What The Cooling Market Means for San Diego Buyers

You’ve probably been noticing headlines about the housing market changing.

In fact, according to the recent Knock Buyer-Seller Market Index, “the national housing market will favor buyers slightly more in 2023.” Forbes explains what this means for the price of homes throughout the next few months: “As more markets slowly shift toward favoring buyers, the median home price [in the U.S.] is expected to bottom out in January 2023 at over $385,000. It is then projected to begin rising again, reaching $401,000 in June 2023.”

Some markets, especially on the West Coast, are already favoring buyers. San Diego, actually, is #4 on Forbes’ list of cities currently favorable to buyers.

While the housing market is undoubtedly in a state of flux, this could mean a huge opportunity for buyers who are able to enter the market right now. If you’re looking at landing a home in San Diego and seeking a strong long-term return on your investment, you’re in the right place. According to Redfin, the Median Sale Price in San Diego is still up 11% from this time last year—indicating San Diego is continuing to secure its place as one of the most profitable real estate markets in the United States even while prices elsewhere in the country are declining.

While fearing a housing market crash is certainly understandable, a crash, like we saw in 2008, simply isn’t going to happen. And fears of a crash are costing many potential homeowners a chance to enjoy a great return on their investment if they enter the market now and plan on staying in the home they buy for at least the next five years.

A decade ago, mortgage lending practices were so loose that they led to mass foreclosures and a global recession. Today, the Dodd-Frank Wall Street Reform and Consumer Protection Act requires lenders to demonstrate an ability to repay before issuing a mortgage. Unless there is a drastic change in lending practices, this type of crisis won’t happen again.

Looking at the numbers, it’s simply not possible.

Even with the downward pressure on demand (rising mortgage rates and the recent upticks in inventory), current demographic factors keep the need for houses (as well as the value of homes) high. Millennials—the largest demographic of homebuyers right now—need places to live and with a major percentage of affordable homes already gobbled up by institutional investors, as well as slow-downs in new home construction due to supply chain issues, the demand has remained high despite pricey mortgage costs.

It’s true! Mortgage rates are higher than they’ve been in years. According to Zillow, the average rate for a 30-year-mortgage in San Diego was 6.26% as of the beginning of October. That means a monthly payment for a $600,000 home will be about $3705 per month. That’s a steep monthly housing bill, but this also means if you’re a buyer with a lot of cash on hand for paying more toward a downpayment, you’ll be facing less competition from other buyers. Also, there are a few options for reducing the cost of your loan:

A 30-year mortgage will cost you more due to interest. So if you want to save money over the long run, get a 15-year mortgage. It means a higher monthly payment, but a lower cost in interest over the long run.

Adjustable-rate mortgages (ARMs) offer lower monthly payments in the beginning, so if you anticipate having more income or the ability to refinance later, they may be an option to look into.

Discount points are a way to pay less per month. By buying discount points, you’re basically prepaying some of the interest the bank charges on the loan. In return for prepaying, you get a lower interest rate which can lead to a lower monthly payment and savings on the overall cost of the loan over its full term.

If you have a conventional mortgage, you can usually refinance into a lower interest rate as long as you’ve been making your payments regularly, keeping your credit score high, and maintaining your home in good condition for an appraisal. So, if you have the means to do so, you can take advantage of the buyer’s market that the current high mortgage rates have created and nab your dream home without the risk of competition outbidding you, pay the high mortgage rate for a while and then refinance once mortgage rates drop again.

Continually ranked among the top cities for growth and job opportunities, San Diego will continue to see home prices appreciating even as the market shifts to favor buyers. Luckily that rate of appreciation is slowing, so now is a great time to start looking around and seeing what’s available.

Numerous media outlets continue to rate San Diego as a promising locale for everything from lifestyle advantages, to job opportunities to flipping houses:

Buying a home is arguably one of the smartest investments out there, especially if you’re looking for somewhere like San Diego which boasts a growing economy and job market. Long considered an excellent hedge against inflation, a 30-year fixed-rate mortgage is a safer place to put your money than leaving it in cash. And it certainly beats paying someone else’s mortgage (which is the reality for renters).

Looking at the numbers from Robert Shiller, who put together a database of U.S. home prices from 1890 to the present, you’ll see that the total return on investment for housing is .5% above inflation year over year since the end of the 19th century. Especially if you plan to purchase real estate in one of the top 15 markets for real estate (San Diego is #13), you’re making a smart move.

The Cassity Team studies the market and understands the needs of individual homeowners, buyers, and sellers. Reach out and tell us your plan. We love helping people make the right choices for their finances.

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