April 2023 - San Diego Real Estate Market Update

Apr 21

As we would expect, the Spring real estate market is in full swing in Southern California and while there is still some lingering reluctance from both homebuyers and potential home sellers, there is adequate demand to absorb the persistently low supply of homes for sale. Because of that, median home prices are rebounding from December’s lows after considerable month-over-month decreases from the highs of May 2022. This is thanks in part to mortgage interest rate decreases over the last several weeks as well as to homebuyers’ acceptance of higher rates as the new normal and, of course, to low housing inventory. If we were to see a glut of housing inventory, that would impact the dynamics of this market, however when examined from every angle, it’s hard to see a scenario in which inventory increases substantially.

**Interest Rate C- Last 3 Years (Source: FreddieMac)**

It is easy to see homeowner’s reluctance to sell in the market stats - inventory is only marginally higher now than it was when it was at its lowest on record in the Winter of 2021. Of course, it stands to reason that many homeowners enjoy low mortgage payments on their current homes thanks to record-low interest rates and lower purchase prices when they bought. These factors create a reluctance to sell. So, who are today’s sellers? Primarily homeowners who are highly motivated to or must move, for example, people who are relocating for work, people who require different accommodations due to their health, people experiencing a change in their family structure, people moving out of state to a less expensive or politically different locale, and investors who are cashing in on their rental properties. These sellers have adjusted to the more balanced market, allowing for some buyer concessions and a bit of room for negotiation, which has brought buyers to the table despite the higher interest rates.

If inventory is being absorbed by homebuyer demand, how do we know that homebuyers are showing more reluctance than they were a year ago? The main sign of this shift in trends is that we see far fewer homes selling for over list price than we saw a year ago. Even with inventory as low as it is, we are seeing fewer frothy bidding wars and fewer offers on each individual property. We are also seeing homes stay on the market longer than they did last year, evidencing the fact that buyers are taking their time and not feeling the pressure to put in an offer on a home the same day that it hits the market. At the same time, however, the average percentage of the original list price that homes are selling for is up to the same levels we saw last Summer, median home prices are rising quickly and the number of homes sold is climbing - this means that buyer demand is strong, but cooler heads are prevailing in decision making about a home purchase compared to the peak of the pandemic market.

As for what the future holds, there are many factors that could change the trajectory of the market, but we are cautiously optimistic. “Incoming data suggest inflation remains well above the desired level but showing signs of deceleration,” says Sam Khater, Freddie Mac’s chief economist. According to recent data, the jobs market is staying strong — with 236,000 jobs added and the unemployment rate sliding down to 3.5% in March. “These trends, coupled with tight labor markets, are creating increased optimism among prospective homebuyers as the housing market hits its peak in the spring and summer,” says Khater. “With inflation moving closer to the Fed's 2% target, mortgage rates are expected to decrease further in the coming months, likely below 6% by year's end,” predicts Lawrence Yun, chief economist at the National Association of Realtors. Lower rates will bring down monthly payments, opening doors to more potential buyers. “If rates drop to 6%, 3.1 million more households will once again be able to afford to buy the median-priced home compared to the beginning of the year.”

WHAT DOES THIS MEAN FOR YOU?

If you’re a homeowner:

If you own a home and you’re not looking to move, ride the wave. You likely have substantial equity and a low interest mortgage that is manageable. The great news is that your equity losses from May 2022 - December 2022 are rebounding as we move into the Summer season and it is unlikely that you will see substantial equity losses in the near future. If you’re considering moving in the next few years, let’s talk about your ideas. If you’re considering remodeling or tapping into your equity, give me a call for lender referrals that can help you access the lowest rates available right now.

If you’re a hopeful homebuyer:

If you’re newly in the market or revisiting buying a home after choosing to wait the market out for a while last year, we should talk sooner rather than later. Buyers have more power in the real estate market right now than they have in the last few years with sellers more willing to make concessions including rate buydowns, repairs and price reductions. Keep in mind, though, inventory is still low so there is still more limited selection. When you lock your rate for a home loan is very important right now as rates have been very volatile and changes of even .5% can save you thousands of dollars per year in interest costs. If you love a home, you need to take steps to secure it quickly.

If you’re a potential home seller:

If you’re interested in selling your home, it’s a great time to sell. If you felt like you missed your peak price last Spring, you're well on your way to recovering from that loss. Your home has earned you substantial wealth over the last three years. The key to selling in this market is to price your home intelligently, make it as appealing to buyers as possible, market it strategically and come to the table ready to create a win-win scenario for both you and your buyer. This is my expertise and I’m never too busy for you or your referrals whether you’re considering selling or you just have questions about the market.

Most importantly, if you have questions or concerns about your specific situation… CALL ME to help sort through them. That’s why we get up in the morning - not just to sell homes, but to serve our clients.

As always, we will be here to continue to provide you with updates about the housing market and answer any and all of your questions. Feel free to reach out to us anytime.

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