May 2023 - San Diego Real Estate Market Update

The likelihood for any substantial change to take place in the real estate market in the very near future is pretty slim. Interest rates are likely to remain in the mid 6% range for at least the next several months, and between affordability challenges and recession fears, inventory remains extremely low as even fewer people are choosing to sell at a time when the seasonal expectation is increased new inventory of homes for sale. 

Because Southern California is a highly desirable locale with a high quality of life, the majority of homes that do get listed for sale are purchased and desirable homes in high-demand areas still face multiple offers bidding up the price. For home shoppers who have figured out their finances for a home purchase, competition remains their number one challenge. There are trends at play that make it tough especially for first-time homebuyers to compete for homes that would once have qualified as “starter homes,” but now are in high competition as “retirement homes,” for equity-rich Boomers. Regardless of the competition, homebuyers in SoCal know that if they plan to stay put for more than a few years, the time to buy is always as soon as you’re able since home prices historically appreciate handsomely on a long enough timeline. While they are a tough pill to swallow, interest rates are only high by the standards of the very recent past, and loans can always be refinanced when lower rates prevail. They are putting the challenges aside and staying persistent in their home searches.

The average percent of original sales price rising represents buyers' willingness to pay the list price or bid-up the price of a home.

Falling average active time on market represents buyers moving quickly to purchase desirable homes when the hit the market. 

It is easy to see homeowner’s reluctance to sell in the market stats - inventory is only marginally higher now than it was when it was at its lowest on record in the Winter of 2021. Of course, it stands to reason that many homeowners enjoy low mortgage payments on their current homes thanks to record-low interest rates and lower purchase prices when they bought. These factors create a reluctance to sell. So, who are today’s sellers? Primarily homeowners who are highly motivated to or must move, for example, people who are relocating for work, people who require different accommodations due to their health, people experiencing a change in their family structure, people moving out of state to a less expensive or politically different locale, and investors who are cashing in on their rental properties. These sellers have adjusted to the more balanced market, allowing for some buyer concessions and a bit of room for negotiation, which has brought buyers to the table despite the higher interest rates.

The increase in the median sales price is reflective of homebuyers' willingness to pay more for homes, and is also likely reflective of an increase in the sales of higher-end homes.

Homeowners, on the other hand, have increasingly little incentive to sell as they enjoy massive equity and, for those of them that still have a mortgage to pay, record-low mortgage rates that play the role of golden handcuffs. After all - from an existing homeowner's perspective, home prices are relative. If you sell high, you will likely also buy high. If you sell low, you’ll likely buy low. For a homeowner to let go of their home in this market, there has to be an angle from which they benefit, such as cashing in on their equity to buy a lower-priced retirement home in cash, or relocating to a less expensive locale to be near family. Otherwise, people are only selling when they have to, such as when they move for a job, must sell due to a change in health or family circumstances, or when heirs sell the homes they inherit.

The number of new listings coming to market directly correlates to homeowner incentive to sell.

Given that the Spring and Summer tend to be the most active times of year in the real estate market, how is this season fairing, comparatively? Interestingly, home sales actually peaked in March last year, and it seems that we may be headed for the same trajectory this year, as home sales fell in April compared to March. This year, new listings also fell in April compared to March. We do, however, see an increase in active homes for sale in April, so what does this mean? It likely means that there is a persistent locality and quality factor at play - homes in high-demand areas and in great condition are selling quickly, but homes that are lackluster or are in less desirable locations are lingering on the market. 

An increase in active listings juxtaposed against a decrease in new listings reflects that some listings are lingering on the market. While metrics reflecting buyers are paying more for properties than previous months and moving more quickly to make home purchases, this reflects that desirable homes are selling quickly while other homes are lingering on the market.

The reduction in home sales reflects the low inventory and buyer reactions to interest rate volatility.

The reduction of pending home sales reflects the decrease in new listings and buyers' resistance to move on purchasing  less desirable homes.

As for what’s in store in the longer term, there are several factors playing out right now that may influence the market. 

Some have fear of a looming recession that could come to fruition as inflation rates remain above the Fed’s 2% target and consumer costs are further increased by the high interest rates. If these factors suppress consumer spending for too long, the economy could be headed for trouble. Another potential threat to the economy is the fast-approaching deadline regarding the US debt ceiling. If lawmakers don’t reach a solution before June 1st, we could see the impacts on American’s pocket books fairly quickly. If the US defaults on its debt, it will trigger a recession not just in the US but with far-reaching consequences worldwide. The actual risk of default is low, but not to be ignored as we must hold our policymakers accountable for their influence over our economy.

It’s not all doom and gloom, however, as others believe that the Fed’s plan for raising interest rates in order to gain a handle on inflation may be on the brink of success. The goal was to help the economy achieve a “soft landing,” coming out of a market influenced by so many factors related to the pandemic and as the inflation rate has decreased to 4.9% in April, the lowest it’s been in 2 years, there is cause for optimism. As a result, it is unlikely that the Fed will raise interest rates again in their mid-June meeting, but it is also unlikely that they will lower them for fear of reversing progress on inflation numbers. This outcome would result in some steadiness and predictability, at least in the short term, for the first time in a long time.

WHAT DOES THIS MEAN FOR YOU?

If you’re a homeowner:

If you own a home and you’re not looking to move, ride the wave. You likely have substantial equity and a low interest mortgage that is manageable. The great news is that your equity losses from May 2022 - December 2022 are rebounding as we move into the Summer season and it is unlikely that you will see substantial equity losses in the near future. If you’re considering moving in the next few years, let’s talk about your ideas. If you’re considering remodeling or tapping into your equity, give me a call for lender referrals that can help you access the lowest rates available right now.  

If you’re a hopeful homebuyer:

If you’re newly in the market or revisiting buying a home after choosing to wait the market out for a while last year, we should talk sooner rather than later. Buyers have more power in the real estate market right now than they have in the last few years with sellers more willing to make concessions including rate buydowns, repairs and price reductions. Keep in mind, though, inventory is still low so there is still more limited selection. When you lock your rate for a home loan is very important right now as rates can change quickly and changes of even .5% can save you thousands of dollars per year in interest costs. If you love a home, you need to take steps to secure it quickly.

If you’re a potential home seller:

If you’re interested in selling your home, it’s a great time to sell. If you felt like you missed your peak price last Spring, you're well on your way to recovering from that loss. Your home has earned you substantial wealth over the last three years. The key to selling in this market is to price your home intelligently, make it as appealing to buyers as possible, market it strategically and come to the table ready to create a win-win scenario for both you and your buyer. This is my expertise and I’m never too busy for you or your referrals whether you’re considering selling or you just have questions about the 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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