Market Update 2022

The San Diego real estate market finally seems to be coming down from the frenzied pace we have seen over the last three years. The market seems to have peaked this last March. While values are holding there appear to downward pressure on pricing and values.

Inventory has finally started to increase across almost all price points. Overall, the number of homes available for sale has increased by 25% which is a significant change. The middle of the market, homes priced 700k and 1 million, looks to have doubled in available inventory. Along with this, the time it takes to sell a home has also increased by 25%. Homes are still selling but with less offers than they saw previously.

The number of sold homes has decreased by 15% this year compared to the same time last year. Pricing also appears to be stabilizing. Sellers are no longer able to choose a list price wildly out-of-line with recent sales and those that do are finding few interested buyers. The rate of home sales is known as the absorption rate. At our current rate we now have 1.6 months worth of supply, up sharply from just a two week supply earlier this year. This is the first major change of supply in almost three years.

The biggest change affecting our market is interest rates. The average interest rate has doubled from 3% to 6% since this time last year. With borrowing costs rising, buyers are being priced out of the market. The Federal Reserve continues to raise interest rates in order to battle inflation. Until inflation is brought under control and the real estate market cools off the general opinion is that rates will continue to climb through the rest of the year at least. Some buyers may be waiting for prices to adjust downward before jumping back in. Uncertainty causes markets (people) to freeze in place until they feel comfortable. This is particularly true of many of the investors that I work with that flip homes. Many are now putting a pause on acquisition for new projects.

The market is in a state of uncertainty. And while we have not experienced a decline in values as of yet, the rate of home appreciation is definitely slowing down and there is downward pressure on values. I would not expect another  year over year gain of almost 20% as we’ve seen the last several years. Sellers that have been putting off a sale, should probably get off the fence and finally commit before interest rates start to affect home values. One solution for sellers to tackle rising rates is to provide a buyer credit. This credit can be used to buy down the interest rate on the buyer’s loan. I recommend advertising this in your listing as well.

We have yet to see a crash here in San Diego but things are changing. Having values increase by almost 20% every year is not sustainable nor is it healthy for the economy. Hopefully this high flying real estate market can come in for a soft landing.