Real estate markets are super local, so it’s important to ignore the headlines you’re reading about the housing market and focus on the local San Diego market data if you want to make an educated decision about when to buy or sell a San Diego home or investment property.  Read on for a breakdown of the factors affecting the San Diego real estate market now, historically, and what to expect in 2022. 

This data was compiled by Quantitative Real Estate Economist, Stephen Thomas, and is sourced from the most current and reliable tax and public records data, so it is more accurate than any other report you can find about the state of the San Diego real estate market.  

So What’s the Flavor of 2022?

Waiting will be costly, in terms of increased home prices, mortgage interest rates, and also lost equity. 

Don’t Wait Until After Super Bowl to Sell

Right now there is a record low level of inventory for the beginning of the year.

Typically people think the real estate market doesn’t really get going until after Super Bowl, because buyers typically want to move around their children’s school schedule, but this year is different because mortgage rates are still at historic lows, buyers are out in force, and there are so few homes for sale, making conditions very favorable for sellers.

The Federal Reserve has confirmed that it will eliminate its purchasing of bonds and mortgage-backed securities by March, which it has been doing since the beginning of the pandemic in order to bolster home loans and stimulate the economy. This is a major part of why mortgage rates have been insanely low for almost 2 years, and it’s ending in March.

As rates continue to tick upwards, buyers drop out of the market and sellers lose negotiation power. And with almost no competition on the market right now, it would be advisable to move quickly if you’re thinking of selling this year.

Is There Going to be a Housing Crash?

There’s no way. Before the last crash, there was a credit bubble. Dogs got mortgages, dead people got mortgages, but now, the people getting mortgages are super qualified. 83% of borrowers in 2021 had credit scores of 720 or above and stable, high-paying jobs.

The luxury market is the strongest performing sector of the market, which in San Diego means homes priced at $1,500,000 and above.

Foreclosures are at a FRACTION of their average over the past 5 years in San Diego County. And only 1.7% of mortgages nationwide are in forbearance, and of those, 93% have at least 10% or more in equity, meaning they could sell their home and walk away with cash in their pocket if needed, so they are not at risk of foreclosure.

What’s driving prices here is a lack of supply—there is no bubble!

People Are Permanently Parked

There’s a statistic thrown around that people move on average every 7 years. This is not the case in San Diego County.

The county recorder data shows that people in San Diego move on average every 20 years. This has been exacerbated by Covid and an insane real estate market that leaves people concerned about becoming homeless because they won’t be able to buy a new home if they sell. (It’s absolutely possible to succeed as a buyer in the current market with the right representation but that’s the worry.)

What About A Correction?

Home values have not peaked and all signs say they will probably always continue to grow, just at a slower, healthier rate like 5-7% per year, eventually. Here's why:

Inflation is a serious concern and even if it’s transitory and based on supply chain issues and other pandemic-related factors that will (hopefully) resolve themselves soon, for now it’s continuing to make real estate investing look like a very attractive hedge.

Rising salaries are doing their best to keep up with home prices. The “great resignation” is forcing companies to pay higher salaries in order to retain quality employees, because there are actually more job openings available than unemployed people to fill them.

Rents continue to surge, forcing more buyers off the fence, and investor demand for income-producing units remains strong. 

Rising mortgage interest rates are the greatest threat to the current market, but going all the way back to the 1970's, there is no historical data linking periods of rising interest rates with homes actually losing value.

Rates are still historically low and the conforming loan limit was raised to $879,750 in 2022, meaning you can get a loan up to that amount with the most favorable interest rate, terms, and the most flexible underwriting requirements. This opens up a lot more buying power than last year, when the San Diego County conforming loan limit was $753,250. 

If we want to predict how the market will react to a significant increase in mortgage interest rates, we should look at what happened in the San Diego real estate market in 2014 and 2018, when rates finally hit 5%.

There wasn’t a correction. It turned the market from an “insane seller’s market” to a “slight seller’s market,” meaning listings would get 2-3 offers and only 1 really good one, rather than 10-20 offers like we’re seeing now.

Even in these “slight” seller’s markets, home values appreciated 6% from 2014-2015 and 3% from 2018-2019.

There’s no way rates are going as high as 5% this year, but even if they do, don’t expect home values to drop. What we can expect and hope for is some sort of correction in terms of the BALANCE of the market between buyers and sellers once rates go up.

Forecast & Recommendation:

I predict that the median sale price of a detached home in San Diego in 2022 will increase by 12%, and attached homes (condos/townhomes) will increase 8% year over year.

The beginning half of the year is going to continue to be a strong/insane seller’s market, and the second half of the year should be a little more balanced once mortgage rates settle where they are going to be for the foreseeable future, but all the factors that were present in July 2021, which continued to fuel the market for the rest of the year, are still huge influences on the current market--namely a strong San Diego jobs market, surging inflation, surging rents, and strong investor demand for income-producing units.

If you want to buy a home, when thinking about affordability, focus on your monthly payment, rather than the sale price. Rents have gone up around 20% in the past year and rent is never going to go down. Get preapproved by a lender in order to figure out what you qualify for and what your monthly payment would be at different sale prices. Then make a strategy to achieve your goal.

If you want to sell this year, there has never been a more favorable market than right now. But you still need to put the work in to present and market your home properly and price it right. Buyers are experiencing some real fatigue in this market, so don’t be lazy about your listing and miss your chance to take advantage of these incredible market conditions, because it could cost you tens of thousands of dollars.

Conclusion: