Real Estate Market Update - August 2024

San Diego County Real Estate Market Update – August 2024

As we move through August 2024, the San Diego County real estate market continues to exhibit dynamic shifts, reflecting broader economic trends and local factors. Here’s a comprehensive update on what buyers, sellers, and investors need to know:

1. Home Prices and Market Activity

San Diego County has seen steady growth in home prices this summer, continuing a trend from earlier in the year. The median home price in the county has increased by approximately 6% year-over-year, now hovering around $860,000. This rise is driven by continued demand, especially in sought-after neighborhoods like La Jolla, Del Mar, and Encinitas, where the combination of coastal living and top-rated schools continues to attract buyers.

However, the rate of price appreciation has slowed slightly compared to the double-digit increases seen during the peak of the pandemic housing boom. Higher mortgage rates have tempered some buyer enthusiasm, leading to a more balanced market.

In a notable development, Realtor.com reports that home sellers slashed prices in July at the fastest pace in two years. Price cuts were made on 18.9% of listings, a significant increase compared to just 3.4% of listings during the same period last year. This trend indicates that some sellers are adjusting their expectations in response to shifting market dynamics, particularly in areas where inventory is beginning to increase or where buyers are more sensitive to affordability concerns.

2. Inventory Levels

Inventory remains tight in San Diego County, although there has been a modest increase in new listings compared to the previous months. The supply of homes is still below the historical average, contributing to the sustained competitive environment. Homes are spending an average of 25 days on the market, a slight increase from last year but still indicative of a seller’s market.

Sellers are seeing multiple offers, particularly in the mid-range market ($600,000 – $900,000). However, with the recent uptick in price reductions, buyers may find more opportunities to negotiate, especially for homes that have been on the market longer or are priced above market value.

3. Mortgage Rates and Affordability

Mortgage rates have been volatile over the last week as markets reacted strongly to a weaker-than-expected jobs report, followed by a quick recovery. This volatility has caused some uncertainty among buyers, as the average 30-year fixed-rate mortgage fluctuated between 6.5% and 7.1% during the week.

In response to these fluctuations, refinance applications have surged, rising 16% for the week and a significant 59% year-over-year. Homeowners are taking advantage of short-lived dips in rates to refinance their existing mortgages and pay off debt.

On the other hand, purchase applications saw only a modest 1% increase for the week but are down 11% compared to the same time last year. This suggests that while some buyers are still active, overall demand has softened due to the combination of higher rates and affordability challenges.

4. Labor Market and Economic Factors

The labor market in July showed signs of softening, with just 114,000 new jobs added nationwide, significantly below expectations. Additionally, the unemployment rate rose to 4.3%, the highest level since October 2021. This cooling labor market is raising concerns about broader economic stability, which could impact consumer confidence and the real estate market.

Despite these concerns, there are still signs of underlying economic strength. According to Maersk, a shipping giant often viewed as a barometer for global trade, there are no indications of a U.S. recession on the horizon, as freight demand remains robust. This suggests that while certain sectors may be cooling, overall economic activity, especially in trade and logistics, continues to support a stable market environment.

In a significant development, markets are now anticipating that the Federal Reserve will begin cutting policy rates, with a half-point cut expected in September and a full-point reduction by the end of the year. This potential easing of monetary policy could have a profound impact on mortgage rates, potentially lowering them and improving affordability for prospective buyers.

5. Rental Market

The rental market in San Diego County continues to be strong, with rental prices up about 4% year-over-year. The average rent for a one-bedroom apartment is now around $2,300, while two-bedroom units average $3,000. High demand for rental properties is driven by those priced out of the home-buying market and by the region’s significant student and military populations.

New apartment developments in downtown San Diego and surrounding areas are helping to meet demand, but overall, the rental market remains competitive, particularly for well-located properties.

6. Outlook for the Rest of 2024

Looking ahead, the San Diego County real estate market is expected to remain stable, with moderate price increases continuing. However, the softening labor market, mortgage rate volatility, and shifts in refinance and purchase applications may introduce some uncertainty. Nonetheless, the robust freight demand reported by Maersk suggests that the broader U.S. economy remains resilient, which could help mitigate some risks.

If the anticipated Federal Reserve rate cuts materialize, they could provide a significant boost to the real estate market by lowering mortgage rates and making homeownership more affordable. Buyers and sellers should approach the market with a mix of optimism and caution, prepared to act quickly when the right opportunity arises.

The recent trend of increasing price cuts, as reported by Realtor.com, signals that sellers may need to adjust expectations, providing potential opportunities for buyers to negotiate favorable terms. The surge in refinance applications, alongside the more modest activity in purchase applications, highlights the complexity of the current market. Working with a knowledgeable real estate professional who understands the nuances of the San Diego market will be crucial to navigating the remainder of 2024 successfully.