San Diego Real Estate Market: How Hot and High Can it Go?

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by Mark Murphy

Hot San Diego Real Estate MarketKnowing that I am taking a Real Estate Economics course, my slightly older brother Eric couldn’t resist ribbing me at dinner last week by asking, ​“So how’s the San Diego real estate market doing these days? How’s the market in general?”

It’s a hot market, I replied and started off by reminding him of a recent ​San Diego Union Tribune article​ that showed San Diego to have the 7th highest home price increase in the country, with home prices spiking 7.1 percent in the past year alone. San Diego, however, does lag somewhat behind San Francisco (10.1%), Los Angeles (8.3%), with the highest increase occurring in Seattle with a 12.7 percent increase in home prices this past year.. According to the​ ​S&P CoreLogic Case-Shiller Indices​ (which requires registration), these increases can be attributed t​o strong economies and a shortage of home supplies.

​“And is a real estate crash coming any time soon?” he asked.

I explained that this would be unlikely, according to ​​ Cheryl Young is chief economist at Trulia. She states that the Great Recession basically put a stop to home building. Now we are in a much stronger economy and job growth is strong.

Additionally, since the market crash, you can see in the chart below from the Urban Land Institute  that it is much more difficult for both borrowers and homes to qualify for loans.  This results in far fewer loan defaults and foreclosures. There is simply less risk in the market.San Diego Real Estate Market risk

 

The lack of home building and strong San Diego job growth makes it very hard for first time home buyers here to buy a home, especially with the average price of a detached resale San Diego home now standing at $580,000. Meanwhile, retirees are still flocking to San Diego with its balmy year-round climate, beautiful beaches and some very nice golf courses. The pressure on housing has never been stronger in recent timeTight San Diego Real Estate market for starter homes

But the San Diego real estate market is not alone.

The chart below from the California Association of Realtors (CAR) shows home price progression in the state over the years and ​its current trajectory. Note that San Diego’s numbers far exceed the statewide average:

San Diego Real Estate Market Rise in Home Prices

Pricing pressure also come from drastic shortage of inventory, as shown by this chart from the National Association of Realtors, reflecting a national problem that affects almost all real estate markets.

Available Homes in the San Diego Real Estate Market

“So who can afford a home or condo at these prices?” he asked.

​I responded that interest rates are rising, but not at the horrific rate some predicted for 2018. Also, more homes are now being built or converted into multi-generational homes that can accommodate younger members of a family as well as aging parents and grandparents. According to ​Curbed.com​, multigenerational housing can offer a solution for senior living, immigration and affordability–and seems to be an emerging trend with homebuilders such as ​Lennar​, who advertise two homes under one roof.

And locally, most cities in San Diego County are now allowing for the building of accessory dwelling units​ to provide much-needed additional housing.The intent is to help ease the crushing need for more affordable housing and rental properties in general.

I spoke with a couple of other real estate agents about the affordability issue, and they all acknowledge it’s a problem. Sometimes, families are able to help with closing costs or qualifying for a mortgage, and sometimes those fortunate enough to qualify for VA loans are able to get in with no down payment. Generally, all adults in a household are also working to be able to afford a home in San Diego. The exceptions are high earners who can buy where they wish.

It is the ​starter home​ category, though, that is in such short supply in San Diego. Inventory levels for relatively affordable condos and small homes are the lowest of all and have also experienced the most price appreciation as the ​CoreLogic​ chart below:

So in response to your initial question about how the San Diego real estate market is doing, we can safely say it is as tight as it has ever been–for buyers, of course– and also for sellers, who worry about selling their home and being unable to find the replacement home they are seeking.

And no, from my research, I do not believe prices in the San Diego real estate market are coming down any time soon!

You may also want to read:

Multiple Offers: How to Win

Will Rising Interest Rates Lower San Diego Home Prices?

How to Get Maximum Price for Your San Diego Home

 

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