July 2021 - San Diego Real Estate Market Update
SAN DIEGO REAL ESTATE MARKET UPDATE: JULY 2021
After over a year of astronomical price gains and explosive demand in the housing market, there is a consensus among the housing economists from the local to the national level - We are not in a bubble, and it is not going to burst.
San Diego is the second-hottest housing market in the US behind Phoenix - and only by a narrow margin of 1.2%. Because of the inability to add a substantial number of new homes and a housing demand that is unlikely to decrease due to desirable employment opportunities, weather and infrastructure it is likely that the San Diego real estate market will remain strong for the long-term. Meteoric rises in home values can’t last forever and will likely begin to level off in the not too distant future, but price decreases are extremely unlikely, especially so long as the Fed holds interest rates artificially low.
Southern California has been experiencing a housing crisis for years, rarely since recovery from the Great Recession began has there been balanced housing inventory sufficient to meet buyer demand. There are numerous reasons from insufficient land and overregulation to build new housing to surging buyer demand driven by population growth and millennials aging into their home buying years. Historically low interest rates since 2008 (when mortgage lending was overhauled in response to bad loans being made in the years leading up to the recession) has made home buying more affordable than in previous generations despite rising home prices.
These factors were indeed our homeostasis and when Covid hit, it exacerbated all of the issues with short supply and high demand that we were already experiencing.
Supply became incredibly constrained as lockdowns and safety concerns prevented homeowners from listing their homes.
Interest rates plummeted to the lowest they’d ever been making refinancing an attractive option for many homeowners who chose to stay in their current homes and oftentimes remodel or expand rather than move.
Home buyer demand exploded as interest rates plummeted and lockdowns caused people to spend more time at home, exacerbating their need for more space.
As a result, the median home price in June ‘21 in San Diego was $725,000, up from $600,000 in June ‘20. Home prices were still a bit stalled in June of 2020 due to uncertainty around how the pandemic was going to affect the economy as a whole, however the median home price was still up from $590,000 in June ‘19 and $575,000 in June ‘18.
The demographics of our local area and nationwide have been impacted in ways that we have only begun to discover as a result of Covid-19.
Workers in the information, health care, manufacturing and professional and technical segments of the economy saw job gains in the 45%-86% range. The logistics sector saw employment nearly triple, thanks to the expanded reliance on online shopping.
CAR figures show 38.4% of homebuyers in 2020 were previously renters, the most in a decade.
The amount of money people spent on home renovation projects grew 15% in 2020 nationwide and that trend has continued throughout 2021 with a larger share of that 15% occurring in high-value markets like Southern California.
U.S. homeowners cashed out $152.7 billion in home equity last year, a 42% increase from 2019 and the most since 2007, according to mortgage-finance giant Freddie Mac. It was a blockbuster year for mortgage originations in general as well: Lenders churned out more mortgages than ever in 2020, fueled by about $2.8 trillion in refis, according to mortgage-data firm Black Knight Inc. Before the housing-market crash that followed the financial crisis, almost 90% of borrowers who refinanced chose to extract cash. Last year, about one-third of refinancers chose the cash-out option, according to Freddie Mac.
Nearly 80,000 households moved out of San Diego in 2020. Nearly 70,000 households moved from elsewhere into San Diego County in the same timeframe equaling a net loss of 10,000 households leaving the San Diego County area.
As Lawrence Yun, National Association of Realtors chief economist, noted, “America is on track for only 1.6 million and 1.7 million new housing units this year and next, respectively. That would represent the best two-year performance in 15 years, yet it would still be inadequate.”
There has been a sharp increase in savings as a percentage of disposable personal income, from 7.2% in December 2019 to a record high of 33.7% in April 2020.
This combination of factors makes the current market a great time to sell and take advantage of incredibly high home equity and short selling timelines. Interestingly, it's also a great time to buy and take advantage of low mortgage interest rates while getting in on equity gains before they slow down. This unlikely combination of factors is what is making this market so prosperous for so many people and what is keeping it burning white-hot.
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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