We’ve all been hearing about real estate markets slowing, mortgage rates rising and prices dropping. All of which is true in the San Diego real estate market. But the news you hear is national, and real estate is local. Here in San Diego, that’s not the whole picture. Read on for both the local and national real estate market update, and find out how they differ.
Higher rates did have the immediate impact of dampening homebuyer affordability and demand. But this year, we’re seeing a more nuanced market in San Diego. While analysts expected listing inventory to swell as sales declined, instead, homeowners have been pushing off plans to sell because they feel beholden to their existing, lower mortgage rates.
So what impact is this reduced demand and low supply environment having on home values nationally and here in San Diego? And what can we expect from the real estate market in the coming months and years? Here are several key indicators that help to paint a picture of the current market and where it’s likely headed.
Home Sales: Affected by Multiple Factors
The weather isn’t the only thing that heats up in the spring and summer. Nationally, it tends to be the busiest time in real estate. But this year, the peak season got off to a slow start, with sales declines in both March and April. Nationally, existing home sales in April were down 3.4% from the previous month, and 23.2% from a year earlier. While we also saw a drop in closed sales in April in San Diego County, closed sales in May jumped back up, exceeding March closings by 3%, and climbing almost 13% over April sales.
What’s causing this market slowdown? Industry experts attribute it to several factors, including near-record home prices, high mortgage rates, and low inventory.
According to National Association of Realtors (NAR) Chief Economist Lawrence Yun, “Home sales are trying to recover and are highly sensitive to changes in mortgage rates. Yet, at the same time, multiple offers on starter homes are quite common, implying more supply is needed to fully satisfy demand. It’s a unique housing market.” Low housing supply is having a strong effect in San Diego and all of California because demand is exceeding supply even with higher prices and mortgage rates. And we’re seeing multiple offers on more than just starter homes. Statewide, approximately 50% of all sales closed above list price in the last two weeks.
Although forecasters at the Mortgage Bankers Association (MBA) and Fannie Mae predict that home sales will continue to fall though Q3 of this year or longer, it looks like the San Diego market is already starting to recover.
What Does It Mean for You?
A slower pace of sales has given buyers some breathing room nationally, However, on a local level, it’s still pretty tight. If you hated the frenzy of the pandemic-era real estate market, the current San Diego market will only feel a little less crazy now. Hopefully, as we move through summer, a larger number of homes will become available. This could make the second half of 2023 a better time for you to shop for a home. I can help you evaluate your options and make an informed purchase.
If you plan to sell your home, our local market is somewhere between last spring’s frenzy and last fall’s slump. You’ll see a little less foot traffic and a slightly longer sales timeline, but it’s still a seller’s market if your home is prepared, priced and promoted correctly. Homes in the greater San Diego market are selling in less than a month on average. That said, it’s still crucial to enlist the help of a skilled agent who knows how to draw in buyers. Reach out for a copy of my multi-step Property Marketing Plan.
Property Values: Relatively Stable in Both the San Diego and National Markets
Nationally, the median existing home price dropped by 1.7%, while here in San Diego County, we saw a year-over drop of 4.4% as of April. But, locally, prices have been moving back up since the beginning of the year. Between December 2022 and May 2023, the median home price in San Diego County has increased 10%.
Ours is not the only market in which this has happened. According to National Association of Realtors (NAR) Chief Economist Lawrence Yun, “Roughly half of the country is experiencing price gains. Multiple-offer situations have returned in the spring buying season following the calmer winter market. Distressed and forced property sales are virtually nonexistent.” The San Diego market is also seeing multiple-offers on many sales with homes selling for 101.2% of their listed price in May.
The average national home price remains about 40% higher than it was in early 2020, according to the S&P CoreLogic Case-Shiller index. A tight housing supply has helped to buoy prices amidst a slowdown in sales.
“While it varies from region to region, home prices at the national level may fall 1% or 1.5% by the end of the year, so not much,” Doug Duncan, senior vice president and chief economist at Fannie Mae, told Yahoo Finance in April.
“But for those who have owned a home for more than a year or two, their home will remain a rock-solid investment. And once affordability is restored, the next generation of households can become homeowners. Getting there is critical to the financial well-being of those households, their communities, and the broader economy,” writes Mark Zandi in The Washington Post.
What Does It Mean for You?
Prices have softened in certain market segments including San Diego, although due to very low inventory, we’re still in a seller’s market. As a buyer, you’ll have more options, but the market is competitive, especially our entry market.
If you’re a homeowner, home values are no longer surging, but are working back up. You’re likely still sitting on a nice pile of equity. Reach out for a free assessment to find out how much your home is currently worth.
Listing Inventory: Low Nationally, Very Low in the San Diego Market
Nationally, unsold existing home inventory rose 7.2% from March to April, according to NAR. At the current level of demand, this equates to 2.9 months of supply, which is still well below the 5 to 6 months of inventory required for a balanced market. Things are even tighter in the San Diego market with only 1.5 months of inventory as of May.
Inventory remains tight despite the market slowdown because many would-be sellers are reluctant to give up their lower mortgage rates. “Affordability is not only an issue for first-time homebuyers, but also for many repeat buyers who still need to take on a mortgage,” explains Danielle Hale, chief economist for Realtor.com.
In a recent survey by the home listing site, 82% of respondents who are planning to both buy and sell a home said they feel “locked in” by their low rate.
In some areas, new home construction is helping to fill the supply gap. “Currently, one-third of housing inventory is new construction, compared to historical norms of a little more than 10%,” according to National Association of Home Builders Chief Economist Robert Dietz. But that’s not the case in California where new construction still only makes up 10% of sales.
What Does It Mean for You?
Inventory remains tight, but less competition means more choice and negotiating power for buyers. If you’ve had trouble finding a home in the past, it may be time to take another look. I can help you explore both new and existing homes in the San Diego and North County area.
Sellers are enjoying reduced competition right now, as well. However, the longer you wait to list, the more competition you’re likely to face. And if you feel locked in by your current, lower mortgage rate, consider this: If you roll your equity gains into a down payment on your next home, you could possibly lower your monthly payment. Reach out to discuss your options.
Mortgage Rates: They May Finally Come Down
According to Freddie Mac, the average 30-year fixed-rate mortgage hit a peak of 7.08% in the fourth quarter of 2022, and since then it’s primarily floated between 6 and 7%. However, there are signs that rates could trend lower later this year.
“Calmer inflation means lower mortgage rates, eventually,” Yun predicted in a recent statement. “Mortgage rates slipping down to under 6% looks very likely toward the year’s end.”
Other leading economists agree. In its May forecast, Fannie Mae speculates that 30-year fixed mortgage rates will continue to decline, averaging 6.0% in Q4 2023 and 5.4% by Q4 2024. Meanwhile, the MBA predicts rates will fall even faster, averaging 5.6% by Q4 2023 and 4.8% by Q4 2024.
On May 3, the Federal Reserve raised its benchmark borrowing rate by another quarter point. This is its 10th consecutive increase since March 2022. However, in its corresponding statement, the Fed omitted language from its previous release about “additional policy firming,” leaving some analysts to speculate that the rate hikes may be over.
Although mortgage rates aren’t directly tied to the federal funds rate, a decision by the Fed to pause rate increases could have a positive effect. In the meantime, buyers should shop around multiple lenders to find the best rate, and buckle up for what could be an exciting ride.
What Does It Mean for You?
Mortgage rates may finally trend down, which would be great news for buyers. But, a decrease in rates could correspond with an increase in competition and prices. If you start searching now, you’ll be prepared to make an offer when the time is right. I can help you negotiate a great deal and potential seller incentives.
If you’re planning to sell, this is good news for you, too. But, there are several factors to consider when determining the right time to list your home. Reach out for a consultation so I can help you chart the best course.
I’m Here to Guide You
While national real estate forecasts can provide a big picture outlook, real estate is local. And as a local, San Diego market expert, I can guide you through the ins and outs of our market and the issues most likely to impact sales and drive home values in your particular neighborhood.
If you’re considering buying or selling a home, contact me now to schedule a free consultation. I’ll work with you to develop an action plan to meet your real estate goals.
The above references an opinion and is for informational purposes only. It is not intended to be financial, legal, or tax advice. Consult the appropriate professionals for advice regarding your individual needs.