Last updated on January 28th, 2024 at 07:46 am
A home is the biggest purchase you’ll make in your lifetime. So it stands to reason that you’d want to be sure you understand what’s going on in the housing market when you’re making a decision.
And right now, people are wondering if San Diego’s housing market is headed for trouble in 2023.
It’s a perfectly reasonable question when you consider the fact that prices have been on an upward trend since 2021 and several experts are predicting a softening of the market.
But how do you know if these predictions are true? What does it take for a housing market to crash? And what signs should you be looking for?
We’ll discuss real estate statistics from 2021 and 2022, how foreclosures affect the market, as well as what experts say about the San Diego housing market forecast in 2024.
You might also be interested in whether the housing market in Los Angeles will crash anytime soon.
Housing market stats in 2021 and 2022
San Diego’s current median home price sits at $650,000 as of May 2021, an 8.4 percent increase year-over-year. In fact, the number of homes sold in San Diego County is up by 11 percent from last year, making it one of the few counties in California that isn’t struggling with low inventory.
Experts are predicting that prices will continue to rise as demand remains high and supply stays low—home values are set to increase by 3 percent over the next 12 months.
Inventory is still down 7.8 percent year over year in May 2021 which puts San Diego’s current market firmly in a seller’s favor. The pandemic helped to usher in this period of low inventory.
In any housing crash, you must have a significant and increasing amount of inventory. Supply must exceed demand.
Home prices during the Great Recession
You may have heard about how the housing market crashed in 2008, but do you know what that looked like in San Diego?
You bet it was dramatic.
According to the California Association or Realtors:
- Median home prices peak at $625,000, September 2006.
- Prices fell all the way to $252,776, April 9th, 2009.
- Thats right at a decline of 60% in home values.
Want to know how long it took prices to get back to $625,000?
September 2019, median home prices $663,110.
So if you purchased a home when prices peaked in San Diego, it would take you 13 years to get back to even!
It sure looks like homebuyers who purchased homes in 2009 made a great decision.
It’s no wonder experts are keeping an eye on the Southern California housing market to make sure another crash doesn’t occur.
So what would indicate a potential crash? Well, usually it’s due to overvaluation—when home prices get too high they become unaffordable and cause buyers to back away from the market.
This leads to an imbalance in the inventory of houses and drives down demand, resulting in price drops which can spiral into a full-fledged market correction.
FForeclosures have their own impact—as people struggle to make payments, lenders increase repossessions of homes and dump them into the already crowded housing inventory.
The result is more downward pressure on prices, leading experts to warn that potential buyers should remain mindful of their budget and conduct research before making any decisions.
Right now the average house takes about 42 days to sell! Cities like Phoenix take much longer to sell homes.
What does it take for the price of homes to drop
There are a few key elements to keep in mind: prices, inventory, the economy and foreclosures.
Each of these plays a role in how healthy a market it, and can be used to determine if it’s at risk for crashing.
High housing prices might seem like an indicator of success, but they can mask underlying issues. If prices are too high and begin outpacing income levels or are not justified by the local economy or rents, it could lead to a market correction.
The quantity of homes on the market also plays an important role.
A low inventory can mean that it will take longer for owners to sell their homes, forcing them to lower their price—a condition that could lead to a crash if enough owners were forced into this situation simultaneously.
The health of local or national economies has an effect on housing markets too—job losses lead people to put off buying homes or selling the ones they have. This can lead potential buyers feeling cautious about investing in real estate due to the lack of security in the job market.
During a crisis, which sees a significant drop in home values, unemployment should drop.
Currently the unemployment rate in San Diego is 4.2%
Foreclosures increase inventory and put downward pressure on home prices as banks and other lenders seek out buyers quickly to offset their losses from defaulted loans.
This can create uncertainty as buyers will weigh potential risks with acquiring these homes. Forced selling is almost always part of a crash
As real estate markets have become increasingly dependent on macroeconomic factors in recent years—such as interest rates, unemployment rates and global economic events—it’s important for buyers and sellers alike to watch for signs that the San Diego housing market may be headed for a crash/
Signs to Look for when predicting the next crash
Rising Interest Rates: Low interest rates can trigger buyers to purchase homes, while rising interests rates make it more expensive to buy and slow down the market. The Federal Reserve has kept interest rates so low for so long. Few homeowners will want to sell their home only to take on a new mortgage with mortgage rates over 6%.
Decrease in Home Prices: Noticeable downturns in home prices give economists cause for concern, as it may be a sign of overbuilding or other underlying problems in the real estate market.
High Inventory Levels: A high number of homes listed for sale is an indication that demand is outstripping supply and could lead to a future housing market crash.
Stagnant Growth: Markets that seem to stay level or don’t grow very quickly could be headed for trouble if pricing pressures continue and buyers aren’t able to take advantage of new mortgages and other incentives.
Foreclosures Increase: High foreclosure numbers indicate distress in the economy and could push a falling housing market even lower as more inventory becomes available from lenders trying to recoup their losses from foreclosures.
San Diego current housing report
According to the California Association of Realtors,
- One year changes in sales are down 17.8%
- Median sales price is up 10.7%
- The number of units for sales totals 1.13 million units.
- The housing supply in San Diego is 3.3 months, meaning it would take 3.3 months to sell everything.
The averages sales price of a detached home in San Diego was 1.267 million, an increase of 13.5% over 2022 values.
Given these two contributing factors—inventory levels are low and housing prices are still increasing—it appears that the odds are against a housing market crash in San Diego in 2024.
Foreclosures and their impact
In San Diego, the number of foreclosures are low right now and unlikely to cause a drop in home prices in 2023.
However, it’s important to note that adjustments in the economy can quickly change the foreclosure rate, and if that happens, home prices could start dropping significantly.
It’s also important to bear in mind that what we saw during the great recession of 2008-2009 is different from what we expect for 2024 and beyond.
During the great recession, foreclosures peaked in San Diego with about 11% of all mortgaged properties recorded as being delinquent or foreclosed upon.
As it so happens this was a great time for investors to pick up property.
So far in 2021, fewer than 0.5% of all mortgaged properties were recorded as being 90-days late or worse, which is far below the normal rates before COVID-19 hit.
This lower foreclosure rate means it isn’t likely to have a significant impact on home prices this year—but that could change if job losses start occurring or interest rates increase significantly.
According to experts at The Wall Street Journal, there are a few things that could indicate a housing market crash: an influx of new homebuilding permits as developers try to capitalize on high demand; an excess of homes sitting on the market without buyers; and uncontrolled inflation driving up more than just housing prices.
All these factors combined can make it difficult for potential buyers to get into the market and eventually lead to an overall decline in home values.
Final Take-aways about the Market
It’s hard to make any predictions about the future of the San Diego housing market, but it’s clear that there are a few signs that should be monitored.
Low inventory and high demand, coupled have been pushing up housing prices for the last couple of years and that trend may continue if it is not offset by a sudden increase in foreclosures.
Additionally, since the Great Recession it is clear that there are certain conditions that when combined can result in a housing market crash, so it is important to watch out for those signs.
Ultimately, all we can do is take a look at the data and watch out for the signs, but only time will tell whether the San Diego housing market will crash in 2024 or not.
With over 15 years of unwavering dedication to the Texas real estate market, Andrew Reichek is your trusted partner in achieving your real estate dreams. As a licensed Texas Real Estate Broker, Andrew’s unparalleled experience and expertise make him the go-to choice for both buyers and sellers. His extensive knowledge of the local real estate landscape and commitment to delivering exceptional service have made him a recognized authority in the industry.