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  • Writer's pictureTisha Cuffee

Housing Market Update, April 2023

Inventory is Low, and Mortgage Rates are High – What Does it Mean for San Diego?

The story of the US housing market is that we appear to be at a price ceiling. Buyers are purchasing homes, but affordability as a direct result of high mortgage rates is the major market hurdle.

Mortgage rates are the biggest risk in today's market.

Mortgage rates hit record lows in 2020 and 2021 – you could say that the market became addicted, and demand for real estate reflected how cheap financing was. Buyers were locking in rates at 3% or even sub 3%, which was a significant contributor to strong buyer demand. Then, at the start of last year, interest rates started climbing, causing demand to taper off quickly. But what’s interesting is that in Q4 2022, when rates started drifting back down, transaction volumes picked back up again, only to decline again at the start of the new year when rates jumped back above 6% started happening again. From this data, it appears that a mortgage rate of 5.5% is the threshold for affordability.

Given that the Fed is continuing to implement rate hikes to battle inflation, it’s hard to predict when the mortgage market will normalize.

Economic data indicate a robust economy.

The Fed’s attack on inflation has been ongoing for over a year. And while inflation dropped a little further last month, down to 6.04 from 6.41% and down from 7.87% last year, the economy's resilience is evident. The country’s job market remains strong, given that the economy added 311,00 jobs in February, and unemployment is very low. Furthermore, retail sales are up. All these signs indicate a robust economy, which means that consumers are doing well but that we can expect more interest rate hikes in the future, which will likely hold mortgage rates above the 5.5% affordability threshold.

Inventory levels.

Low inventory levels are the central story across most markets in the country, and San Diego is no different. Sale volumes are down 31.5% from last year and significantly more from 2021.

Part of the inventory challenges in today's market is that housing suppliers, being sellers, are not motivated to list their homes. They face a problem in that they are locked into attractive 3% interest rate mortgages, and if they choose to sell and repurchase, they are looking at rates north of 6-6.5% rates.

Interest rates are also putting pressure on the new housing market, as builders find it hard to fund new construction development projects. Therefore, monthly new construction starts of privately-owned homes dropped from 1,777 in Feb 2022 to 1,450 in Feb 2023, with a further decline expected. As a result, each week, we have fewer and fewer new listings. Fortunately, for sellers who are prepared to list, there's very little competition in the market, which seems to be the major driver supporting today's home prices.

While February saw a slight uptick in sales volumes in San Diego, the forecast for the rest of the year is that it’s unlikely that we will return to normal inventory levels by the end of the year.

Home prices leading indicators.

The current median home price in the US is $418,200, while the median home price of new listings is $389,900. New listings this year are at the same level as last year, which means there hasn't been any upward pressure on home prices. Another indicator of a flat market is the median price of homes in contract, which at $368,800 is exactly the same as it was last year. Homes are getting priced to match the market, and on average, across the country, they aren't prices aren't getting pushed upward.

The market in San Diego appears to reflect the national story. After a slight lull last months, home prices are just 3.4% higher than they were last year. Furthermore, San Diego homes are still selling at 99.1% of the asking price, indicating a competitive seller's market.

Interestingly, data across the country also doesn’t indicate that prices will be falling significantly. At the start of the year, the rate of price reductions was relatively high, but that has been declining each year. The areas in the US which have been the most impacted by price reductions are the markets that became overinflated during the pandemic, like Phoenix, AZ, and Orlando, FL.

Many people believe that the housing market is tanking, and fortunately, that's not true for the real estate market nationwide, nor is it valid for San Diego. High mortgage rates and low inventory levels will remain the biggest challenges this year, but sellers can still achieve high selling prices.

If you’re in the real estate market as either a buyer or seller and looking for more information about your area, get in touch, and let's discuss your best strategy to succeed.


Tisha Cuffee | REALTOR®


M: 858.337.0051


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