December 2023 - San Diego Real Estate Market Update

2023 has been a year of volatility for the real estate market. Between the low inventory of homes for sale pushing home prices up each month, mortgage interest rates at their highest in decades, and inflation impacting household balance sheets across the country, challenging housing affordability has been a hot-button issue. There are still headwinds to watch out for in 2024, including a presidential election which tend to impact Americans’ spending decisions, and risks of recession… But there’s plenty of good news and a lot to look forward to, as well. It seems the Fed is done raising interest rates and is primed to begin lowering rates in 2024 (mortgage rates are already coming down), Inflation has come down substantially, the Fed has shown incredible adeptness at avoiding recession thus far, and unemployment numbers are enduringly strong.
 

If you examine the housing data for the last quarter without consideration of the pricing data, it seems discouraging. We are not seeing a lot of new listings come to market while active inventory is increasing. Pending and closed sales volume is falling, active market time is up and the average percent of list price to sold price is falling...

But despite these metrics, the median price of sold listings as well as cost per square foot is rising. There are several factors at play here but the most important are: Seasonality – the market always sees slower activity from November to January, and a shift in buyer demand as buyers are willing to purchase and pay a premium for the most desirable homes, while less desirable homes linger on the market and skew the averages.

Because affordability remains strained, the trend of desirable homes selling quickly and for a premium while less desirable homes stagnate will likely continue, even as mortgage rates begin to improve. As rates improve, home prices will rise and while affordability may improve slightly, it will not return to pre-2022 levels anytime soon. If sellers are realistic, this could create opportunities for buyers willing and able to make concessions or put in work on a property, as these stagnate properties are less in demand and should therefore present more buyer-friendly transactions both in price and terms.

The San Diego area real estate market specifically is expected to gain steam in the coming year as it “...was singled out as a potential area for increased sales activities and price growth at a digital summit Tuesday hosted by the National Association of Realtors.” (San Diego Union-Tribune) Realtor.com predicts the San Diego area will see an 11% rise in transaction volume and a 5.45 increase in sales price in 2024 – and this prediction is modest. The reason for these predictions is the pent-up demand for housing in the area coupled with the expectation of lower mortgage rates in the coming year. The hope is that as rates fall, more homeowners will list their properties for sale, and more homebuyers will rejoin the market armed with more reasonable mortgage rates. As demand rises, so will prices, so the winners will be those who act early.

The year ahead is likely to see rushes and lulls as the market reacts to the many variable factors primed to influence it, such as interest rate fluctuations, political factors, and larger economic shifts such as inflation and the possibility of recession. Regardless, the housing sector is very strong and there is no reason to expect a downturn. We have likely seen the lowest lows of this market cycle and will begin to see the housing market improve and continue its trend upward throughout the coming year. Hold onto your seats because things are about to take off!

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 home value is hovering near all-time highs and is likely to rise in the new year. 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 out the market, 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 and the best homes still sell at breakneck speeds. When you lock your rate for a home loan is very important right now as rates can change quickly and changes of even .5% can save you thousands of dollars per year in interest costs. Remember, you can always refinance a high interest rates, but your purchase price is forever. If you love a home, you need to take steps to secure it quickly as prices are primed to rise in 2024.

If you’re a potential home seller:

If you’re interested in selling your home, it’s a great time to sell. Depending on the location and condition of your home, you may be able to sell at record value quickly. This is a tough market for buyers so it's important to keep that in mind when listing your home. 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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FUTURE HOME BUYER RESOURCES:

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