Real Estate Trends

By Sarah Ward, Realtor

Last week I took an Uber ride from the airport and the driver was a well-known real estate broker I have done deals with over the years. I asked why he was driving an Uber and he said he has absolutely no deals right now. He likes to keep busy and thus drives an Uber part-time. The real estate market is slow right now and talking to that broker was another confirmation of that fact; it slightly jarred me, a wake up call of sorts, the market is slowing.

As we are entering traditionally the busiest real estate season from late spring through the summer, buyers have all but disappeared and inventory is increasing. One theory I have is that the mortgage interest rate increases over the last one to two years have finally caught up with the market. When rates first entered the six and seven’s, buyers were told to buy a great property and refi the mortgage as soon as rates dropped. But there is a new reality that has set in; rates are stubborn and may not be dropping anytime soon. What was once thought that 7% rates were temporary is making way with the notion that 7% rates are the new normal. This is it. Maybe we even see 8%. So there was a delay in the psyche of people that is now catching up I believe. It is well known in economics that consumer spending is a lagging indicator. As the economy moves towards recession, consumers continue to spend unfettered and only a year or two later does consumer spending suddenly drift lower. Rates went up but buyers kept buying, until now.

Another factor causing a sudden slowdown in real estate I believe is likely the persistent inflation effect. People are really feeling the strong drain on day-to-day finances. Fast food restaurants are reporting lower sales, Rubio’s just announced the closing of 13 San Diego locations, and the price of groceries has clearly surged along with insurance, car repair, and most services. Buyers are being pinched and not quite ready to jump into a 7% mortgage with complete enthusiasm. Hard to blame them.

Another issue to consider is that it seems every election year, the market freezes especially from September to January. Maybe that is occurring a little earlier this year. Inventory of homes is showing a significant uptick. Properties are staying on the market longer. There are less buyers coming through open houses.

So what happens next? Last week, economic data trickled in indicating weakness in the labor market and in manufacturing output. A slowing economy will likely bring down rates. In fact last week’s news caused mortgage rates to drop 1/4%. If mortgage rates continue to drift down into the 6’s over the next six months, perhaps buyers will come back into the market. But until that happens, I would expect inventory to continue rising and with a potential easing of asking prices.

MARKET REPORT (Single Family): College Area (92115): median price up 6% year over year to $965,000 with 42 homes for sale, inventory up 50%. San Carlos (92119): median price up 18% to $1,115,000 with 21 homes for sale, up 200%. Del Cerro/Allied Gardens (92120): median price up 17% to $1,215,000 with 25 homes for sale, up 108% year over year.