was a lot of inventory, a glut of homes with prices up. There was a lot of speculation. Today (buyers) are trying to get into homes.”
According to Cooke, it is hard to buy a house in 4S Ranch for less than $1.6 million and new homes in Del Sur and Santaluz are even higher.
“These are hot ZIP codes, no question about it,” Cooke said.
The average is one week on the market, Canfield said.
“Some take a little longer if high priced or unique,” she said. “But there are not a lot of homes under $1 million. You cannot waste time. You have to have your financing ready … know what you can afford.”
Within Rancho Bernardo’s official community boundaries, Cooke said it is hard to find a detached home for under $1 million.
“High Country West has a lot of homes that are a little bigger, more than 2,000 square feet, so $1.29 million is a typical price,” Cooke said. “Even a very small, like 1,500 square-foot, three-bedroom, very basic is $900,000.”
“Westwood, due to the 2007 fire, had a lot of rebuilds, so they are going for a high price as if they were in 4S Ranch,” Cooke said. “Even if not, if 2,000 square feet, four bedroom in any kind of decent shape, it is hard to get for less than $1.2 million.”
Cooke said some investors own two or three rentals. Others have cash, intending to make upgrades and flip.
“I have found in the past two years, the market is so hot that you can put up a home that is not upgraded and get big demand because people watch HGTV and think they can easily do a flip,” Cooke said. “They want to update it and make a couple hundred thousand.”
Another type of investors are those with hundreds or thousands of homes across the country who manage them as vacation or residential rentals, Cooke said.
Because of investors, Cooke said it is getting increasingly difficult for first-time home buyers with no equity — especially millennials — to compete. “If they want to live in Rancho Bernardo, they more likely will rent a house,” he said.
Canfield said so many investors buying is also driving up rents. She said a single-family home in both RB ZIP codes could have a median rental price of $3,200 per month. If it is a condo, the median is $2,293 in 92128 and $2,734 in 92127, due to them being larger.
“When I am listing a home, in this crazy market … there is pricing strategy that gets multiple offers on a home,” Cooke said. “I don’t overprice because there will be multiple offers caught up in a bidding war. … Investors will not pay top price for a home. They offer all cash, 15-day closing with no inspection, but if you look at the price, they are not the best offers. Those are from people who want to live in the house. It is personal, important to them.”
Cooke said buyers can be tempted to accept an investor’s offer that often comes in first, but if they wait a few days individual buyers will make offers. They are more motivated to have the deal go through. An investor will move on to another property if an issue arises before the sale closes, Cooke said.
While investors often come with a $2 million credit line, Cunefare said the money could be tied up in multiple sales or remodeling projects, so that is no guarantee a sale will close.
All three Realtors said with prices so high, some people do not understand why more homes are not listed. Often homeowners worry they will not be able to buy another home — even if downsizing — in the same community. So unless moving far for a job or family reason, they are staying put.
“Two reasons they are not selling — aside from not finding something affordable — are if the seller has lived there for any period, they are locked in with a fixed payment that is low, if they still have a mortgage,” Cooke said. “They are also locked into low property taxes due to Prop. 13.”
Cooke said owners also factor capital gains tax implications if their home value has grown considerably from when it was purchased.
“If they sell for $1 million, but paid $100,000 30 years ago, there could be a huge tax bill,” Cooke said if it is a rental property.
However, if it is their primary residence, the owner can likely “sell it almost tax free” with a $250,000 per person capital gains exclusion as long as the difference is not much greater.
Cooke said older homeowners might put their property in a family trust and stay in the home until they die so their heirs’ tax liability is limited.
“Rancho Bernardo is a very popular place … prices are up everywhere, it is just higher here,” Cooke said. “But for a lot of buyers coming from the Bay Area, the prices look good to them.”