October 2022 - San Diego Real Estate Market Update

Oct 27

The US is not yet in a recession, it is cooling down from white hot to hot and there is plenty of pent-up consumer demand to keep the economy moving forward. Many describe this as a "Cooling off from a Stimulus Hangover". We have experienced a number of national and geopolitical events including supply shortages, government stimulus during the pandemic and Russia's invasion of Ukraine which have set off an overheated economy resulting in inflation. In reaction to the inflation, the Fed has raised rates in an attempt to cool off the economy and the problems in the economy we are seeing right now are in the interest-sensitive sectors, such as real estate.

What we are now seeing is more of a FREEZE in real estate, but the housing market still has strong fundamentals. The biggest component that will prevent a housing crash is the fact that there is so little inventory available of homes for sale, so supply is not out of sync with demand. Foreclosures and bankruptcies are at historic lows, homeowners have $28 TRILLION in equity in their existing homes, most have locked in at low fixed mortgage rates, and have low debt levels. . . which means there is little chance of an increase in foreclosures and bankruptcies in the coming months as 98% of homeowners in California are paying their mortgages on time.

In San Diego, the most notable change we have seen recently is that Median Home prices increased in September 2022 to $790,000 from $780,000 in August 2022. While only a modest increase of 1.3% it is the first time in 3 months we have had an uptick in home pricing. Which of course bodes the question . . . will home prices dip further as the Fed announces further rate increases to battle the rising inflationary numbers we are experiencing or have we hit bottom? Only time will tell . . . however, when comparing home prices to last year's $745,000, median home prices are still up 6%, which proves that despite the news and speculation, we are not seeing a housing crash, just a market correction.

Where we are seeing the price increases are in detached single-family homes that are less than $800,000 and in condos/townhomes less than $640,000.

What's really interesting is that despite the increase in home prices, the number of homes sold in September was 2403 and is down 9.3% to the prior month of 2648.

And more telling of what we can expect is that pending sales for September were 2075 which is down 21.9% to the prior month at 2653. That's quite a huge drop off in just 1 month. And based on historical data and normal seasonal market fluctuations . . . it feels like JANUARY right now.

Buyers are still able to negotiate below the list price and homes are now sitting on the market for an average of 31 days, where as in May of 2022 when home prices peaked, we were seeing 18 days on market.

The number of new listings in September was 3,009, down 11.3% to the prior month of 3391 vs and down 19.2% to LY's 3725. Because buyer demand has subsided substantially we have 4851 homes available for sale which is up 36.2% to LY's 3562.

WHAT DOES THIS MEAN?

Right now we are continuing to see strong consumer spending (especially in the industries not affected by the rising interest rates) and employment remains high, the war in Ukraine continues to surge and the supply of goods (and homes) remained limited. The cost of building a new home is up 45%, which suppresses the number of new homes constructed, thereby ensuring a tight housing market in the years to come.

Most market analysts predict that inflation will begin dropping in the first part of 2023 and reach target levels by 2025. Whether the Fed rate hikes are justified and will serve their intended purpose is a topic of hot debate, but the resulting mortgage interest rate increases have certainly decreased demand for mortgages and thus sales of homes.

If you’re a homeowner:

If you’re in a home and happy there, all is well. You likely have a great deal of equity which is fairly stable and a great fixed-interest rate mortgage. You can expect your home to surpass its record-high price from April/May of this year within 5-10 years, according to traditional real estate market cycle models.

If you’re a hopeful homebuyer:

It is unlikely that prices will come down substantially in the long term and rates will remain higher for the foreseeable future. Whatever price decreases we see in the near future are likely to be countered by rate increases. By the time we see substantially lower rates, buyer demand will be back with a vengeance resulting in higher home prices. However, because mortgage demand is low right now, banks and lenders are competing for your business. This competition is great for you - there are tons of programs offering rates that are lower than industry averages including fixed-rate and adjustable-rate options. If you have been sidelined by bidding wars over the last couple of years, now is a great time to take advantage of lower homebuyer competition. If you’re open to putting in some work, you need to shop around for the best rates as there are deals to be found for the first time in a few years.

If you’re thinking of selling:

It’s true that prices have come down since they peaked in May 2022, but they are still a great deal higher than they were last year. It is also true that buyer competition is lower, but all that means is that it’s more important than ever to market and price your home properly in order to sell quickly and for the most money possible. There are still very few homes for sale so it’s important that your home stands out among them to be buyers’ first choice, but the fact that there is not a lot of competition in homes for sale is great for you. That being said, market times are longer than they have been since the pre-pandemic housing boom and you should expect fewer offers than you would have before things began to slow down. You need an outstanding real estate pro in your corner to help you price, market, and negotiate on your behalf.

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 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.