July 2022 - San Diego Real Estate Market Update

For several months we’ve been anticipating that a slowdown in the real estate market was on the horizon, and with June’s numbers in, it appears that the shift has begun. What would ordinarily be the hottest time in the 2022 real estate market is in fact showing a decline in both home sales and median sales price, as interest rates impact would-be buyers’ bottom lines. 

Active listings, or listings currently on the market, are up and the new listings coming on the market do not account entirely for the increase in active listings. That means that homes are staying on the market longer. To be clear, we are still seeing incredibly low inventory of homes for sale - even with decreased demand, there are far fewer homes available than there are buyers for those homes. We do see a small increase in new listings, but it is on par with the number of new listings we’ve seen in June over the last several years - including in 2019 before the pandemic boom.

Because of the continued imbalance of supply and demand for homes, we do not anticipate substantial price declines. While we did see a slight drop in median home price month-over-month from May to June, the year-over-year price appreciation of homes is still over 10%. In order to see home prices drop, we would need to see an uptick in inventory. Homeowners are reluctant to sell their homes. While they may be able to sell their home for more than it’s ever been worth, the price of a replacement home is also at an all-time high. Additionally, most homeowners locked in low interest rates on their mortgages while rates were below 3-4%. Now, with a higher interest rate environment, they are not eager to finance a replacement home at today’s rates.

The biggest driver of change that has materialized in our current market is a cooling off of the scorching buyer demand of the pandemic era. This shift in buyer demand is the intentional result of the Fed raising interest rates in order to reign in inflation, which is currently at a 40-year high. There are several stats that show us the slowing in buyer demand. First, the increase in active time on market homes are spending and second, and more importantly, the decrease in the ratio of sales price to list price, which shows a substantial decline in bidding wars on homes for sale. Lastly, we have seen a decline in pending and sold listings month-over-month since March while, during the same period, active listings rose. Why? The monthly mortgage payment of a median-priced home in Southern California using a 30-year fixed mortgage has gone up by nearly $1,000/month since December of 2021.

The result of these shifts is that we now have a 1.5 months supply of inventory - meaning that if no other homes were to hit the market, all of the current inventory would be purchased in 45 days. In a balanced market, we would see at least 3+ months of inventory available.

So what does this mean for you?


If you’re a homeowner:

Your equity is solid and you should not anticipate that your home’s value is going to drop substantially. You may see small monthly declines, but over the last 3 years your home has likely appreciated by 50% or more. You should, however, anticipate that the price gains you’ve been enjoying for the last several years may level out. You should also expect that the cost of accessing your equity via HELOCs and refinancing will, for some time, remain more expensive than it has been for the last decade plus.


If you’re considering selling your home:

It is likely that the Fed will continue to raise interest rates, at least through the end of this year. As a result we may continue to see decreases in buyer demand - particularly as we head into what tends to be the slower season in real estate through the Fall and Winter. The good news about decreased buyer demand? The buyers who are shopping now are serious. Today’s buyers have been patient and measured. They are well-qualified for their loans or they are cash buyers and they are eager to lock in a property before the cost of buying rises further. Because home prices are still high and we’re still seeing homes sell for over asking price, the only better time to sell your home is yesterday.


If you’re considering buying a home:

The decrease in the demand frenzy of the last couple of years is like a breath of fresh air for today's homebuyers. While we are still seeing multiple offers, it’s more like 2 or 3 competing offers versus the 10-20 competing offers we were seeing before. Homes are selling closer to their list prices and things are a bit more predictable and approachable. It is true that the interest rate hikes have been substantial and the cost of buying using a standard 30-year fixed rate loan are higher than they have been in quite some time. That being said, there are many options to reduce your monthly payment including adjustable rate mortgages, rate buydowns, 11% down no-PMI loans and more. If you’re on the fence about buying because of interest rates, now is the time to explore alternative loan products.

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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