July 2024 - San Diego Real Estate Market Update

Low sales volume is the name of the game in real estate right now. Mortgage interest rates have improved, but we remain well above 6.5%, and while inventory of homes for sale has risen, home prices remain high. These two factors continue to restrict homebuyer demand and keep most homeowners locked in place. Both inventory and home prices will likely decline into the fall and through the winter. 

That being said, a lot is set to occur in that time frame that could make an impact on the housing market – from the Fed lowering interest rates to the presidential election and half a dozen more CPI and jobs reports that will guide economic policy into 2025 – we keep watching and waiting for signs that the market is shifting.

Mortgage Interest Rates

Mortgage rates have seen some improvement as of late which has resulted in an uptick in mortgage demand and refinance activity. The Fed is expected to cut the Federal Funds Rate in September, but because traders are already pricing that cut in, we likely won’t see much of an impact on mortgage rates when it happens. It seems that mortgage rates have found their current floor at about 6.8%, and it will take some major economic news to change that. Rates will likely eventually settle above 5%. 3-4% rates are gone for good, if we see the return of rates that low, it will be because there is a larger economic crisis occurring in which case, we’ll have bigger fish to fry.

30-Year Fixed Rates

Real Estate Sales Activity and Demand for Homes

Sales activity was on the decline in June and had been following the same trajectory through mid-July, but last week as mortgage rates offered some relief, sales activity picked back up slightly. It’s typical for sales activity to decline after the summer peak and bottom out around the holidays through the new year. Election years tend to see low sales activity in the early fall, as well. We can expect the same to happen this year assuming we don’t get a major surprise, such as a larger drop than expected in interest rates.

Inventory of Homes for Sale

Inventory of homes for sale has been on the rise since December of 2023, and while active inventory has not yet surpassed the previous post-COVID highs of the summers of 2020 and 2022 respectively, we are getting close. That is to say that inventory is high by post-covid standards, but has not yet returned to a normalized level by pre-2020 standards. That being said, we are seeing month-over-month increases in the month’s supply of inventory, which measures supply against demand and offers a stat in the number of months it would take to sell through the current inventory available. This is a better measure than supply alone of whether we are in a buyer's market, a seller's market, or a balanced market. Because demand has decreased as a result of interest rates, the scorching hot seller's market has come to an end, and while we have not entered buyer’s market territory, it’s safe to say that we are seeing a more balanced market currently - a takeaway further evidenced by the average percent of the original list price for which homes are selling which is hovering right around 100%. A buyer’s market would see that percentage quite a bit lower, while during the hottest seller’s market, that number was 5-10% higher.

New listings typically peak in either June or July and then fall through December. They typically begin rising in January or February and gain steam until they peak in the summer, and it looks as if we’re headed for the same trajectory this year.

Home Prices

Median home prices hit a new high in June, but interestingly, the average price per square foot of sold homes decreased. This disparity indicates that home prices are actually falling slightly, but that a larger share of the homes selling are on the more expensive side of the median. This is no surprise, as those with higher incomes are impacted less by higher rates. Because demand has been declining while supply has been increasing, we would expect to see prices falling, and in fact we are, although the median home price appears to tell a different story. 

Home prices are about 1-1.5% off their peak currently, and will see further moderate decline moving towards the new year. In a typical year, home prices rebound and gain additional value moving into the summer and there’s no reason to expect 2025 will go differently. As rates come down over the next 3-18 months, demand will improve, but what will drive prices the most is what happens with supply during that time.

Economic Outlook

All things considered, the U.S. economy and housing market are both strong and stable. It appears that the Fed is on track to accomplish a soft landing, bringing inflation down to its target without triggering runaway unemployment or a recession. We are finally seeing more balance between supply and demand in the housing market and foreclosures are falling from their already-low counts. Lending standards are high which prevents most Americans from being overburdened by their housing debt. Despite living through two years of inflation, Americans are in good standing and even prepared to weather a slight recession if one does come our way.

The politically minded will tell you that if their side doesn’t win this election, all will be lost and we will lose our good financial footing, but at least as it pertains to the stock and housing markets, the statistics show that the outcomes of presidential elections have little to no impact in the short term, and no discernable impact at all in the long term.
 

In Conclusion

The bottom line for Southern California real estate is that the most desirable homes are selling quickly and for close to their highest values ever. Properties that have challenges need to be marketed expertly to have similar outcomes to the most desirable properties. The worst of the market is over for buyers as rates begin to decline, but home values are very likely going to continue rising after minor seasonal decreases. Buyers who are on the fence are smart to buy now and refinance later, rather than buy later at higher prices but lower rates. Everyone’s situation is different and the primary function of a great real estate agent is to offer expert guidance tailored to your unique circumstances.

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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