May 2022 - San Diego Real Estate Market Update

May 23

There has been much talk of a looming recession as the 1st quarter of 2022 experienced a -1.4% decline in GDP. A recession is two consecutive quarters of decline in GDP and there is much speculation as to how the 2nd quarter will actualize. That being said, we expect that while there will be an impact to the real estate market, there will not be drastic price depreciation or large numbers of foreclosures such as in the 2008 Great Recession. Mortgage interest rates exceed 5.5% and are expected to rise by the end of the year, yet housing demand remains strong - although lower than it was earlier this year. Inventory of available homes for sale remains historically low, despite the decline in new listings and in pending and closed home sales.

We are starting to see a shift in the real estate market. With the recent intentional rate hikes enacted by the Fed to combat current levels of inflation there are fewer home buyers willing to pay record-high prices at an interest rate that far exceeds the low rates offered over the last two years. As a result, home sellers are pricing their homes more modestly and while homes are still selling quickly for over asking price, some homes are seeing fewer multiple offer situations. Average home price in SD increased from $820K in March to $855K in April which is a 4% increase whereas March to Feb saw a 5.4% increase. Last month March 2022 home prices were $820K vs last year's $681K which was a 32% increase. This month in April home prices were $855K vs last year's $710K which is a 20.4% increase. So we are starting to see home prices not increase as dramatically and that is in part due to rising interest rates. We will likely see this trend continue, but we are not expecting home prices to begin dropping, because inventory is still so low.

We did see a modest increase in inventory of homes for sale from March to April, and while this is a seasonal expectation, what is interesting is that we saw a decrease in new homes listed from March to April - meaning the increase in inventory is attributed to homes that were listed prior to April that didn’t sell. The number of active listings in April increased to 2924 from March's 2498 despite the number of new listings dropping to 3848. The most notable statistic is that pending sales were down to 3,004 from the prior month's 3414. Traditionally we see home sales pick up from April to March, however we saw a decline in April, 3122 vs the prior month's 3234. Months of supply (the amount of time it would take for all homes listed to sell) increased from .8 in March to .9 in April - with a decrease in new homes listed, this must be attributed to diminished demand. Days on Market is the same and the % over list price has increased slightly, which means homes are still selling for above the list price in a short period of time.

Consumers and real estate agents alike are talking about homebuyer fatigue and price shock - particularly with recent mortgage rate increases, would-be homebuyers are sidelining their searches due to affordability concerns.

If a homebuyer had purchased a $950,000 home with a 30-year fixed rate mortgage in December of 2021 with a 20% down payment and a 3.1% rate, the mortgage payment would have been roughly $3,936/month.

That same home today purchased with the same 30-year fixed loan with 20% down would likely sell for $1,100,000 with a 5.5% rate and the mortgage payment would be roughly $5,786/month.

This hypothetical homebuyer that chose to pause their home search through the holidays and hope for a more favorable market come spring is going to pay increased closing costs, $30,000 more for their downpayment and $1,850/month more for the same house.

Near the end of April, mortgage purchase applications were down 17 percent from a year earlier, according to the Mortgage Bankers Association, a trade group. Wells Fargo even laid off home-lending employees amid a drop-off in mortgage business. Regardless, the Fed is slated to raise interest rates even further this year. Even so, real estate remains one of the strongest investment hedges against inflation, so there will continue to be demand from homebuyers who can stomach the rates, or who are able to buy down their rates or purchase in cash.

Are you interested in exploring the possibility of selling your home? It’s a great time to sell your home for more money in less time and with the fewest possible hassles. Homes are still selling quickly for above list price.

Are you interested in buying a home but intimidated by the market? You’re in good hands - we can discuss the many options for lowering your rate and getting you into a home before prices and rates rise even further, the market is less competitive than it was in previous months so if you had trouble getting an offer accepted previously, now may be the time to give it another shot.

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.