The San Diego real estate market is influenced primarily by three variables right now:
- Housing supply
- Mortgage rates
- Local job market (employment and wages)
Every month I touch on each one to see how we’re doing using labels. GREEN means upward pressure on prices, ORANGE means even pressure, and RED means downward pressure.
Housing Supply – GREEN
Inventory is falling and will likely continue to fall through the end of the year.
The skyrocketing home values we’ve experienced in the last year are only exasperating the issue by keeping homeowners, who would otherwise be looking to trade up, in place because they can’t afford the move-up home.
There’s no easy or fast solution here and I see it getting worse as rates go up. A new home will be even less affordable for move-up sellers in a higher rate environment. And investor owners won’t want to lose their deliciously low cost of debt.
It’s a conundrum.
Mortgage Rates – GREEN
Mortgage rates are definitely trending higher but they are still extremely low for now so they are still helping to support home price growth.
Inflationary pressures remain strong, which is bad for rates. No denying that. We’ve talked about that a lot here and the news is beating it to death. I think those will exist for the next 6-9 months at least.
That said, I think there are other, potentially even stronger forces at play right now that aren’t getting enough attention and I feel like they are coming to a head soon…and that could really screw up economic growth (which would be good for rates).
- China’s real estate mess and overall economic slowdown.
- The global supply chain issues are getting worse, not better. This has the potential to spook stocks markets.
- The US government’s persistent struggle to get anything meaningful done.
- Future US company performance given the 3 bullets above seems suspect at best.
I still believe this bout of inflation is temporary. I think there are more long-term deflationary factors coming into play (AI and automation to name two) that will start to play a larger role in market dynamics in the near future.
IOW…I don’t really know 🙂 Regardless, it’s GREEN for now!
Jobs – GREEN
San Diego job growth is not skyrocketing by any measure of the imagination, but it’s strong and steady and the future is looking bright for more higher-income positions coming to the region. All GREEN here too.
Conclusion
Every week I write this report, and every week I’m still surprised at how little inventory we have.
As I continue to ponder on it more and more, I’m not seeing an end to the situation any time soon.
I’ve thought for a while that eventually increasing mortgage rates would decrease demand and eventually supply would start to outpace new demand and we’d see a shift in the market.
That’s still possible for sure, but I also see the potential for increasing mortgage rates to keep just as many home sellers from selling as they will prevent new home buyers from buying.
I also see other factors at play that theoretically could keep buyer demand high and properties “moving” quickly.
- The growth of iBuyers in our market. They don’t play by normal rules. They have gobs of money and are literally buying market share. Yes, they ultimately still need to sell…but do they always? Big investment companies buying up lots of property (ie: Black Rock) also play by different rules and big companies like to play together…just saying.
- Rental rates are rising fast…and I think we’re just at the start of that trend. This makes buying and holding more attractive the longer it continues…and it also makes it more attractive for homeowners to rent their home rather than sell.
- Higher-income job growth is attracting wealthier buyers to our market. They are driving new demand and they are able to push prices higher.
- Investment capital is POURING into single-family real estate. With high inflation and low rates and rising rents, why wouldn’t it?
Here’s the long and short of it. I’m still expecting prices to stay relatively flat through the rest of the year and then start to increase again in Q1.
After that, I’m fuzzy, but I’m finding it harder and harder to see a path to increased inventory which is needed to have any meaningful change in the seller’s market dynamic that we find ourselves in today.
Have thoughts? I’d love to hear them. Shoot me a reply!
