What’s Happening in the San Diego Real Estate Market?

May 23

A Comprehensive Overview of Supply and Demand

As one of California's most sought-after cities, San Diego's real estate market attracts attention from both local and international investors.

Today, we’re diving into the current state of the San Diego housing market to explore key trends and provide insights to help buyers and sellers navigate this dynamic landscape.

The Current Real Estate Market Conditions in San Diego

Let's take a closer look at the current state of the San Diego housing market. The median home price in the county is $835,000 according to North San Diego County Association of Realtors. That’s nearly $400,000 higher than the national average of $436,000, which speaks to the strong demand for housing in the area.

Supply-Side Factors that Drive Prices Up

There are several factors shaping the San Diego housing market right now. Record low inventory levels (low supply) are fueling the inflated prices we’re seeing.

Unfortunately, San Diego does not offer the type of geographical setup for urban sprawl. With Camp Pendleton to the North, the Pacific Ocean to the West, Mexico to the South, and Cleveland National Forest to the East, San Diego is hard-pressed for large swaths of land left to build. Throw in the immense amount of red tape, NIMBYism (“Not In My Back Yard” – which is a term used to describe existing residents – usually homeowners – who oppose new development near their home), and high costs of construction, new home supply has lagged behind the amount needed for years.

As of the date of this blog, there are 2,195 homes for sale in the county, which is an extremely low number considering we are a metro area of approximately 3.3 million people. Thus, it doesn’t take much for demand to outpace the anemic supply of homes for sale.

In addition to new construction, foreclosures are a source of new real estate supply. However, due to owners having record levels of equity, a credit market that has made loans to more creditworthy (lower risk) borrowers recently, government intervention during the pandemic, and a record-low unemployment rate, foreclosures are at an all-time low. So, the supply isn’t being augmented by foreclosures as it has been in the past.

The last source of supply is the resale of existing homes. However, those are at record lows as well. Why? Because many people bought homes at pre-pandemic prices and/or refinanced into very low interest rates. Thus, for those would-be resale homeowners, moving homes in today’s market where prices and interest rates are much higher than in the past is much more costly.

Many sellers are electing to stay put for a variety of reasons. They can’t afford a new home at the price and rates of today, or they simply don’t want to trade their low interest rate loans. Also, if I’m paying 2.75% fee in order to pay back money in the future (AKA: the “interest rate”) but I’m paying it back in a high inflation environment (4.9% in April 2023), then the dollars I’m paying back are worth less than the dollars that I borrowed. So the real interest rate is effectively negative. Borrowers are at an economic advantage by holding low fixed-rate debt in times of high inflation. If you want to read more about this, The Motley Fool touches on this here. This will keep owners “rate locked” and keep them from selling and moving, further stifling inventory.

Demand-Side Factors That Drive Prices Up

San Diego's robust economy, driven by industries such as technology, biotech, tourism, and defense, continues to attract job seekers and contributes to the city's housing market strength.

The largest employer in the County of San Diego is the United States Navy. With a strong military and defense presence in the area, the job market is quite stable and robust. One part of the military income is called the Basic Allowance for Housing or “B.A.H.”. When the cost of shelter rose sharply during the pandemic years, the government increased the B.A.H. for military members up to 32% in some cases. B.A.H. is tax-free income. Given that the largest employer in the area has the ability (and desire) to raise incomes of its employees sharply, it can be reasonable to assume that housing demand will remain stable going forward.

Other major employment sectors include military bases, shipyards, other defense contractors, large colleges, electronics and technology companies such as Qualcomm, energy giant Sempra Energy, and multibillion-dollar medical institutions such as Kaiser Permanente and Sharp Healthcare. The strength of the job market is apparent in our unemployment rate (currently 3.3% as of May 2023), which is even lower than the national average of 3.4% (which is already historically low).

With a robust local job market and such limited housing supply, it’s reasonable to assume that over the long term, home values will continue to increase until (and unless) supply starts to outpace demand – which isn’t likely to happen any time soon for any extended period of time.

Tips for Buyers and Sellers

For buyers considering entering the San Diego housing market, it's crucial to stay informed and work with experienced real estate professionals who can guide them through the process. Tips such as getting pre-approved for a mortgage, conducting thorough research on neighborhoods, and being prepared to act quickly in a competitive market can greatly enhance their chances of success. Sellers, on the other hand, should focus on proper pricing, staging their homes effectively, and leveraging professional marketing strategies to attract potential buyers.

The San Diego housing market remains an enticing and competitive landscape, with its stunning coastal scenery, thriving economy, and diverse neighborhoods. Understanding the current market conditions, trends, and influential factors is essential for buyers and sellers looking to make informed decisions.

Brent Edwards (aka Brent the Broker) is a residential real estate agent and Realtor in San Diego, CA who helps clients buy and sell homes in San Diego, California and all surrounding areas. Brent is a highly-recommended Realtor in San Diego by family, friends and past clients. Call Brent today at 619-550-8070 if you have any questions about real estate in San Diego or you'd like to buy or sell a home.