Is there a real estate crash in our future? This seems to be the question on everyone’s mind, so today I want to try to answer it. I’ve been keeping my eye on four vital signs of our market that can help us predict the future of real estate. Let’s go over each one and see what it can tell us about our market:
- Existing home sales. The number of home sales is a proven indicator of future housing prices. Over the last 12 months, those home sales are down by 18%. Condo sales have also dropped by 26%. This doesn’t bode well for the future of our market.
- New-home building permits. These are also proven to predict the future strength of real estate and the economy in general. In May and June, the number of permits declined for the first time in a while. We desperately need more housing in San Diego, so building fewer homes is a bad sign—it’s the last thing we should be doing.
- Defaults and foreclosure sales. Both of these are climbing, but you should keep in mind that COVID kept foreclosures artificially low. We need more time to see if these foreclosures continue to increase as we get further from the moratorium.
- Interest rates. Everyone knows that mortgage interest rates are up substantially, and they will likely keep rising. At this time last year, we had rates around 3%, but now they’re 5.8% to 6%, which are the highest rates since June 2009. Buyers have lost about 30% of their buying power because of the increase.
Three of our four vital signs are negative, and one is inconclusive. On top of this, home inventory is increasing somewhat, bidding wars aren’t nearly as common, and some sellers are reducing their asking prices.
Booms eventually create busts, and the market has been booming recently. Now is likely your last chance to sell in a favorable market. By next year, it might be a good time to buy. Prices will either continue to rise or stay flat throughout this year, but we might see those prices drop next year. I highly doubt it will be like the crash of 2008, but home values might drop by 5% to 10%.
If you have any questions or want some more real estate guidance, feel free to call or email me.
I would love to help.