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Is San Diego a Buyer's or Seller's Market?

 

In a Year Filled with Unpredictability, San Diego's Real Estate Market Remains Surprisingly Resilient.

Looking back some 11 months, it isn't easy to process all that has occurred during 2020. A pandemic, social upheaval, recalibration of societal norms, and, most recently, a presidential election.

Indeed, the roller coaster year brought plenty of uncertainty to many sectors, both personal and professional. One such area, which appeared heading for a tailspin early on in the 2nd quarter, has shown remarkable resilience as the year comes to a close.

Of course, we are speaking about San Diego's real estate market. 

Far from the long-term, depressed conditions that some people feared at the onset of the COVID-19 pandemic, San Diego, similar to other parts of the country, is witnessing an increase in the demand for housing.

But what's fueling the feverish pace? And as we move into 2021, is San Diego a buyer's or seller's market? Let's take a look at several factors driving real estate in the final days of 2020.

COVID-19


Back in July, a report from Redfin identified San Diego as one of the nation's most competitive housing markets. Numbers showed that 65.7% of offers made through Redfin during June faced competition.

In other words, nearly 7 out of every 10 homes ended up in a bidding war.

That reflected an increase from the previous month of May's 53.2%. So why the frenzied pace during the height of the first wave of the coronavirus?

The San Diego housing market did indeed suffer a slump at the tail end of spring. Both buyers and sellers put summer transition plans on hold. New listings and showings ground to a halt. What few deals there were closed without notice or fanfare. And everyone took a deep breath and wondered what came next.

Median home sales dropped significantly from March to May. For all forms of housing in the San Diego metro areas, sales went from 2,924 homes sold in March to 2,296 in April to 1,986 in May. Single-family home sales dropped from 1,861 to 1,522 to 1,309 in that same period.

Then, in June, came a massive rebound. It turns out, for San Diego real estate, the reflection period was incredibly short-lived. 

Total home sales rebounded to a median totaling 2,056 in June. September saw 3,826 residences sold, the highest such total since June 2017 and the fourth-highest total of the past decade. For October, median sales finished at 3,778.

Impressive numbers.

It turns out that the COVID-19 pandemic created a unique set of conditions in residential real estate that has been fueling the San Diego market since the middle of the year. 

Reassessing One's Lifestyle


As the pandemic forced both individuals and families indoors, many began to reconsider their lifestyle. 

People who were previously content with small spaces as long as the opportunity to frequent shops, restaurants, and bars existed suddenly found themselves cramped. Others wanted to opt-out of areas where shared amenities turned from communal gathering spots to no-go zones.

Additionally, homes with families transformed into offices and schools. For many, extra room was no longer a desire but an absolute necessity. Big houses with additional rooms or dedicated areas such as dens, offices, play or exercise rooms, or outdoor spaces took on greater importance.

And specifically, in regards to work, with more companies going remote, employees realized they didn't have to live near their jobs to perform them effectively. Not only did that impact those who live here locally, but it enticed many others to relocate to San Diego.

Don't misunderstand, people aren't necessarily leaving the San Diego metro area. Not all are abandoning a community-driven lifestyle either. San Diego's condo and townhome properties are equally hot commodities in the breakneck market. 

What residents are doing is merely upgrading to areas and housing that better fit their new reality and way of life. Right now, that means big, single-family homes and plenty of room to roam.

Historically Low Interest Rates

It is also critical to note that underpinning all of this is historically low interest rates—numbers that many homebuyers have never seen in their lifetimes. As of this post's writing, current interest rates for a 30-year fixed loan sit at 2.875%. A 15-year fixed rate is 2.375%.

Consider that a half-million-dollar home at a 4.5% interest rate, roughly the rates a year ago, yields a monthly payment over $2,500. Today, that monthly payment is $500 cheaper. More purchasing power in a time of great need translates into motivated, hyper-aggressive buyers.

Of course, with the burden of borrowing much lower and larger, and higher-priced homes more attainable, the already tight pre-COVID-19 market of San Diego is even more competitive.

Along with the sales numbers above, the median sales price for a residential property shot up as well—from $599,000 in May to $685,000 at the close of October. For single-family housing alone, the price has increased by nearly $100,000 from May to October.

Incredibly Low Inventory

With such low interest rates, buyers are undeterred at the rising prices. That enthusiasm is making its mark on the housing supply. Inventory is at its lowest level in a decade. Currently, San Diego housing inventory sits at a month's supply. In fact, active listings are down 35.13% YoY.

New home construction isn't helping to alleviate the shortage of homes, either. Again, the coronavirus ground to a halt what little development was in progress. Even then, what was in progress isn't enough to cure the demand any time soon.

Add to that another market side-effect of the pandemic—skittish sellers. Many sellers sat on listing their homes from initial concerns that the sluggish spring would yield less than ideal sales. As the market heated up, those without set relocation plans didn't want to get caught up in competitive buying.

Those that are putting homes up for sale are reaping considerable rewards. The median list price is up 10.9% YoY. The median sale price is up 11%. And once a property hits the market, it doesn't stay there for long.

Additional Factors

Similar to other parts of the state, San Diego's job market took a considerable hit over the spring and summer due to COVID-19. But even with a 2nd winter wave looming, the region's economy is slowly getting back on track.

After reaching an unemployment rate of 12.4% in July, steady recovery puts those numbers at a more positive 9% for September, which kept it below the state rate of 10.8%. Cities performing even better in the greater San Diego metro area included Solana Beach at 5.5%, Coronado with 6.8%, Del Mar at 7.3%, and Encinitas also at 7.3%. Those latter numbers correspond with some of San Diego's most desirable communities. 

But beyond the uptick in recovery, San Diego remains a highly sought-after place for people to live. Over the last decade, over 230,000 people relocated here. Many of those transplants—both national and international—come into higher-paying jobs. 

They've set their sights on the very housing stock that has dwindled over the past several years, accelerating even more in 2020.

Good for Buyers? Or Sellers?


So what does all that data mean?

Well, we should first note that the COVID-19 pandemic isn't going anywhere for some time. Expect it to continue to guide and influence daily life in some form over the winter. While it so far hasn't made a lasting negative impact on San Diego real estate, it's essential to keep it in mind as you make real estate decisions.

That said, despite the turbulent year, the San Diego housing market has remained steadfast in the face of it all.

Yes, there was a considerable dip in home sales in April and May, and the lasting effects on the job market won't be known for some time. But with interest rates expected to remain low well into the new year, and buyers reassessing their living spaces, available homes will continue to move at a brisk pace—many of them at or above asking price.

And when measured against other California locales such as Los Angeles and San Francisco, San Diego housing offers a less restrictive threshold to clear.

Of course, the caveat to all of that is the inventory will remain tight. For those that do choose to list their home, they'll be doing so in a very favorable market. 

In other words, heading into the year's final weeks and the new year, expect San Diego to remain a seller's market for the foreseeable future.

Are you considering making Rancho Santa Fe, La Jolla, or Del Mar your home away from home? Or perhaps you're aiming for a permanent address in Mission Hills or Downtown San Diego? Contact Zach Weinger today and allow his expert market insight and love for Southern California to be your guide to discovering the best of San Diego luxury real estate.



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Zach has extensive experience working in various luxury markets, and he has refined his tools to help his clients achieve their dreams. He’s a good problem-solver and has the ability to keep people grounded – even in the most stressful of situations.
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