Forecast for San Diego Housing Market: Strong Gains Through 2020?

How’s this for a favorable forecast? The San Diego housing market could experience steady home-price appreciation from 2016 to 2020, with prices rising by around 3% – 6% annually for each of those years.

That’s the general consensus among the housing economists at Moody’s Analytics. They recently gave MONEY magazine (part of Time) their home-price forecasts through 2020, for 20 of the biggest metro areas in the United States.

The San Diego real estate market was included in the report. And while home prices in the area might not rise as much as they have in recent years, the company’s economists are still calling for steady gains through 2020. And that’s not surprising when you look at the current supply and demand situation.

Read: San Diego a “market to watch” in 2016

Home Price Forecast for San Diego Housing Market

The bar chart below shows the Moody’s Analytics home price predictions for San Diego’s housing market, over the next five years. As you can see, local house values are predicted to continue rising through 2020 (and possibly beyond that, though the team didn’t forecast that far).

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San Diego home price forecast. Source: Time.com.

This puts the San Diego real estate market on a short list of metro areas that are expected to outperform national housing trends over the coming years.

Homeowners across the metro area have enjoyed steady appreciation over the last couple of years, and it’s a trend that could continue for the foreseeable future.

Many home buyers, on the other hand, are being squeezed out of the real estate market by ever-rising house values. The housing affordability issue in San Diego has been well documented, and it could worsen over the coming years as home price appreciation outpaces income growth.

Inventory Shortage Driving Appreciation

Inventory has a lot to do with the recent rise in San Diego home prices, and the positive pricing forecast through 2020. There just aren’t enough homes for sale to meet the current level of demand, and it’s lifting house values across the metro area.

In January 2016, San Diego experienced the biggest drop in homes for sale, in the entire nation. This is according to a recent report by Zillow, the real estate information company. The San Diego housing market had a 30.2% decline in housing inventory (including both new and existing homes, as well as condos) during the 12-month period from January 2015 to January 2016. That was the largest decrease in the country, followed by Charlotte, N.C. at 27.1%.

It’s no coincidence that home prices rose steadily during that period as well. According to the most recent S&P/Case-Shiller Home Price Index (published on March 29, 2016), house values in the San Diego metro-area housing market rose 6.9% from January 2015 – January 2016. That was higher than the national average for the same period, and a direct result of the inventory reduction mentioned above.

According to Aaron Terrazas, a senior economist at Zillow, the inventory shortage in San Diego’s real estate market is partly the result of homeowners who are reluctant to sell:

“People in these expensive places who own homes are a little bit reluctant to go out and search for a new home,” he said. “They’re worried they won’t find anything comparable to what they have.”

It’s a valid concern, and it’s keeping a lot of would-be sellers off the market for now.

Disclaimer: This story contains long-range home price and housing market forecasts for the San Diego metro area. Such forward-looking statements were provided by third parties not associated with this website. As a matter of policy, the Home Buying Institute makes no predictions or claims about future real estate conditions. We merely gather and report the forecasts made by other expert sources, as a service to our readers.