A Deep Dive into Local Market Trends in San Diego

The real estate in San Diego County is a rollercoaster of highs and lows. Discover the intricacies of the local market as we delve into the unique dynamics shaping the region's housing market.

Prices Reach for the Sky:

In San Diego County, the home prices seem to be impervious to rising mortgage rates, even hitting all-time highs in August 2023. In November, the median single-family home and condo prices were 2.4% and 3.0% below the August peaks, respectively, but slight price contractions are normal in the second half of the year. We expect prices to remain slightly below peak in the winter months, but as interest rates decline, prices will almost certainly reach new highs in the first half of 2024. Additionally, the sustained downward inventory trend and low number of new listings will only raise prices as demand grows. However, more homes must come to the market in the spring and summer to get anything close to a healthy market.

High mortgage rates soften both supply and demand, so ideally, as rates fall, far more sellers will come to the market. Rising demand can only do so much for the market if there isn’t supply to meet it. Unlike 2023, 2024 inventory has a much better chance of following more typical seasonal patterns.

Inventory Woes and Unusual Trends:

Single-family home and condo inventory have trended lower over the past 15 months, which is far from the seasonal norm. Single-family home inventory hit an all-time low in November, which further highlights how unusual inventory patterns have been this year. Typically, inventory peaks in July or August and declines through December or January. In 2023, inventory didn’t have anything resembling the typical sine wave, since far fewer sellers came to the market, especially in the first half of the year. With inventory at historic lows, the number of new listings coming to market is a significant predictor of sales. Month over month, new listings fell 23% and sales declined 18%. Year over year, sales and new listings are down 15% and 10%, respectively.

As demand slows, buyers are gaining more negotiating power and paying slightly less than asking price on average. In July 2023, the average seller received 100% of list price compared to 97% of list in November. Inventory will almost certainly remain historically low for the next few months, and buyer competition will ramp up meaningfully in the spring, which will create price support.

The Balancing Act:

Months of Supply Inventory (MSI) quantifies the supply/demand relationship by measuring how many months it would take for all current homes listed on the market to sell at the current rate of sales. The long-term average MSI is around three months in California, which indicates a balanced market. An MSI lower than three indicates that there are more buyers than sellers on the market (meaning it’s a sellers’ market), while a higher MSI indicates there are more sellers than buyers (meaning it’s a buyers’ market). MSI fell below three months in the first quarter this year, remaining fairly stable from March to August before increasing from August to November. Currently, MSI implies a more balanced market for both single-family homes and condos, which is normal in the fall and winter months.

In navigating the dynamic real estate landscape of San Diego County, we've unveiled a tale of resilience, unusual trends, and a delicate balance between supply and demand. As we step into 2024, the forecast indicates potential highs for home prices and a market poised for more typical seasonal patterns.

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