The San Diego Housing Market is Cooling Not Crashing

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|8 min read

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The San Diego housing market has a reputation for being a difficult city to find a home in. Currently, the housing market in San Diego is the seventh most expensive city in the United States.

Still, homes were moving very quickly over the past several years, with homes often spending less than 10 days on the market. In San Diego, earlier this year, homes spent an average of 8 days on the market. However, the number of days a home is spending on the market is climbing, and in October 2022, homes spent 27 days on the market, up 13 days from a year ago.

Interest rates on mortgage loans have historically influenced consumer demand. Because borrowing rates were so low recently, San Diegans have been able to cope with the high cost of homes. That situation is altering, though, as mortgage interest rates increases in San Diego County and across the United States are squeezing buyer purchasing power.

San Diego Housing Market: The Specialized Insight of Real Estate Agents

Zillow forecasts 8% home value growth in the next year. However, local real estate agent, Melissa Tucci, doesn’t see this happening.

“I believe San Diego home prices will increase 2-4%. Additionally, in some areas, we will see a decrease of about 1-2% in median home prices.”

The 8% increase that Zillow is quoting seems especially high for the San Diego housing market. Given the current economic conditions and rising mortgage rates, it is unlikely that the San Diego housing market will experience this growth in median price.

Zillow is a data platform that goes off of statistics and an algorithm. Local real estate experts have an advantage over Zillow because they are here in San Diego, living the fluctuations of the market firsthand. Real estate agents see how housing market changes have played out in the past and can give unique insight into the real estate market of the future.

San Diego Housing Market: The Uniqueness of Neighborhoods

The discrepancy between Zillow and a local real estate agent’s perspective is due to the fact that Zillow looks at an average national level.

San Diego is anything but average. San Diego has many different neighborhoods and counties, and each one can fluctuate differently from its neighbor.

San Diego Housing Market: La Jolla Neighborhood

La Jolla, which translates to “the gem”, is a coastal paradise and real estate is desired like fine gems. The high demand for this neighborhood drives up the median price of homes.

The result is La Jolla has the most expensive homes in San Diego county with home prices averaging $2.4 million. Most people own homes in La Jolla San Diego with a homeowner percentage of 70%.

Over the past year, home values have increased 14.8%. Over the past 5 years, home prices in La Jolla San Diego have increased 55%.

Yet the real estate market is slowing in this San Diego neighborhood too. The median days on market for a home is up 18 days year over year. In the past month, the median price has decreased $350K and 77% of homes listed for sale have had a price drop.

San Diego Housing Market: Del Mar Neighborhood

Del Mar San Diego is a picturesque beach town with incredible bluffs and beaches. This attractive neighborhood hosts high-profile events and contains luxury resorts and a vibrant atmosphere. Home values here reflect the demand and are estimated to be $3.5 million.

With this more exclusive neighborhood, single-family homes and other properties stay on the market longer than the national average. The median days on market in October 2022, is 42. This is up from 14 days in June of 2022, yet, is more reflective of the typical average total market time.

In addition, the current economic conditions have caused downward pressure on median sale prices, which decreased 5% since last year. Moreover, there’s been a 62% decrease in the number of homes sold, revealing that even this exclusive neighborhood of San Diego is not immune to the Federal Reserve interest rate increases.

San Diego Housing Market: Mission Valley Neighborhood

Mission Valley San Diego home values are relatively more affordable compared to the neighboring areas. Typical home prices are $682, 828 with homes staying on the market for approximately 22 days, which is 11 days longer than the previous year.

Homes in Mission Valley generally sell at or slightly above their list price and are reflective of a seller’s market. While the increase in interest rates has affected this San Diego county neighborhood, it is likely that the real estate market will remain strong here.

Typical of many San Diego neighborhoods, the renter percentage is higher than those that own property, with 70% choosing to rent. Yet, buyers can have confidence in a strong investment in Mission Valley. Median prices have steadily increased year over year and have been less responsive to the Federal Reserve changes in mortgage rates.

San Diego Housing Market: Carmel Valley Neighborhood

Carmel Valley San Diego’s housing market is thriving. Homes values average $1.5 million and are up from the previous year. Ninety-seven homes were sold in October 2022. While this is down from a high of 201 homes sold in September 2020, it is still a relatively high number of homes sold in San Diego County.

The homeowner percentage in Carmel Valley is 69%. The real estate market is somewhat competitive, with homes selling in around 29 days. The median price of homes is up 1.9% compared to the previous year.

The real estate market in Carmel Valley is relatively stable with home prices increasing over time. This San Diego county neighborhood is a suburban planned community with high-rated schools, wonderful family life and incredible parks. While interest rates will impact the appreciation rate and home sales, the demand for Carmel Valley real estate will likely weather the economic cycle well.

San Diego Housing Market: Tierrasanta Neighborhood

Due to its proximity to the center of San Diego, Tierrasanta is an appealing location. Average home values of $993,115. While the real estate market has high buyer demand here, the home values are less than some of the beach towns.

Housing prices have risen significantly over the past two years. In January of 2020, home values were $662,428. The Pandemic market made this neighborhood even hotter, and median sales prices appreciated quickly. Over the past 5 months, median prices have decreased by approximately $40K, reflecting the impact of rising mortgage rates and inflation.

Yet buyer demand will likely remain strong here. Many families and young professionals live in Tierrasanta San Diego, which offers a suburban feel close to the city center. Additionally, the public school are highly rated, cause demand for properties here to be maintained.

The Stabilization of San Diego’s Housing Market

We have definitely seen a shift in the market. What it looked like 6 months ago vs. 3 months ago vs. today is dramatic. The market change is so vast because we saw a crazy increase in housing prices and sales over the past two years. Now we are seeing a decrease in median sales price, however this decrease is more of a stabilization.

San Diego’s Housing Market is Cooling, not crashing

Fewer multiple offers, a gradual increase in the amount of inventory available, and the number of days a property is on the market are all signs that an overheated market is beginning to cool off.

Additionally, year-over-year appreciation rates have plateaued. When selling your home, you need to understand the market.

Just because the average market times for San Diego Real Estate are back to 25-45 days instead of 5-10 days doesn’t mean the San Diego housing market is crashing. It is important to understand that we had an extreme increase in median sales price and velocity. Now the housing market is slowing down. Yet, it is more of a stabilization than a crash.

San Diego Housing Market: The Pandemic Years Are Not 2008

The San Diego real estate market was a hot market during the Pandemic years. The ability to work remotely, drove people to demand beach homes with beautiful weather. In addition, consumer spending shifted and some found that they could afford the home they had been waiting for.

The Impact of Interest Rates

Most importantly, the interest rates were historically low, hovering around 3%, which is the lowest interest rate that Freddie Mac measured since 1971.

The low-interest rates allowed buyers to get out of the rental market and into home ownership. Mortgage financing was readily available, and buyers in California could afford to purchase a home.

Yet, it is critical to note that the questionable lending practices in 2008, did not occur during the Pandemic years. In addition, the supply of homes, especially in San Diego, is nothing like 2008. In fact, San Diego faces a shortage of inventory, which will keep prices stable and likely increasing.

While the mortgage interest rates are increasing, they are still at relatively low levels. Interest rates in the early 2000’s averaged 5-7%. The generation before faced the highest interest rates; 1981 experienced interest rates of 16%.

Therefore, the real estate market will slow down, which is what the Federal Reserve intended. We will see a decline in median list price, and increase in days on market, and less bidding wars.

Yet, San Diego real estate will likely remain strong.

San Diego Housing Market: Forecast Slow Growth

Over the past two years, the high demand for San Diego homes has given rise to a heated market. The number of buyers increased, yet there were no listings available.

There is roughly 3.9 weeks’ worth of supply in the San Diego housing market. A balanced market would typically have a supply of about six months. Thus, San Diego remains a strong seller’s market.

The decline in new listings over the same period last year is mostly linked to homeowners’ reluctance to engage in the market themselves. Due to the unusual combination of low supply and high demand, sellers have been able to raise their prices.

As long as supply and demand are so lopsided, prices will probably keep slowly increasing or leveling out.

Find an Expert Real Estate Agent

If you are interested in learning how the market will affect your buying or selling experience, reach out today, and a local real estate agent will help guide you through the process.

Melissa Tucci

Melissa Tucci is a real estate broker/agent in San Diego, CA, and the Official real estate agent of the San Diego Padres. She was ranked the #1 Coldwell Banker agent in California every year from 2016-2021. Prior to that Melissa was ranked #1 in sales for the entire Century 21 Western Region from 2012-2015. Voted the "Most Influential Woman" in 2019 by the San Diego Daily Transcript, Melissa is an excellent agent to work with.

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