Real estate in San Diego is going off the rails. Over the last 12 months, sales prices have climbed by about 27%. In some of the coastal markets, that number is more like 32% to 35%. This is the fifth-highest price increase in the nation, but prices aren’t just going up on a whim.
There are five main reasons for this massive appreciation:
- Home builders can’t build fast enough. One of the main problems is that there’s a labor shortage. The builders can’t find enough tradespeople to work on these homes. On top of that, there are supply chain issues. One of my clients had to wait a year for the dishwasher they want.
- The pandemic has changed the market. A lot of people started to work from home during the pandemic, and those people figured that if they could work from anywhere, why not move to San Diego?
- Millennials have hit their home-buying age. Millennials are buying homes in great numbers, a lot like how the baby boomers were back in the 1980s.
- Interest rates were low. Last year, rates were as low as 2.5%, and that made a lot of people jump into the market. Now rates have climbed as high as 5%, but people are still buying in droves.
- Sellers don’t want to sell. This is probably the most important factor. Sellers know it will be hard to buy a home if they decide to move, so they’re choosing to stay out of the market.
How is the rental market doing throughout all of this? It’s dynamic, and there is a lot of demand. Rent prices have climbed 18% over the last 12 months.
Why aren’t rents up as much as home prices? Rent caps. California caps how much landlords can increase rents for active tenants. You can only raise rents by 9% or 10% per year, but if you have a vacancy, you can readjust to market value.
Right now, we’re experiencing one of the most severe housing shortages we’ve ever had in the United States; it’s certainly the worst we’ve seen in the last 30 years. There’s no telling how long this market will continue, but a recent survey from Fannie Mae said 67% of people think that now is a bad time to buy. Despite those results, plenty of people are still looking to buy, and there is no sign of a slowdown.
Most real estate economists predict a soft landing by the end of the year. That means they think prices will only increase by 5% to 6%, which is far better than another year of 30% appreciation. If prices kept increasing by 30% every year, we would eventually see a crash. If you’re a seller or landlord, enjoy the good times while they last. If you’re a buyer or tenant, the market will be tough.
Whatever your real estate goals are, feel free to call, text, or email me if you have questions. I'm here to help.