September 2024 - San Diego Real Estate Market Update

The moment we’ve all been waiting for has finally arrived: The Fed has begun lowering rates and mortgage rates are majorly improving! Simultaneously, home prices have moved slightly off their summer highs, and the inventory of homes for sale is flattening as we move into the slower autumn season. This is great news as it adds up to an improvement in affordability that will offer homebuyers more purchasing power.

Mortgage Interest Rates

Mortgage rates have fallen by nearly 25% since they reached their peak of close to 8% last October. Today, they are hovering near 6%, a marked improvement for would-be homebuyers facing affordability challenges. When financing a $1 million home purchase, assuming a 20% down payment, this rate improvement could save a borrower over $1,000/month on their monthly principal and interest payments.

Still, demand for homes remains restricted for a variety of reasons. Normal seasonal trends see a slowdown in market activity at this time of year, and election years tend to amplify that effect. Because of the weight of the coming Fed rate cuts as well as the election, financial news has been prevalent in the headlines, and that is likely influencing consumers to feel uncertain about the direction the economy is heading, despite very strong economic markers. Additionally, many soon-to-be homebuyers are likely waiting to see how much lower mortgage rates are going to go. That may cost them in the long run, as mortgages can be refinanced at lower rates when the time comes, but home prices are predicted to rise in the new year and there’s no way to recapture savings on the purchase price of your home.

Home Prices

Median home prices peaked in June at their highest ever, but have fallen a bit since then. That being said, the average price per square foot has remained relatively flat since the spring. This indicates that home prices are fairly steady, but that there is stronger demand for homes at and below the median price vs. higher-priced homes. There has been a decline in the average percentage difference between the list price and the sale price of a home, indicating that buyers may have a slight upper hand in price negotiations at the moment. 

Inventory of Homes for Sale

Both the number of resale homes hitting the market and the amount of active inventory of homes for sale has been flat month-over-month for the last three months. Inventory remains at historically low levels but is following normal seasonal trends in terms of increased and decreased activity timelines.

Real Estate Sales Activity and Demand for Homes

Both pending and closed home sales are trending lower from July to August. It’s hard to say whether the new lower mortgage rates will reverse this trend, bu based on the lackluster mortgage demand previously mentioned, it seems as if demand for homes will follow seasonal trends of slowing in the fall and winter rather than spiking in response to lower rates, as has been predicted. There are many factors influencing demand for homes right now, rates being the primary one, but the looming presidential election and economic news are others. As rates continue to fall and the election draws closer, it will be interesting to see whether consumers shift their behavior or wait for the new year.

Economic Outlook

While there has been some discussion about recession odds in recent months, the odds of a recession in the coming months are under 25%. There has been some softening in the job market as of late, however, it comes in the form of slower hiring rather than concerning layoffs, and the current unemployment rate of 4.2% is still quite low by historical standards. Inflation is finally under control at just over 2% and because of the progress that’s been made in that regard, the Fed has begun lowering interest rates. This data adds up to moderate income growth and increased spending power for consumers. That being said, there is usually lag time between economic data and when those changes are felt in consumers’ pocketbooks. All in all, it seems the Fed will manage to accomplish a ‘soft landing,’ by gaining control over inflation without triggering a recession.

In Conclusion

Although mortgage rates are falling substantially, demand and inventory are both relatively flat at holding at a low level. This is due to a variety of factors from normal seasonal trends to the election and a feeling of uncertainty about the economy amongst consumers. But, while consumer behavior may be in a holding pattern, the economy is shifting. The Fed has begun cutting rates, employment has slowed and the stock market has been reactive. Over the next few months, many factors will begin to converge to paint a new picture of the economic landscape. By January, that new reality will have set in and the market will begin to stabilize into a new normal with lower rates, rising inventory, and increased buyer demand, all of which should result in price increases. That means right now is a good time for buyers to nab a great deal on a home before prices rise, and it’s also a great time for sellers to avoid competition and sell for a price that is near the most their home has ever been worth thus far.

P.S. You’ve probably heard that rules have changed when it comes to how homebuyers work with real estate agents, and how commissions are paid. These rules will impact everyone differently, so your particular situation is important when understanding how they will affect you personally. If you have questions about this, reach out anytime.

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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