San Diego California Housing Market Forecast October 2022

We've got rising mortgage rates yet again, higher than expected inflation again, and we actually have some stabilization in housing prices here in San Diego. What does that mean for you if you're looking to buy or sell a home in San Diego? And we're getting after that right now.

We did have mortgage rates that came in much higher again this month, and then stronger than expected inflation yet again. But we did see some stabilization in the housing market as far as prices, at least in single family homes. Stay to the end, cause we're going to talk about exactly what does this mean for you if you're looking to buy or sell here in San Diego.

Mortgage rates came in higher this last month, if you've been following it. We're right now, right around 7.1%. We were at 6.1% exactly one month ago. We're up 1% in mortgage rates, which is, it has a pretty significant impact on buying power if you're looking to buy a home.

In fact, we're up quite a bit, obviously since earlier this year where we were down around 3%, you were getting mortgage rates down the low, the mid to high, 2% at the beginning of the year. Let's dive into housing prices and how are mortgage rates impacting that right now. I don't think it's any surprise to people at this point that housing prices have been coming down over the past 6 months.

Right now the median price for homes in San Diego county is $915,000. This is for single family homes. That actually rose slightly from last month. Last month in the month of August when the last data came out, we were at $910,000, up just $5,000 but hey, stabilization is awesome considering how much we had fallen. We had fallen from $1 million as the median price here in San Diego.

We were down 9%, down to $910,000 in August and then now up $5,000, so just about a half percent uptick. We're down overall 8.5% from our high back in April of a $1 million. I'm glad to see some stabilization occurring. I think there's more pain to come. I think we'll probably continue to drop again as these mortgage rates really start to have an impact.

Why did housing prices rise? Well, there was a brief window of time about 45 days or so ago where mortgage rates did kind of dip a bit and a lot of people kind of jumped in and pulled the trigger on buying a home. We did see a slight uptick in single family home sales. I do think that a lot of people here are bullish on the San Diego market.

We have a great economy here in San Diego. It's very balanced and diversified. Barring would happen on a national level, at least in San Diego, we're quite stable.

There's a lot of good high paying jobs here. I think on the single family home, which is the move up market for a lot of people, there's a lot of stability there. I think we might come down a bit more, but I think there's some good stability there as far as home purchasing. That's why prices are starting to stabilize a little bit, we'll see what happens.

Condos did fall a bit, they fell to $600,000 from $625,000 last month. Condos were at a high of $670,000 back in May. They have come down about 10.5% from $670,000 down to $600,000. Going back to the mortgage rates and the impact on the housing prices, when home prices were a $1 million, people were purchasing these homes right around 4%-4.5% interest.

Those homes that were being bought in April, those were going under contract in March or even February when rates were more about 3.5% - 4.5%. There's been a significant rise in course in the mortgage rates and that massive impact on a affordability. If you take a $1 million home that was purchased for a 4.5% interest rate with 20% down, that would be a $4,000 a month payment.

That doesn't include property taxes and insurance, but just raw mortgage principle and interest, you're looking at $4,000 a month. If you take that same home today, actually not even that same home. If you take the median price at $915,000 today, you're at $4,900 with a mortgage of 7.1% so at $900 a month swing in the median price of the home.

In order to actually balance out to the same affordability where people were paying $4,000 a month for a mortgage payment at a $1 million technically at 7.1%, you'd have to go down to $750,000 for a median price for single family homes. I really do not see that happening.  It could happen. Anything could happen, of course but I think with the stability we're starting to already see, I think we won't get there.

But again, with that 7% interest rate probably going to come down a little bit more going in the next month. I do think going forward as far as inflation, with the Fed with they're saying about they're continuing to raise rates, they just raised them three quarters of a percent again, that we are going to see a continued impact on mortgage rates.

I just want to point out really quickly that mortgage rates actually are not correlated to the Federal Funds rates. When they raise rates, that is not raising mortgage rates, that is an overnight fee or a rate that banks for banks loaning money to each other, etc, that affects a lot of other things. Vehicle loans, credit cards, etc. It has an indirect impact on mortgage rates.

Really what sets the rate for mortgage rates is the market and it's much more correlated with the bond market. There's been some craziness going over in the U.K. They almost completely imploded over there. Their economy almost imploded. That's why mortgage rates kind of jumped almost about $1 or did a jump a percent in one month because of a lot of that volatility.

That's really what's affecting the mortgage rates right now. For anyone to say right now that they know what's going to happen in 6 months or a year, nobody really knows. That being said, just looking at the information in front of me right now and seeing what's happening, I am glad to see some stability coming back in the market, but I would be prepared for more pain.

You've got Jerome Powell out there saying he's trying to cause some pain in the economy, and he wants to cut about 1.2 million jobs in order to help curb inflation. That's tough news to hear. I do not like hearing that myself, that's a really rough thing to say. You want 1.2 million people out of work. But that's what they're having to do to try to curb inflation. That's going to continue to have an impact.

And unfortunately, when you're playing those kinds of games with people and their money and their livelihoods, there is no bottom to that. You don't know where the bottom is for that. It could be significant or could be a soft landing. There's no way to actually get to 1.2 million jobs on the nose. Who knows what's going to happen exactly there. But, all that being said, I think there's a lot of stabilization occurring right now, which is good.

But I do think mortgage rates are going continue to rise. What's going to happen though, if those 1.2 million people do fall out of work is mostly going to be affecting, most likely kind of more the lower wage earners, which may or may not be owning a home already. If they're not owning a home and it's renting they're going to be in a really tough situation. But as far as the housing market, it probably won't affect that too much.

And if it is affecting the housing market, it's going to be on the kind of the lower end wage scale. The higher end wage scale, especially with what we have in San Diego, probably will have potentially less of an impact, especially with the types of jobs that we have here in tech, biotech, military, and healthcare. It provides a lot of stabilization to our local economy and the housing market as well.

I do want to dive in now a little bit and dive into the housing market and the actual numbers here so you can see what is happening and whether or not we're in a buyer's market or a seller's market. And then we're going to continue into whether, what does this mean for you if you're looking to buy, sell, or maybe continue to rent,

What is Your Best Option?

The big number to take a look at right now is the final sales to list price. A normal balanced market is right around 98% of your final sales to list price. What that means is, let's say you list the home for $1 million, normally you would have a 98% final sales price. That would mean you'd sell the home for $980,000. That's a balanced market.

During the pandemic, during the craziness of covid, we were hitting over a 100% regularly. In fact, at one point we hit 107% sales to list price. If you listed the home for a $1 million, on average, you were getting $1,070,000 for that home. Right now we have actually fallen to 96% of final sales to list price. That is below the 98% that would be balanced market.

There's a lot of people out there saying, we are still in a seller's market, we're not in a buyer's market. Maybe we're in a balanced market. And because they're going off this really old ideas about things of like, amount of inventory available for a seller's market is 1-4 months and a balanced market is 4-8 months and a buyer's market is 8-12 months, that frankly is very an old way of looking at things in my opinion.

I think you really have to look at what's really happening on the ground in the market as far as offers being accepted, what kind of prices are people getting, etc. Inventory right now is just under 2 months. That's great, that would indicate more of a seller's market. But the sales to list price would indicate a buyer's market. Which one is it? Is it a buyer's market? Is it a seller's market? Plus days on market arising too, we're over 30 days now, days on market.

My opinion is we are shifting more into a balanced market, but favoring buyers for sure. What does that mean if you're looking to buy a house right now? It means you have to really understand specifically the home that you're looking at and what is happening with that home. What is the motivation for that seller? Why are they having to sell that house? Is there a huge need to sell that house or is there not a need to sell that house?

What kind of negotiations can occur with that seller? And then also, what is that home like? Is it a beautiful home? Is it in a great neighborhood? This going to drive a higher price. There are still homes going for over list price, even though the on average we're at 96% under list price. You really have to look at it and figure out what is happening as far as that specific home.

Do not go into a house and think that you're going to be able to just walk in and make a low ball offer because we're suddenly in a buyer's market. If a home is hitting the market on day one, you cannot go in and say, "Well, I'm going to take it for less". It's just not going to happen. No one's going to do it. You have to let that home season for a little while and it may not take that long.

It could only take 7-14 days to get a motivated seller to start reducing their price. That's when you'll see how motivated they are. If they're not motivated to sell and you come in and say, "I want $50,000 - $200,000 off the list price" on day one over the first weekend, they're going to laugh at you, they're going to be offended, they're not going to want to work with you.

You may really want that house, but they're going to say, "screw you, it ain't happening". You kind of shoot yourself from the foot. If that's your strategy, you need to understand it. Be willing to lose that house, let it season for a little bit, for 7, 14, 21 days and then go in and make that more aggressive offer. If that home is a hot home and there's a lot of action on it, because in a great neighborhood you're still going to have to be aggressive for that.

You may still have to wave certain contingencies to get that home. During the pandemic, we were waiving everything, loan contingencies, appraisal contingencies inspection contingencies to get these homes. That's not really the case anymore. And here is the big thing though, this is the big golden opportunity for folks if you are a first time home buyer.

Now is actually a great opportunity for you to potentially get into the market because FHA and VA loans are now being accepted much more regularly. VA loans are not technically a first time home buyer program, but they often are used by first time home buyer. If you are a veteran, you have access to that, which is a fantastic program. I have a whole another video about FHA and VA loans.
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Now, you can get these accepted. During the pandemic when prices were going $50,000 - $200,000 over list price, it was very, very difficult to get FHA and VA loans accepted. I could do it, but it was very difficult. Now it's far easier. So if you are a first time home buyer and you see the value of purchasing real estate for the long term, it really could be a really good time to buy.

I actually recently bought myself and the way that I look at it is that I'm purchasing real estate; a.) to hold essentially forever and b.) turn properties into rental properties. I'm not as concerned about these individual dips that are happening here in the economy. I'm not as worried about paper losses. I'm concerned about, "okay, can I make that payment and is this ultimately good rental property that I can move into another home and rent this out behind me and continue to build my wealth through real estate?"

If you see real estate as a great vehicle for that, then it could be a really good time for you if you're a first time home buyer. And even if you're not a first time home buyer, it potentially could because there are opportunities out there right now at the moment.

If you're looking to do that, I have some other videos you can watch that go over (https://www.weknowtreasurevalley.com/blog) specifically some of the benefits around investing in real estate, either as a primary residence or as a secondary rental property.

If you are looking to sell a home, then again going back to the neighborhoods and how good is the home, then that's really going to dictate a lot of things about your home and the the strategy we're going to employ if you're looking to sell your home.

If your home is beautiful and a fantastic neighbor and legitimately is, so I know sometimes folks think it's great, but you know, sometimes it's not. But if you have a great home and is priced properly and is marketed properly in today's market, it is still going to sell quickly.

Homes can still sell over a weekend, not as common. They can still sell over list price, not as common. But with the right strategy in place, we can potentially make that happen. If your home has issues, if it needs a lot of work done to it and you're not willing to do that before you put it on the market, if you're not willing to paint the home, maybe replace the carpets, that kind of thing, then you're going to have trouble selling it.

It's going to sit and it's going to take a while to sell and you're going to have price reductions. Get a lot less for your home, then you could have gotten for it 6 months ago. Then you just have to make a decision, do you need to sell the home right now? You want to ride this out for however long it takes for us to get through these changing market conditions that might take a year, might take two years, we don't know.

Or are you wanting to sell now and you don't care? You're going to take the cash and run. You just have to decide what exactly is best for you. And then we have to look at your home and decide what are the options? Do you want to do a full fix up on the home or do you just want to sell it as is or is the home already in great shape and we can go ahead and go to market without doing a lot of things to it and really push the prices on it. Those are different strategies around buying and selling a home.

If you are looking to rent, that might be a good time for you to continue renting. If you cannot afford a home, I would never, ever suggest to someone that you should buy a home if you cannot afford a home. There's a lot of people out there right now saying marry the house and date their rate. What does that mean? That means, if you fall in love with the house, then buy the house. Don't worry about the interest rate.

Who cares if it's 7%? Cuz you can refinance next year and it's going to be 4%. There's a lot of people saying interest rates are going to be 4.5%. I have heard that. I have repeated that myself saying, "hey, it could be at 4.5%", but I have also been saying “probably interest rates are probably going to get to 8% - 10% by the end of the year”.

Are they really going to get to 4.5%? I don't know. Don't go buy a house if you can't make the payments, especially if you're in a job that maybe you don't know if you're going to keep that job because of what's happening in the economy, then it may not be a good time for you to purchase a house right now.

But if you are looking to buy a house because you want to build wealth, then now could be a good time. That is a complete overview of what is happening in the San Diego housing market. What does it look like if you're buying or selling a home?

Curtis Chism, Realtor
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info@sandiegohomes.io
Chism Team | DRE #02105113
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