July 2020 - San Diego Real Estate Market Update

During recession conditions in the broader economy, the housing market remains a bright spot for San Diego and beyond...

Amidst the Coronavirus pandemic we're seeing yet another round of business closures, more unemployment claims and commercial real estate concerns. Between that and an upcoming presidential election - something that always impacts consumer behavior - it can be difficult to keep up with the data and predictions about where the economy is headed. We are battling a recession in the US, but this is a much different recession than the one we saw in the 2008 financial crisis and it appears that the residential housing market may be a beacon of hope for our economic recovery from this pandemic.

The most significant difference we're seeing in this economic turmoil compared to the Great Recession is that homeowners have strong equity, low consumer debt and there are very few subprime mortgages out there as the mortgage lending was overhauled following the crisis. These factors ungird the large number of loan forbearances on record, and current unemployment numbers. 

If forbearance relief options begin to expire and unemployment remains high, we may see a situation where homeowners are unable to begin making scheduled payments when the time comes, which could cause an uptick of home sales and even possibly foreclosures if home values were to decline. The slow-down of home building due to shutdowns, high homeowner equity, and low consumer debt are padding the economy from these scenarios thus far by keeping inventory lower than buyer demand. If the market gets flooded with inventory at some point in the future we could begin to see home prices fall. If we also see prolonged unemployment and even stricter lending guidelines drive buyer confidence down, those equity prospects could become more alarming.

So far the National effort to provide forbearance relief options and stimulus money, as well as keeping interest rates low, has provided for millions of Americans to avoid crisis and stay in their homes, while keeping home values strong and growing. These efforts are likely to continue as we wait for a solution to the pandemic.

Because millions of homeowners have been afforded the ability to stay in their homes with forbearance in play and the luxury of low interest rates, many are waiting out the safety risks of selling during a pandemic. Combine that with new home construction sites across the country being shut down, and the result is extremely low housing inventory. That is sparking bidding wars across the US that are driving home values higher as buyers look to secure housing amongst their competitors. We are also seeing a shift in home buying trends that reflects a flight from high-density cities into suburbs and more rural areas - areas that will certainly see a positive impact in the strength of their home values as a result of increased demand.

In San Diego, the third largest life sciences hub in the country, housing values are among the strongest in the US. The industries most impacted by shutdowns do not align with the industries whose workers make up the largest number of home buyers in the region. Higher income workers have, in large part, been able to shift to working from home or have been deemed essential. That, along with historically low mortgage interest rates has been driving strong homebuyer demand in San Diego with no signs of dwindling confidence from San Diego buyers.

Across the country, we are seeing pent-up demand from homebuyers who were forced to put their home search on hold in March, April and May. That demand is merging with the demand of homebuyers who had planned to buy this summer. They're joined by the homebuyers eager to move out of their higher-density neighborhoods in search of more space; parents without access to their neighborhood park, thinking it's time to get a house with a yard, or; white-collar workers thinking "If I'm going to be working from home for the next 12 months or more, I'm going to need more space." Many higher-income workers have not only retained their jobs but have boosted their savings for a down payment - after all, they've deferred their student loans, received a stimulus check, began cooking meals at home and have cancelled their travel. With more time on their hands to plan for the future and the ease of navigating the home buying process online, many Americans secure in their job prospects are ready to move-up or purchase their first home and now is their time.

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