March 2025 - San Diego Real Estate Market Update

The real estate market is constantly evolving, and as we move further into 2025, there are promising opportunities alongside its complexities. Mortgage rates have shown some improvement, buyer demand is on the rise, and well-presented homes continue to attract strong interest. While inventory is increasing and economic uncertainty lingers, savvy buyers and sellers who stay informed and strategic are finding ways to succeed. Understanding the latest trends and market dynamics will be key to making confident real estate decisions in the months ahead.

Mortgage Interest Rates
Mortgage rates saw some improvement over the last month, reaching as low as 6.7%, but they’re on the move back up as the stock market recovers from its recent losses. For the last month, rates have jumped between 6.7% and 6.8%, which seems to be their floor for the time being. There are many factors putting pressure on financial markets right now, all of which impact mortgage rates. Expect more fluctuations in the near future. If you’re in the market for a home loan, there are several ways to secure a mortgage with a below-market rate, so be sure to dig deep into your options.

Demand for Homes
Earlier this month, national mortgage demand reached it’s highest level since rates hit 6.08% in September of last year – before that, the composite index for mortgage applications hasn’t been at that level since 2022. This increase in demand can be seen in San Diego as well, but not to the same extent. We are seeing a seasonally expected increase in deals as well as a decrease in the average time a property spends on the market before it sells, and an increase in list price vs. sales price, but activity isn't outperforming the last few years. What we do know is that shadow demand is huge - people want to buy homes, they're just struggling to do so with rates and prices as high as they are. If they can find a way to make it work for the pocketbooks, buyers will jump -- and smart sellers will help them do so in today's market where buyers have the upper hand, but sellers still enjoy near-record high home prices.

Real Estate Inventory
While demand is improving, supply is still rising despite fewer new listings of homes for sale hitting the market, which means demand is not strong enough to absorb supply. This hasn’t resulted in falling home prices as logic might dictate, primarily because the most sought-after homes are still selling quickly and sometimes for over asking price. However, some homes are sitting on the market unsold, which is why inventory is rising while new inventory hitting the market shrinks. If you’re thinking of selling, it is more important than ever to nail your home’s presentation, marketing, and pricing. If your home isn’t shown in its very best light, it risks being overlooked. Worse still, if your home isn’t priced accurately when it hits the market, it will be met with crickets.

Home Prices
The median price of sold homes has been rising since its December low, but at a slower pace than in recent years. The average price per square foot of homes is also on the rise. The supply/demand fundamentals at play right now stray slightly from the expected, but it’s important to remember that these metrics reflect only the average data for homes that sell. We are seeing many price reductions on homes that hit the market but do not sell quickly. If these homes sell at reduced values rather than get pulled off the market, we will see a shift in the pricing metrics down the line. Whichever way home prices go this year, the swings will likely be very moderate.

Sales Activity
Pending sales for February sat just below February pending sales for both ‘23 and ‘24, both of which were extremely slow years for home sales. We saw an uptick in mortgage demand in March which is a lead measure for future sales. Will March and the rest of the spring homebuying season make up for the sluggishness we saw early in the year, or will 2025 turn out to be another slow year for real estate? Supply is quite a bit better than it’s been in several years, so it all comes down to demand. Getting a buyer in the door is step one for sellers – helping them structure a deal they can get behind is step two. Savvy sellers understand that we’re in a tough market for homebuyers and will get creative to help them make a purchase.

Economic Outlook
Depending on the publication and the day, the headlines will tell you that we’re already in a recession, that a recession is coming, or that we’re delusional for believing a recession could happen. The stock market got pummeled… and now it’s back up. Tariffs are an on-again-off-again concern for the economy. Inflation is sticky, but the Fed isn’t worried. It’s hard to glean where the economy is headed at the current moment, but its clear to see that the American consumer is having a harder time making ends meet. Debt and defaults are rising. Employment isn’t as strong. It's likely we have some economic discomfort ahead, whatever the duration and level of difficulty. The good news is that real estate is primed to weather the storm with immense wealth in equity and extremely strong mortgage borrowers. Whatever the next financial crisis is defined by, it won’t be a housing crash.

In Conclusion
As the year unfolds, the housing market will continue to be shaped by economic forces, buyer demand, and shifting financial conditions. While uncertainty remains, one thing is clear—real estate remains a resilient asset class, backed by strong equity positions and motivated buyers and sellers finding ways to make deals happen. Whether you’re looking to buy, sell, or invest, staying informed and adaptable will be the key to success in this evolving 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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