San Diego’s coastal real estate market is typically very strong in any type of market. However, since the nation’s housing boom started in 2020, San Diego’s market has absolutely been on fire. Buyers and sellers have experienced quite an increase in prices over the past couple of years, and many have asked how long it will last.
The Impact of the Pandemic on San Diego’s Housing Market
The COVID-19 pandemic shifted San Diego’s housing market drastically. For the past decade or so of market shifts, whether it was a buyer’s market or a seller’s market, we have known how to navigate the ups and downs. They weren’t too drastic, and as professionals, we knew and understood the intricacies. The pandemic changed all of that. Everyone, seasoned professionals included, were thrown for a loop. Those who embraced the major shifts and stayed up to date on the minute by minute changes continued to find success for their clients. Others who weren't quite up for the challenge either fought the changes or took sabbaticals.
When people started working from home, teaching from home, doing everything from home… the requirements for “home” evolved almost overnight. “Home” now needed more space. Three bedroom homes became the new two bedrooms. Families with one or more children started requiring a minimum of four bedrooms, or at least a three bedroom with an optional room or bonus space. Pools, once low on buyers’ priority lists (have you see our beaches?), became the #1 must-have. Travel was limited, hotels were closed, beaches had restrictions, so enjoying life at home became a necessity. We started hearing more and more requests for an ADU (Accessory Dwelling Unit), or at least room for one. ADUs make great home offices or playrooms when the main house gets a little too cramped or crowded.
We also saw a huge influx of buyers migrating from northern California to Southern California. For years, prices in the Bay Area have been insanely high with such a booming tech scene and job market forcing so many to pay incredible premiums to live near their work. Once “work from home” became the new normal, many packed up and headed south to milder weather, nicer beaches, larger properties, and more land. The increase in the volume of buyers made our local market even more competitive. While San Diego natives were astonished by the spike in prices, buyers from the Bay Area seemed unfazed… “we get 2 acres and 3,000 square feet for *only* $2 million?? Where do we sign??”
Cash offers became more common than ever before, which changed the expectations of every seller. Contingencies became much shorter, or waved entirely. Offers started coming in hundreds of thousands of dollars over the asking price with one of our properties selling $1 million over list.
Why would buyers continue battling through such a competitive market? A few factors kept buyers in the ring, fighting for property after property. First, interest rates were at historic lows. Essentially, money was cheaper which increased their purchasing power. The need for more space was forcing homeowners to upsize, and waiting wasn’t an option. With high demand and low inventory in the residential real estate market, the rental market was also seeing similar patterns. Whether buyers wanted to wait or were forced to wait, they needed a temporary place to live. It became increasingly difficult to secure a rental property, and the cost of renting skyrocketed.
This pattern continued from mid 2020, to early 2022. Then interest rates started to increase.
What Goes Up Must Come Down… Right?
Not necessarily. When a market is unbelievably hot, like hotter than ever before, anything in comparison looks like a crash. We are simply going from “red hot”, to just “hot”. The slow and steady rise in interest rates caused buyers to jump even quicker on properties, since it was clear the rates were only going up. Once rates reached a certain level, they began impacting buyers’ purchasing power. Buyers who considered their monthly payments when determining their maximum budget needed to recalculate and reevaluate. Fluctuations in the stock market added another layer of skepticism, and even led some buyers to cancel their escrows out of fear of what is to come.
We are back to using comparable property sales to price homes, and come up with offer prices. Properties that are priced too high will be corrected by the market. Prices won’t go down, but the sharp spikes will start to soften back to slow, steady, gradual home appreciation.
What Can We Expect From the Summer Real Estate Market
We have already started seeing the patterns emerging - well… reemerging. The summer market is typically much slower than the spring and fall markets. There are a few factors, but the most prominent is summer vacation! Last summer, with people fully vaccinated and the Covid-19 travel restrictions lifted, it felt like the whole city left for vacation at the same time. This impacted the market during July and August, only to pick back up even stronger in the fall. While the same thing is happening this year, the market won’t necessarily bounce back with the same velocity. We think buyer interest will definitely pick back up in the fall, but there most likely won’t be crazy bidding wars driving prices up hundreds of thousands of dollars above asking prices.
We will see more homes staying active for two to four weeks, with more than just one weekend of open houses. We will also start to see more price adjustments as sellers and listing agents test the changing market factors.
What Can Home Sellers Expect from the Summer Real Estate Market?
Sellers should know that the time of making “top dollar” while skipping out on any type of investment in their home is over. Over the last two years, sellers could get away with not investing any time or money into preparing their home for the market. They could still get multiple offers over asking, depending on certain features of their home or how strong their agent was. We have always encouraged and advised our sellers to make minimum but necessary adjustments to ensure they receive the best offers and the price they are hoping for. After so long in a booming seller’s market, sellers will now have to make more of an effort to entice buyers. These adjustments could include staging, light home renovations, or landscape improvements. Our Compass Concierge program can pay the upfront costs of these expenses that will help bring in stronger offers. The program lets sellers borrow money, interest-free, in order to help them earn the greatest return on their sale. The goal is to help sellers make more money. The funds used will be paid back through escrow using the proceeds from the sale. It’s easy, and we have a list of preferred vendors who we already recommend to our clients.
It will start to be more common to see homes staying active for two to four weeks, with more than just one weekend of open houses. We will see more price adjustments, and buyers will start to feel like they can take their time. This is great news for buyers, who will now have more time to do their due diligence.
What Can Buyers Expect from the Summer Real Estate Market?
We think it’s safe to say that we are not in the same booming and dramatic seller’s market that we were for the past two years, but we’re also not yet in a buyer’s market. It’s a rare sweet spot where both sides can benefit. Buyers who have spent the past two years offering up important contingencies and any repair requests, now have more of a level playing field. They won’t necessarily have to compete for old and outdated homes, and can expect better from sellers. Still, the quality homes with the best lots and upgrades will get the strongest offers, and still have strong competition. Sellers who made good decisions as buyers and who kept their homes up to date will benefit from doing so. This is something we remind each and every one of our buyers no matter what market they are purchasing in!
Main Takeaways for the Summer Real Estate Market…
We expect the market to stay this way throughout the summer months, and anticipate another change once we get to fall. The advice we give to our clients is the same as we follow for our own investments, and the same thing we tell our own family. If it’s the right time in life for you to buy or sell, this is still the right market to do so. For buyers, interest rates are no longer at record-lows, but they are nowhere near record-highs, either. If you have saved enough for a down payment, and the monthly payments still make sense with your financial plans, start to make moves. Speak with your lender, have your pre-approval ready, and consult with your real estate agent to make sure you are targeting the right properties and neighborhoods that will hold their value no matter the market. For sellers, it is important to know that there are still many, many buyers ready and itching to purchase a home, but you have to work with them. Sellers have to put their best foot forward in order for buyers to do the same. If you heard about homes getting 10-20 offers, hundreds of thousands of dollars over asking prices throughout the last two years, that ship has sailed. However, prices are much higher across the board, so you are still benefiting from the insane pandemic seller’s market. The upward trajectory is no longer as steep, but listings are starting at a much higher price point. We have just reached a mutually beneficial place in our market, and we look forward to many more happy transactions (with significantly less drama) for our buyers and sellers in the coming months.