San Diego Real Estate Market Forecast 2022 | 2023 (Updated)
We entered the real estate market of San Diego in 2022 with expectations of a continued bull market in housing sales balanced by low mortgage interest rates. We are now several months into the year, and there have been some dramatic changes in the real estate industry and the financial world. All statistics are as of this writing.
Inflation is no longer a forecast; it is a reality. We have been used to interest rates of less than 5%, and we now must look at the possibility of higher costs for mortgages in Southern California. It is a sobering thought that there might be high house prices and high-interest rates. Therefore, it is an excellent time to take a second look at where the market is going and what a potential homebuyer should be thinking about as the year progresses.
Here's a quick rundown of our list:
We need to put politics and opinions aside for a moment. Instead, we should be looking at the figures and what they suggest to us. We also must keep in mind that anything can cause a change in direction. Economic forecasting is vulnerable to both crisis and good news.
Recent inflation figures have shocked the system, and American consumers have not seen such data in decades. The annual inflation rate nationally was 8.5% in March 2022. That is the highest it has been since December 1981. In February, the rate went down to 7.9%, which was lower than the forecast. However, gasoline prices went up 40%, and the consumer price index rose 6.5%, which was below forecasts but still more than in 40 years. The inflation rate for May is projected to be 8.2%.
These may be the high figures for the year. Bloomberg has predicted that inflation will go up by 5.1%, and the war in Ukraine can influence that final figure. Forecasts into the future are optimistic, with projected rates going down a little bit. Nevertheless, we are looking at an increase in overall prices. Building materials, those which are used for residential construction, are up 8% thus far in 2022. Those increases in building materials will impact the number of new houses contractors will build this year.
It does not look too good for mortgage rates to go down soon. The Federal Reserve intends to raise the Federal Funds rates several times this year to bring down inflation, and experts expect that mortgage rates will continue to move upward. How high and how fast the interest rates will go up on mortgages depends on whether the Feds can curb them.
Currently, the National Mortgage Interest Rate Average is 5.48% for a 30-year fixed mortgage and 4.74% for a 15-year fixed mortgage.
Okay, we have amazing beaches and fantastic weather, but we must pay for these luxuries. In March, the Consumer Price Index showed a 7.9% increase from the same time last year. Unfortunately, the Cost of Living Index does not do us any favors. We are currently at 160.4. While that is undoubtedly better than San Francisco, which registers 244, the Cost of Living index jumped dramatically over 2021.
What might scare the pants off the prospective house buyers is how the value of San Diego homes has jumped. According to Zillow, the typical home value of San Diego houses is now $969,595. That is an increase of 27.9% over the past year. To understand how prices skyrocketed in the recent past, the value of a home in November 2021 was $885,000. It paints a rather grim picture for those contemplating buying a house.
The secret to house affordability in San Diego is that low-interest rates balance the high sales price. Buyers were once concerned but not stressed out by what their monthly mortgage bill was going to be. Well, now we have a situation where the cost of housing is rising. The same is true for mortgage rates.
As of this writing, the 30-year fixed rate in San Diego is 5.4515%. The mortgage interest for a 15-year fixed rate is 4.512%.
When you compare it to the national figures cited above, that does not seem too bad. But let's look at what this means in real dollars when you compare the cost of the house in November 2021 with the price right now.
If you were only going with the November value of a home and used the above 30-year fixed rate, the annual interest payment would be $48,245.77. Considering the present home value and that same 30-year fixed interest rate, the current annual interest payment would be $52,857.47. We will do the math for you: the difference is $4611.70. Yeah, things are starting to look a little bit rough.
Prices are affected by the supply of available units. A large market of houses for sale either brings prices down or arrests the growth. San Diego is a wonderful place to live if you can afford it. We have been lucky compared to San Francisco in many areas, and we have always thought of ourselves as a more livable place. Unfortunately, we have some less than wonderful news.
San Diego has bypassed San Francisco and is the nation's least affordable metropolitan area for housing. That was the finding of OJO Labs in a recent research study. So, we are in an unusual predicament. The greater San Diego area shows a decline in existing home sales, but sales prices continue to rise.
Inventory is a problem. A housing market is considered balanced if there is a 4 to 6-month inventory of homes available. When it comes to existing single-family homes, San Diego has an inventory of 1.4 months! There are not enough sellers to bring the prices down. It is a seller's market currently. Real estate can only switch to a buyer's market if supply rises to an inventory of five months. That is not likely.
New listings only add to this somewhat gloomy figure in the San Diego area. As of February 2022, listings have decreased 15.8% for Detached Homes and 23.3% for Attached Homes compared to February 2021. In addition, pending sales are falling in the double digits: 18.9% for Detached Homes and 18.7% for Attached Homes. Overall, the Months Supply of Inventory decreased by 10.0% for detached homes and 33.3% for attached homes.
Has Covid-19 made any impact on the supply? That does not appear to be the case, but something pandemic-related impacts property availability.
Historically, evictions and foreclosures will bring houses onto the market as former tenants lose the right to rent or own the property. Recently, California courts suspended eviction foreclosure proceedings across California. The suspension is intended to stay in effect until 90 days after the coronavirus state of emergency has been lifted. We agree that this is important for the common good, and California needs to be compassionate to those who can no longer afford housing due to pandemic-related job loss. However, there are consequences.
A source of new listings is now temporarily on hold. The process for evictions and foreclosures without having additional constraints imposed. The court-ordered suspension makes the housing market even tighter than it was before.
We must face the facts. San Diego is the most expensive housing market in the United States. Earnings have not been able to keep pace with increasing house prices, and we are locked into a seller's market for some time to come. Now what?
We know that what we have shared with you in this article sounds depressing. You spent years saving up for a house and made extraordinary sacrifices for that down payment and rearranged your budget to afford mortgage payments. There is always a silver lining to a dark cloud when we look at things. You must find that white streak, which takes a little bit of focused research.
We do not think it is time for prospective buyers to pass around the crying towel. San Diego County has opportunities, but it requires a more focused approach to house hunting and financing. Of course, neither is impossible, but both need to be done.
Hopefully, you have been very sensible and saved up your money for a down payment. The big challenge is going to be where to get a mortgage loan. You are fortunate if you live in San Diego County. There are hundreds of financial institutions that you can approach about the possibility of a loan.
What is your credit score look like right now? If you have a score of over 750, you stand an excellent chance of getting a mortgage loan with a reasonable, if not low, figure. If you do not, you might do something about that score as soon as possible. Low credit scores do not necessarily mean that you will not get a loan, but you will pay a higher interest rate, which could cost you thousands of dollars over the life of a mortgage. So, whatever you can do to bring that credit score up, which would include paying off some of your credit card debt and paying other bills perhaps ahead of the due date, will help.
You have some alternatives to commercial lending institutions if you want to consider them. Federal Housing Administration (FHA) loans are standard financial instruments for those who are first-time buyers. A 3.5% down payment for those with credit scores over 580 is hard to resist. You also can qualify if the credit score is around 500, provided you are willing to come up with a 10% down payment. In the price negotiations, a seller can pay up to 6% of the loan amount that will cover closing costs for the buyer.
Of course, FHA is not the only way to go depending on your eligibility. The United States Department of Agriculture (USDA) also sponsors home mortgage loans, and if you are a veteran check out what the Veterans Administration (VA) will provide.
Inflation and rising interest rates are scary stories, but these financial facts should not frighten you into making a poor decision. The house is a home, and though you are looking for an affordable price, you want a residence where you can feel safe and comfortable. Let's face it; you will get a lower price if you happen to be in a slum or high-crime area. Do you truly want to raise your kids there?
House hunting includes looking at the neighborhood and what the amenities are. The house itself needs an appropriate number of bedrooms, bathrooms, a garage, and a suitable living space. You should figure out the dimensions of the property you want before you start looking.
We do not mean that you should see a counselor or therapist! You are not crazy for trying to buy a house in these expensive times. However, we think you would be out of your mind if you tried to do this solo. Buying a home in San Diego County is not a DIY project.
We mean that you should be thinking about working with a real estate agent when you go looking for that dream house. Forget what some of the cable TV guys are telling you about going alone. You are asking for trouble; we mean the expensive kind. People who try to buy a house by themselves and are unfamiliar with real estate can lose out. Real estate agents will help with finances, shop for the right place, and be a great ally during the closing process. Agents can negotiate a sales price down a few thousand dollars at least. In addition, you can save on the final mortgage loan when you have a good agent.
We have helped people purchase property in San Diego County for years, and we know the territory. We can help you find the right place that fits your lifestyle and budget nicely. We are more than just real estate agents; we are a licensed mortgage loan originator. That will be extremely helpful as you arrange your house by finances.
The real estate market in San Diego has some challenges, but they are not impossible mountains to climb. We will give you the help that you need. If you want to know more about us, please feel free to contact us as soon as you are ready. We are here to make the house hunting and buying process simple.
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