September 2023 - San Diego Real Estate Market Update

Sep 22

Despite persistently high mortgage interest rates and reports of dwindling homebuyer demand, home prices in San Diego reached a new all-time high in August. For the first time ever, the median price for a single-family home in San Diego County surpassed $1 Million, and attached properties (condos and townhomes) are also at an all-time high of $677,000. When compared to the year prior, the price of homes for August is up about 13.5% for single-family and nearly 9% for attached homes, according to the SDAR. Home sales, though, are at one of the slowest paces in recent history; There were nearly 1,300 single-family homes sold in August and 751 condos or townhomes, both of which are down about 19% from the previous year.

Why do prices keep rising?

The reason for the continuous increase of prices over the course of 2023 is persistently and historically low inventory of homes for sale. Mortgage applications are at a 30-year low due to affordability concerns, and yet, the demand for homes is still greater than the number of homes available for sale - and so prices climb. Buyers anticipate, and are likely correct, that as soon as mortgage rates drop, competition will spike again and prices will begin rising even more rapidly. They figure if they secure a home now before prices go even higher, they can refinance into a lower rate once rates come down.

Where are mortgage rates and home prices headed?

The latest economic data shows that inflation is still higher than targeted, so we may see further rate increases from The Fed in November and/or December. That means that in the short term, rates are going to remain high. In the longer term, rates are expected to reduce slightly in 2024 to an average of 6-6.5% for the year and further in 2025 - that is, if all goes according to plan, inflation comes down and unforeseen events don’t influence rates one way or the other. As for inventory, it is unlikely to increase in the coming months until February of 2024 as we are entering the slowest time of the year for home sale and purchase activity. It is likely that home purchase activity and low inventory will remain persistent challenges through 2024 as rates remain elevated, and we face a presidential election year, and as such, prices will likely remain high and continue to increase. It’s important to remember, however, that we should expect volatility so long as we’re working with such small sample sets to extract our data from since a small number of transactions that vary from “normal,” can skew the averages substantially.

Why are rates to blame for low inventory?

90% of homeowners currently have mortgage rates of less than 5%. In San Diego, it’s estimated that only 1.1% of home sellers sell at a loss, a marker of just how high the average household equity is - so homeowners can be assured that they will sell for a profit. But, with rates at their current levels, homeowners who would like to move-down are looking at the same payment or higher for a smaller home and homeowners who would like to move-up can’t afford the payments with the rate increase. The people who are selling are primarily moving to a much less expensive area, moving because they must for some reason, or the homeowner has passed away. Otherwise, most homeowners are staying put, forced to wait for rates to decrease.

What are buyers looking for?

For the buyers who are in the market willing to pay today’s interest rates, a turnkey home in a great area is a must. We are beginning to see homes that need work and homes in less in-demand areas linger on the market for longer and eventually sell for below asking price and pushing the average active market time up despite desirable homes still selling extremely quickly. Buyers would rather purchase a home that is “done” and have their payments amortized over 30 years rather than pay the cost of remodeling up front… and (almost) no one will choose to live in substandard conditions compared to what they’re accustomed to. As a result, we are seeing a shift in how homes are priced. Up until recently, homebuyers were expecting to pay substantially over asking price, so homeowners could not price their homes near where they expected them to sell or it would be perceived as overpriced. As mortgage rates spiked, buyer demand fell and the average percent of list price to sales price plummeted. Now that we’re seeing the average percent of list price to sales price closer to 100%, we are now returning to a more normal state of affairs where homes need to be priced accurately in order to sell for the most amount of money in the shortest amount of time possible - not too low at the risk leaving money on the table, and not too high, at the risk of not gaining any traction.

Should we expect a housing recession?

There is certainly talk of an upcoming recession, but it seems the resale housing market will not be substantially impacted if that comes to fruition. According to Bankrate “The U.S. housing market had finally started slowing in late 2022, and home prices seemed poised for a correction. But a strange thing happened on the way to the housing crash: Home values started rising again. “The housing recession is essentially over,” said Lawrence Yun, NAR’s chief economist. “We simply don’t have enough inventory. Will some markets see a price decline? Yes. [But] with the supply not being there, the repeat of a 30 percent price decline [such as in 2008] is highly, highly unlikely.””

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 have rebounded. 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 out the market, 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 and the best homes still sell at breakneck speeds. 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've likely recovered from that loss and depending on the location and condition of your home, may be able to sell at record value. This is a tough market for buyers so it's important to keep that in mind when listing your home. 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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