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San Diego Real Estate Market: Prices, Trends & Forecasts 2022

Written by Than Merrill

The San Diego real estate market remains at the forefront of the California housing sector. Local home prices are nearly three times that of the national average, and the pent-up demand created by the current pandemic has stimulated a healthy amount of activity. Pending sales are actually on the rise, despite historic valuations onset by competition. While demand persists, however, it appears an equal number of sellers don’t yet have the confidence to place their homes on the market. Prices have been increasing steadily over the last year, and there’s nothing to suggest the trend won’t continue. Prospective homeowners and long-term investors may find the latest disruption in the San Diego housing market to be an opportunity instead of an obstacle. Landlords, in particular, may have the best chance to capitalize on the new landscape created by San Diego real estate market trends.

San Diego Real Estate Market 2022 Overview

  • Median Home Value: $891,746
  • Median List Price: $849,667 (+4.4% year over year)
  • 1-Year Appreciation Rate: 23.2%
  • Median Home Value (1-Year Forecast): 16.4%
  • Weeks Of Supply: 3.9 (-1.8 year over year)
  • New Listings: 500.6 (-18.6% year over year)
  • Active Listings: 1,992 (-42.5% year over year)
  • Homes Sold: 553.7 (-10.7% year over year)
  • Median Days On Market: 12 (-2.5 year over year)
  • Median Rent: $2,745 (+14.8% year over year)
  • Price-To-Rent Ratio: 25.32
  • Unemployment Rate: 4.2% (latest estimate by the Bureau Of Labor Statistics)
  • Population: 3,338,330 (latest estimate by the U.S. Census Bureau)
  • Median Household Income: $78,980 (latest estimate by the U.S. Census Bureau)


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San Diego housing market

San Diego Housing Market Trends 2022

Over the course of years, San Diego housing market trends have revolved around one fundamental economic concept: supply and demand. At the very least, more people are ready and willing to buy a house in the San Diego housing market, but there aren’t nearly enough listings to satiate demand. The disconnect is directly correlated to the impact of the Coronavirus on the real estate market.

On the one hand, demand has increased dramatically in the wake of the pandemic. Interest rates, in particular, have changed the way buyers look at today’s market. Borrowing costs are so low that they are the primary catalyst for demand. As recently as January, the average commitment rate on a 30-year fixed-rate loan was 3.45%. Despite being up slightly year to date, rates still represent an excellent opportunity for buyers.

While rates are historically low, the net worth of most Americans increased thanks to foreclosure moratoriums, government stimuli, and a lack of spending when businesses were shut down. The increased savings, combined with lower borrowing costs, made it possible for many buyers to participate in the San Diego housing market.

It is worth noting, however, that demand for San Diego housing quickly turned into fierce competition over the course of the last two years. While more people wanted to buy, there were no listings on the market. The San Diego housing market only has about 3.9 weeks of supply. Typically, a balanced market will boast somewhere in the neighborhood of six months of supply. New listings are down 18.6% from this time last year, primarily because homeowners don’t want to participate in the buyer’s market themselves.

The unique convergence of low inventory and high demand has allowed sellers to increase their prices by about 23.2% in the last year. If San Diego housing market trends continue on their current trajectory, which they are expected to, prices may increase an additional 16.4% over the next 12 months. Prices will most likely continue to rise as long as supply and demand remain so one-sided.

Greater San Diego Housing Market Trends

The same trends taking place in the city are also playing out in the rest of San Diego county. Local home values have increased in the face of supply and demand constraints. Greater San Diego housing market trends have seen home prices increase slightly more than their metropolitan counterparts. Over the last 12 months, the typical home value in San Diego county has increased 23.6% (as opposed to 23.2%). The difference isn’t significant, but it may reflect another trend: the nationwide exodus from larger cities. As the pandemic has enabled more people to work from home, many larger cities have seen their residents trade the small, expensive confines of city living for more spacious suburban homes, and the San Diego real estate market doesn’t appear to be an exception. With home values in San Diego county slightly lower than the city itself, it’s reasonable to assume more people are moving to the suburbs.

San Diego Foreclosure Trends In 2022

According to ATTOM Data Solutions’ Q3 2021 U.S. Foreclosure Market Report, foreclosure activity is on the rise in most parts of the country. The report acknowledged that “there were a total of 45,517 U.S. properties with foreclosure filings — default notices, scheduled auctions or bank repossessions — up 34 percent from the previous quarter and 68 percent from a year ago.”

The largest contributor to foreclosure starts in the third quarter was the California real estate market. With a total of 3,434 foreclosure starts in the third quarter, California beat out the next closest contributors by a wide margin: Texas (2,827), Florida (2,546), New York (1,363), and Illinois (1,362).

The increase in California foreclosures is directly correlated to the expiration of forbearance programs. “So far, the government and the mortgage industry have worked together to do an extraordinary job of preventing millions of unnecessary foreclosures using the foreclosure moratorium and mortgage forbearance program,” said Rick Sharga, executive vice president at RealtyTrac. “But there are hundreds of thousands of borrowers scheduled to exit forbearance in the next two months, and it’s possible that we might see a higher percentage of those borrowers default on their loans.”

As one of the largest cities in California, San Diego has likely played a significant role in the state’s poor performance over the last quarter. Consequently, San Diego foreclosure trends are expected to continue for the foreseeable future. As moratoriums and government aid expires, more and more homeowners will find themselves in a state of distress. It is too early to tell just how many foreclosures to expect over the rest of 2022, but it’s safe to assume there will be considerably more. As a result, real estate investors in San Diego need to start lining up financing now. Doing so will simultaneously enable them to help distressed homeowners and secure deals.

San Diego Median Home Prices 2022

San Diego median home prices continue to break records, and now the average home sits around $891,746. At its current valuation, the median home value in SD is well above the $320,662 mark set by the national average. However, it is worth pointing out that today’s home values result from years of historical appreciation. The median home value in America’s Finest City, for example, bottomed out around $384,000 in the first quarter of 2012 (when the Great Recession showed signs of a reversal).

Since then, real estate has made up a lot of ground. Thanks, primarily to an improving national economy, positive sentiment, and (ironically) a distinct lack of available inventory, real estate has appreciated by as much as 132.2% in less than a decade. Over the same period, the national average increased somewhere in the neighborhood of ninety percent. The latest increases have people asking one question more than anything else: Is San Diego property a good investment? There’s no doubt about it: San Diego is a seller’s market, but there are plenty of opportunities to capitalize on. Despite higher prices, historically low borrowing costs are making long-term exit strategies more viable than ever.

Over the last year, local real estate has appreciated faster than the national average. The difference may be attributed to the city’s lack of inventory, increasing competition and prices. With only 3.9 weeks of inventory, there aren’t enough homes on the market to satiate buyers. As a result, competition has increased home values by 23.2% in as little as 12 months.

Despite local inventory shortages and rapid price increases, buyer activity remains intact. Today’s buyers appear comfortable buying at what looks like the market’s peak. Real estate appears as if it will be a hot commodity for the foreseeable future. Prices will continue to rise as long as supply and demand lean in favor of sellers. New construction will eventually help lower prices, but help is far down the horizon. Until new inventory is brought to market, the San Diego housing market will remain prohibitively expensive.

San Diego Housing Market Forecast 2022

The San Diego housing market has been at the forefront of the national real estate sector since the country started to recover from the Great Recession more than nine years ago. Nearly every market indicator for that matter has seen dramatic improvements, except for one: inventory. While the San Diego real estate market is leading a national recovery, it has yet to realize its full potential. A distinct lack of listings, combined with the ongoing pandemic, has created a unique real estate environment, the likes of which have never been seen. Nonetheless, let’s forecast what next year will look like for the San Diego real estate market.

The most likely scenario will witness inventory levels drive home values higher. For the better part of a decade, insufficient inventory levels have increased prices, and 2022 doesn’t appear to be the exception. Before the pandemic, supply and demand were already lopsided; more people wanted to buy than inventory would allow. Now, the same holds true, but with less inventory than we expected. Since the pandemic prevented many homebuilders from adding to the existing supply, inventory constraints got tighter. Simultaneously, improving unemployment, government stimuli, and historically low interest rates have catalyzed prospective buyers. More people are looking to buy in a market where fewer homes are available. Competition will drive prices upwards in Southern California.

Increasing prices will likely extend beyond the city’s most expensive neighborhoods. In particular, we will continue to see a small exodus from the metropolitan area. Not only are prices becoming exorbitantly expensive in downtown neighborhoods, but as more and more people work from home, there’s less of a need to live close to an office. As a result, more people could trade the small, expensive confines of downtown apartments for the suburbs. If that’s the case, there’s a good chance many suburbs across the San Diego real estate market could see an increase in both demand and home values.

The latest San Diego housing market forecast also calls for an increase in both rental activity and pricing. As homes continue to increase in value and inventory remains low, more people will turn to the rental market over the next year. The added attention will increase competition for available units, and landlords will be able to increase prices, presumably in line with housing costs.

Impact Of COVID-19 On The San Diego Housing Market

Not unlike the rest of the country, the San Diego housing market underwent a significant transformation in the wake of COVID-19. Seemingly overnight, the momentum gained in previous years was brought to a standstill as buyers and sellers pulled out of the market. Activity was crippled, but the disruption was short-lived.

After taking a single step back, San Diego took several steps forward (at least for owners and investors). As it turns out, the pandemic wasn’t enough to suppress established San Diego real estate market trends. In particular, demand remained rampant in the face of rapid appreciation; people wanted to buy real estate in San Diego before COVID-19, and they wanted to after. The Fed’s announcement to keep interest rates low only made more people want to buy a house in San Diego.

It is worth noting, however, that supply and demand metrics leaned heavily in favor of owners. Before the pandemic, inventory was tight, and the absence of builders throughout the lockdown didn’t do anything to help. The resulting market was one that saw demand continue in the face of higher prices. In fact, prices marched even higher, even when many thought the pandemic would drop them.

Appreciation was the primary takeaway from the impact of COVID-19 on the San Diego real estate market. Rising home prices shaped the way San Diego real estate investors conducted business. Instead of pursuing rehabs, like in years past, investors turned to long-term rental properties. Low borrowing costs enabled investors to simultaneously lower acquisition costs and increase monthly cash flow. More importantly, the lack of listings forced more people to remain a part of the renter pool, which drastically mitigated risk for rental property owners.

San Diego Real Estate Investing 2022: Should You Invest?

The San Diego real estate market has developed a reputation for providing investors with attractive returns. The unique combination of demand, economic strength, and value catered to real estate entrepreneurs for years. Rehabbers, in particular, have enjoyed a lucrative run since the recovery took hold about ten years ago. However, it is worth noting that years of historic appreciation have trimmed profit margins on respective flips. Acquisition costs have made attractive profit margins harder to come by, which begs the question: Is San Diego property a good investment?

San Diego is a great place to invest in real estate, especially for opportunistic investors. If for nothing else, it is entirely possible to invest in any market under any circumstances. While prices in America’s Finest City may be high for rehabbers, there are alternative investment strategies worth your time. Long-term rental property owners look poised to benefit from the new landscape created by the Coronavirus and resulting market indicators.

If for nothing else, real estate in San Diego has increased in value for years and lowered profit margins for rehabbers. Over the last year, real estate in San Diego has appreciated a lot. That’s not to say rehabbing isn’t still a viable exit strategy in the San Diego housing market (it can still be incredibly profitable to flip real estate), but rather that today’s most prominent market indicators suggest it may be better for investors to consider long-term strategies.

In addition to high valuations, the new landscape created by the Coronavirus has tilted the investing landscape in favor of landlords. That said, here are some of the new San Diego real estate market trends benefiting rental property investors:

  • Interest rates on traditional loans are historically low
  • Years of cash flow can easily justify today’s higher acquisition costs
  • Lower borrowing costs can increase monthly cash flow
  • Inventory shortages will increase rental demand

As of January, the average rate on a 30-year fixed-rate loan was 3.45%, according to Freddie Mac. Borrowing costs are actually up year to date, but they remain very attractive for opportunistic homebuyers in San Diego. Lower borrowing costs have brought down acquisition costs for those looking to add to their passive income portfolios. At their current level, mortgage rates will save San Diego buyers thousands of dollars, and real estate investors will be able to pad their bottom line.

Lower borrowing costs will help absorb today’s high prices, but it’s the cash flow potential of real estate assets that makes the prospect of owning a rental property even more attractive. With a median rent price of $2,745, it is possible to simultaneously rent out an investment property while having someone else pay down the mortgage. That way, investors could build equity in a physical asset and collect cash flow each month with the right long-term investment.

If that wasn’t enough, the lack of available inventory will force many residents’ hands into renting, even those intent on buying. America’s Finest City had already been facing an inventory crisis for the better part of five years. Still, the introduction of the Coronavirus has shaken seller confidence and removed many listings from the market. San Diego’s available inventory is well below what a balanced market traditionally looks like. The lack of homes for sale will inevitably force more people to rent for the foreseeable future, creating more demand and allowing rental property owners to increase rental rates.

Investors are lucky to have several viable exit strategies at their disposal. Still, none appear more attractive than building a proper rental property portfolio in the wake of the pandemic. Too many important market indicators are pointing towards becoming a buy-and-hold investor to ignore.

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New Housing Construction Is Slow In San Diego

New home construction in the San Diego housing market is slow relative to national averages. That said, construction is on the rise compared to the previous year. Over the last 12 months, single-family housing permits have increased by 3.8%. For context, single-family housing permits in the United States have increased 26.8%. Construction is on the rise, but many more homes will need to be built in San Diego for inventory to stabilize. Through August, 2,978 homes have been built, which puts San Diego ahead of long-term averages, but setbacks suffered at the hands of the pandemic suggest the city has a long way to go. New inventory is great news for the San Diego real estate market, but inventory levels are far from sufficient. Until more homes can be brought to market, expect prices to continue rising.

San Diego Ranks As One Of The Best Places To Live

There’s no doubt about it: the San Diego housing market is one of the most expensive markets in one of the most expensive states to live in. That said, real estate in San Diego is expensive for a reason; it’s one of the best places to live in the United States. Today’s home values are merely a reflection of demand.

Over the course of the pandemic, in particular, San Diego has become the beneficiary of net migration. With work-from-home trends increasing during the pandemic, more and more people found themselves trading inclement weather for the perpetual sunshine offered in San Diego, especially as the outdoors have taken priority in the wake of the Coronavirus.

If that wasn’t enough, San Diego is set to become a satellite of Silicone Valley. With several prominent tech companies already calling San Diego home, San Diego is expected to become the home of many more, like Apple and Facebook. The impending employment boost will simultaneously increase median household incomes, demand, and home values. In other words, San Diego is expected to become an even better place to live in the coming years, and there’s a good chance home prices will reflect as much.

San Diego Real Estate Market: Where Should You Invest?

The San Diego housing market is a great place to invest, and it’s only expected to get better in the future. With more prominent tech companies looking to call San Diego home, prices are expected to increase for the foreseeable future. As a result, even today’s high valuations look to have room to appreciate. It is worth noting, however, that not all neighborhood valuations are created equal. There are still areas in San Diego with relatively affordable homes and great investment prospects. Here’s a list of some of the neighborhoods San Diego real estate investors should consider looking into:

  • Encanto
  • San Marcos
  • Chula Vista

Encanto

Encanto housing market trends can be broken down as follows:

  • Sale Price: $640,000 (+40.7% year over year)
  • Sale $/Sq. Ft.: $482 (+17.0% year over year)
  • Total Homes Sold: 7
  • Sales Over List Price: 1.0%
  • Days On Market: 22

San Marcos

San Marcos housing market trends can be broken down as follows:

  • Sale Price: $770,000 (+16.2% year over year)
  • Sale $/Sq. Ft.: $453 (+25.5% year over year)
  • Total Homes Sold: 143
  • Sales Over List Price: 3.0%
  • Days On Market: 12

Chula Vista

Chula Vista housing market trends can be broken down as follows:

  • Sale Price: $730,000 (+20.7% year over year)
  • Sale $/Sq. Ft.: $399 (+23.1% year over year)
  • Total Homes Sold: 234
  • Sales Over List Price: 2.0%
  • Days On Market: 12

Summary

The San Diego real estate market has been nothing short of extraordinary since the recovery began in 2012. In that time, nearly every fundamental indicator worth tracking has improved significantly. Nonetheless, a distinct lack of inventory has prevented the local market from realizing its true potential. Additionally, the introduction of the Coronavirus has made the market pullback, albeit slightly. It is the pullback, however, that should have real estate investors in San Diego excited. The temporary drop in prices isn’t an indictment on the local market but rather a window of opportunity to buy before pieces rise again.


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Sources

https://www.zillow.com/san-diego-county-ca/home-values/
https://www.zillow.com/san-diego-ca/home-values/
https://www.zillow.com/home-values/
https://www.zillow.com/research/data/
https://www.redfin.com/neighborhood/898/CA/San-Diego/Encanto/housing-market
https://www.redfin.com/city/17472/CA/San-Marcos/housing-market
https://www.redfin.com/city/3494/CA/Chula-Vista/housing-market
https://www.redfin.com/news/data-center/
http://www.freddiemac.com/pmms/pmms30.html
https://theenergylogic.com/housing-tides/housing-tides-interface/
https://www.apartmentlist.com/research/category/data-rent-estimates
https://www.bls.gov/regions/west/ca_sandiego_msa.htm
https://www.census.gov/quickfacts/fact/table/sandiegocountycalifornia,CA/PST045219
https://data.bls.gov/timeseries/LAUMT064174000000003?amp%253bdata_tool=XGtable&output_view=data&include_graphs=true
https://www.attomdata.com/news/market-trends/foreclosures/attom-september-and-q3-2021-u-s-foreclosure-market-report/

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