Stability in the San Diego Housing Market

2023 was a challenging year in the San Diego real estate market. Mortgage rates hit a twenty year high, inventory was low, and prices continued to climb. However, these difficulties allowed for the stability we’ve needed to see for quite some time.

Price For the first time since 2018 the percent increase in median sales price stayed in the single digits, at 2.7%. This is good news! In a stable market, we would hope to see a growth of 3 to 5%; considering the rapid increase in sales price over the past few years (some areas increasing almost 30% in one year) we need to see home prices adjust at a much slower rate. While I don’t agree with everything the Fed has done in the past few years, hiking interest rates may have been the reign-in our market needed.

Inventory New listings significantly dropped by over 30%. Many seller’s are hesitant to move because they purchased or refinanced their homes in 2020 or 2021 when rates were at historic lows. While those rate drops were a blessing for many, they’ve kept most from moving. Many seller’s have expressed the inability to purchase their current home in the existing market:

Seller purchases a home for $1,000,000 in 2020 with a 3% interest rate, providing for a monthly payment of $3373 (not including taxes).

At the end of 2023 that home is now worth about 20% more, giving a purchase price of $1,200,000. With a 6.5% interest rate, the monthly payment for that home is now $6100.

Lack of affordable housing isn’t just a buyer issue; it’s a seller issue as well.

Expectations With the market slowing, and inflation showing signs of improvement, the Fed has implied they are done raising rates, and will likely make cuts during 2024. I don’t expect these cuts to be drastic (2020 was crazy), however, I do expect to see conventional rates in the 5%’s by the end of this year. With interest rates stabilizing, and consumers adjusting to the new norm, there is a good possibility we’ll see inventory pick up by mid-year.