What Happened to the San Diego Real Estate Market in 2022?

"Whew, it is good to have an ordinary year in appreciation and speed of the market!"

TOP TAKEAWAYS:

1. Interest rates going from 2.75% to 7.25% and then drifting down to 7%

2. Quantitative Easing ended (first time since 2009!

3. Volume of sales dropped 31.7% from almost 40,000 homes sold last year to 27,000+ year to date.

4. Median home prices flattened to the average appreciation of 1% year over year.

5. Contingencies and other typical verbiage reappeared in transactions.

6. Demand from investors dropped, therefore Millennials and Gen Z could compete and buy starter homes with lower down payments and expectations of properties having deferred maintenance done.

SAN DIEGO COUNTY REAL ESTATE

As always, real estate is measured locally, not nationally: In San Diego, our number of sold homes in 2018 and 2019 was about 34,000 homes. It jumped to 36,500 homes in 2020 (most of the sales were after the pandemic hit) and continued into 2021 with volume hitting a high of almost 40,000 homes. This year’s slower volume seemed like a crawl but really was the result of owners slowing down their lives and going back to daily routines of commuting to work and school. Put another way, this year had fewer sales because people who would have life cycle purchases due to regular seasons (marriage, kids, empty nesters, retirement) bought/sold in 2020 or 2021 to speed up their timeline to catch the lower interest rates.

Active inventory rose over this past summer, influenced by normal seasonal ups and downs of the market, but dropped again this fall as interest rates rose. We are still incredibly low in active inventory for a County of 3,500,000+ people! We began the year at an all-time low of 1,350 homes on the market (the lowest I have seen in my career) for the whole County. Currently, we are sitting at 3100 homes on the market, Sometime in August, we briefly hit a high of about 5300 homes – nowhere near the inventory needed to cause a balanced market.

For Perspective:

After the record-breaking volume of homes sold in 2021, many lenders and real estate agents were crying about the slowdown in the volume of sales. This was (of course!) because buyers and sellers were trying to take advantage of the extraordinary interest rates/equity gains of 2021. This year saw a bit more of that frenzy from January to April and then a sudden right turn to the “slow lane” for the rest of 2022.

This looks like the same yearly graphs as 1978-1981. Stagflation in the late 1970s-early 1980s looks like it has been repeated. If you didn’t watch my market update in October explaining what is happening, then check it out by scanning the QR code to the bottom.

The result of rapidly increasing interest rates and low active inventory dampened a slight bubble from January through April and skewed the median numbers for the year (median price for 2022 is $825,000!), however, the year over year appreciation is only a gain in equity of barely 1 %. In just the past 7 months, the average home in San Diego gave back most of the gains it made from January through April.

My Predictions

• We will see State Laws ABS 9 & 10 begin to affect all of our urban and suburban housing through 2026. Granny flats will begin to become the “norm” in many San Diego city suburbs. This will lower the price per dwelling but raise the price per property. These development laws will also begin to make a more significant impact on traffic in some urban communities as those new ADUs or added homes are not required to have off-street parking (or have minimal parking) despite the fact that many singles are reluctant to take mass transit on a daily basis.
• This will NOT affect any homes in the backcountry as ABS 9 & 10 specifically excluded high fire hazard areas from multiple dwellings (but not ADUs). Backcountry properties suffered a setback in equity as a result of the wildfires in Northern California in 2019. The fires effectively scared most insurance companies from writing policies anywhere outside of traditional suburbs (including many places in suburban Vista, Poway, and Escondido). Buyers are left with the CA State Fair insurance – which can be up to 5% of the sales price on a yearly basis! Added fire suppression measures do not seem to change this cost – only the location of the property on the Cal-Fire Wildfire Map. I predict these draconian measures will eventually change, and insurance companies will return to write policies; and families, who brave the higher cost now to buy a larger home in the backcountry, will see a higher return on their money.
• Even with the Feds having promised 3 interest rate increases next year, real estate prices will continue to rise. Albeit the rise will be slower. Slowing market times from the blistering 4-6 active days on market for homes under $1M to a median of 10 days currently are good for most buyers and sellers who are worried about having time to make a move. For local home sellers of any price, it will be more important than ever that your home is prepared for sale: outdoor living spaces, gardens and landscaping trimmed, a fresh coat of paint inside, power washing your home outside, and de-cluttered, pre-packed with at least some staging. Deferred maintenance must be addressed, and work completed. This will get you the highest equity and will result in a gain of tens of thousands of dollars if you allot the time to do the pre-market work.
• Year over year rents will continue to rise but at a much slower pace as tenants must decide if they will stay tenants here in our sunny beautiful County or move to another city/state in order to have the hope of buying a home. This will continue to lower the rate of return on equity in San Diego County even as prices continue to move up. Next year will begin the restrictions for short-term rentals. Both Airbnb and VRBO have contributed to higher returns for many landlords in the last 5-10 years. The new restrictions will limit those gains to only locations where the zoning allows for it (primarily near the beach). San Diegans who have never really experienced any rent control are finding the new laws passed in 2019 more restrictive than they thought as the law passed before all of it was actually known or even read.
• What happened after Stagflation in the late ’70s? (Hint, hint – history is repeating itself). Did everything fall apart with the recession in the early '80s? No, actually. People who bought despite interest rates having risen were rewarded for moving forward with interest rates that went down and a continued rise in prices over the following 5+ years due to inflation.
• Buyers, especially first-time buyers, have been the most hurt by the huge gains in equity. We see many more family gifts or additional non-owner occupants for first-time buyers. This additional lump sum of money helps young adults get into the housing market and get stabilized in their careers faster. Move-up buyers have benefitted from buying their new home and then selling their old home (if they are not keeping it to rent out) as the equity gain worked in their favor this year and will for next year too. This month saw the return of a few of the down payment assistance programs for first-time buyers. Please contact me for details if you or someone you know is interested in that kind of loan.
• Longtime homeowners must decide if they are willing to “house hack” (divide their home into 2-3 units) or if they are staying put for another year (possibly to make their home a multi-generational compound) or last, move to a lower cost of living state. If you are trying to decide what to do long term, remember our equity gains are 100% tied to Proposition 13. Without Prop 13, we would see a rapid decline in equity. Is that to scare you from San Diego real estate? NO, just to help everyone see that our collective equity is tied to some of the laws in California.

Call us for help with evaluations on the real value of your home for a refi or if you are planning to move, “house hack” or invest. We keep a close eye on some of the trends in other states and work with Realtors there to help you with a smoother move.

We are grateful for the trust that you have placed in us. To say “Thank you” in a tangible way to sellers, we have continued to offer free staging of homes that we list! In addition, we are NOW offering the use of a new 14’ moving van for buyers and sellers using our services in San Diego County.

Sincerely,

-Betsy Heller

P.S. Fred Karma, Enrolled Agent, from Financial Accounting Services, will be speaking at our Investor’s Club on January.

Go to our website at www.AchieversRealty.com to join our newsletter to receive the details.

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