September 2021 - San Diego Real Estate Market Update

SAN DIEGO REAL ESTATE MARKET UPDATE: SEPTEMBER 2021

The charts below tell the story of what's happening in the real estate market better than any pontificating amongst industry experts can:

The three charts above show that homes are selling faster (in the first chart) and for more money (in the second chart) than they ever have. What we are seeing in the third chart is a downward trend in homes selling far above asking price after a peak in the list to sales price percentage over the Spring and Summer of this year which indicates less intense bidding wars than we had been seeing this year and may foreshadow a leveling off of rapid home price gains.

In the charts above we are seeing a downward trend in the number of homes being listed for sale and as a result, a downward trend in the number of homes being sold. This trend is likely the beginning of a normal seasonal slowdown but with our already incredibly low inventory it represents even tighter constraints in homebuyers' choices. We also see in these charts that nearly all homes that are listed are being sold which reflects demand that is more than sufficient to absorb any and all supply.

Analyzing the Data

Over the last 19 months since the onset of the Pandemic, there has been a constant influx of new factors impacting the housing market which have raised the question and assumed an eventual outcome: “When is the bubble going to burst?”

As real estate professionals we are on the forefront of both housing data and anecdotal experience, making us the best suited individuals to forecast what direction the real estate market might be headed. That being said, none of us have a crystal ball and the market can be impacted by many unpredictable factors (like, say, a surprise pandemic). Case in point, in February of 2020, one month before Covid-19 lockdowns were instated, common opinion in the real estate industry was that housing prices would increase 2% in the following year - a decrease of 4% compared to recent years past. When the pandemic hit it impacted real estate in unforeseen ways and in the 20 months since that prediction was made, home prices have risen nearly 28%.

Month after month we address the current issues that may impact the housing market - issues like new legislation, lockdowns, inflation, unemployment, government programs, tax law, supply and demand, interest rates, new construction, demographic changes and more. Today, the hot topics in the news cycle include:

• Rising Inflation - The story goes; as inflation rises, so do home prices. If wages stagnate then affordability becomes an issue and demand for home purchases begins to wane. Waning demand creates an oversupply of houses for sale in which case home prices begin to fall but inflation does not follow suit. Remaining homeowner equity represents less buying power. While we are currently seeing the impacts of inflation on home prices, the shortage of housing inventory is so substantial that the danger of reaching oversupply is negligible at this point in time. 

• Waning Demand - We are beginning to see homebuyers who are either priced out of the market or simply fatigued from losing out on bidding wars and beginning to feel that home prices are overvalued. These buyers pulling out of the market is seemingly accounting for a decrease in the total number of multiple offers on a typical home for sale - perhaps 5 offers instead of 15 on a single home. We are still seeing the average home sell for over the asking price, but the average percentage of how far over asking price is slowly declining. The fact of the matter is so long as we have low mortgage interest rates homebuyer demand will likely remain strong enough to absorb the incredibly low supply.

• The End of Eviction Moratoriums - Eviction moratoriums have expired after 18 months in effect and the courts are beginning to work through a backlog of eviction proceedings. Originally it was presumed that as evictions took place, more housing inventory would become available as landlords offload properties that are finally marketable. That may account for a slight uptick in inventory, however more likely these landlords will take advantage of skyrocketing rents and the ability to finally capitalize on cash flow while their investments are sheltered in their high equity investment properties.

• Forbearance Expiration - Forbearance expiration has begun. Initially there was concern of a wave of foreclosures as a result of homeowners unable to recover from financial hardship and begin making payments again which would increase housing supply and cause housing prices to plummet as they did in 2008. The truth is that foreclosure numbers are lower now than they were at this time in 2019. Because of the huge amount of homeowner equity and drop in mortgage interest rates since the need for forbearance programs began, most homeowners have been able to refinance and/or restructure their mortgages, saving them from the threat of foreclosure. The majority of the foreclosures in the pipeline currently - a total of 15,838 in the US - are homes that were in the foreclosure process when the pandemic began rather than new foreclosures that are being initiated.

“As expected, foreclosure activity increased as the government’s foreclosure moratorium expired, but this doesn’t mean we should expect to see a flood of distressed properties coming to market,” said Rick Sharga, executive vice president at RealtyTrac, an ATTOM company. “While foreclosure starts increased significantly compared to last month and last year, it’s very important to keep these numbers in context,” Sharga said. “Both last year’s and last month’s foreclosure starts were artificially low due to the government’s moratorium. But in August of 2019, the last year we had ‘normal’ foreclosure activity, there were almost 28,000 foreclosure starts – over three times more than this year.”

Taking all of this into consideration - the question of where the housing market is headed remains. While it is true that there is no crystal ball to answer this question - it seems as if prevailing opinion - including our opinion - is that we may see home prices begin to level out a bit but our environment of low supply and high demand will remain for some time, which will keep home prices from falling. There will be no “bubble burst” because there is no “bubble.” Home values are well-supported, homeowners are well-qualified for their mortgages and home supply is unlikely to ease substantially due to the constraints of building new housing.

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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