San Diego Housing Outlook: Modest Home-Price Gains Going into 2020

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Key highlights from this report:

  • Home prices in San Diego are rising more slowly today than in past years.
  • One recent forecast predicted a gain of around 1% over the coming year.
  • Housing inventory has increased in San Diego, giving buyers more choices.

The Once-Hot San Diego Housing Market Has Cooled

After several years of running a hot “fever,” it now seems that the San Diego housing market is cooling off. Price growth has slowed in the area, inventory has increased, and the market appears to be shifting in favor of buyers.

Three or four years ago, home prices in the area were climbing at a steady pace. And at the end of 2015, ranked San Diego at #6 on their list of the hottest housing markets in the country. But things have cooled down quite a bit since then.

Is this market starting to favor buyers?

Over the past year or so, the median house price within the city climbed by a modest 1.9%. That’s based on the latest data from Zillow. Looking forward, the company expects even smaller gains through the summer of 2020.

In July 2019, their research team wrote:

“San Diego home values have gone up 1.9% over the past year and Zillow predicts they will rise 0.9% within the next year.”

You’ve probably heard the phrase “a picture is worth a thousand words.” But did you know the same could be said about charts and graphs? Take the chart below, for example. Created by the research team at Zillow, it shows the median home price for San Diego over the past ten years or so. And it says a lot about past, current and (possible) future trends.

San Diego home values chart

As you can see, home prices within the San Diego real estate market declined in the wake of the last housing crisis. (The same could be said about most cities in the U.S., during that time period.) Then came a steep upward climb, beginning in late 2012 / early 2013. Prices continued to rise steadily for years after that, and then began to slow in late 2018.

A More Modest Forecast for 2020

That brings us up to the present. As of July 2019, the median home value in San Diego was around $635,000. And some forecasters don’t see it rising much further than that anytime soon.

For example, Zillow’s current long-range forecast for the San Diego real estate market predicts that prices will level off over the coming months. You can see their 12-month forecast in the green shaded portion of the chart above. It’s a modest outlook, to be sure.

Of course, that’s just one prediction. These kinds of forecasts are the equivalent of an educated guess. They are based on current conditions and trends within the local real estate market, and those conditions can change over time.

Still, there’s an underlying theme to be observed here. In most U.S. cities, home prices are either slowing down or leveling off as of summer 2019. And the San Diego real estate market seems to be following that same pattern.

Good News: Home Buyers Have More Inventory to Look at

Like many cities in California, the San Diego housing market experienced a severe shortage of inventory that dragged on for years. In short, there weren’t enough homes for sale to satisfy the demand from regular buyers and investors.

While San Diego’s housing supply is still low by historical standards, it has increased measurably over the past couple of years. The most significant changes have occurred over the past 12 – 18 months.

As we wrote back in May, the San Diego area experienced significant growth in housing inventory from the first quarter or 2018 to the first quarter of 2019. That means home buyers have more options to choose from today, compared to those who purchased over the past couple of years.

According to a May 2019 report by Trulia, San Diego was one of the top-10 metropolitan-sized housing markets in the country in terms of inventory growth.

Bad News: Housing Affordability in San Diego Has Declined

Recent forecasts for the San Diego real estate market suggest that home prices might level off — or rise only slightly — over the next year or so. And that’s probably a good thing. In this and other California cities, the lack of affordable housing options has become a big problem.

In many of these cities, a resident with an average income for the area cannot afford to buy a median-priced home. Such trends usually lead to a “softening” of demand, as buyers shy away from higher prices.

The Trulia report mentioned earlier pointed to a rise in housing inventory within the San Diego area. But it also mentioned a severe shortage of affordable properties:

“The 10 markets with the largest gains in inventory are also among the nation’s most-expensive housing markets, including the San Francisco Bay Area, Seattle, Los Angeles and San Diego. But even in these markets, dramatic increases in inventory – especially among starter homes – have yet to stem the tide of declining affordability.”

Source: Felipe Chacón, Trulia economist

Local Economy in Good Shape

At the local level, housing and job markets are closely related. When there are plenty of jobs to go around, local residents have the financial means and confidence needed to buy a home. When unemployment rises, however, the opposite is often true.

The San Diego housing market is currently getting a boost from a strong local economy. In fact, the job sector in the area is doing better now than it has been for a long while.

According to the latest figures from the Bureau of Labor Statistics, unemployment within the San Diego-Carlsbad-San Marcos metro area sank to around 2 .8% as of May 2019. That was its lowest level in years. (Let’s not forget that unemployment in this area peaked at 11% during the recession.)

The population of San Diego, meanwhile, continues to swell.

According to data published by the U.S. Census Bureau back in May, the city of San Diego had the eighth-largest increase in population from July 2017 to July 2018. The city gained more than 11,000 new residents during that 12-month period alone.

Population growth tends to increase demand for housing, on both the rental and purchase side. And that’s something we’ve seen within the San Diego real estate market as well.

Disclaimer: This story contains forecasts and predictions for the San Diego housing market stretching into 2020. Those projections were issued by third parties not associated with the Home Buying Institute. HBI makes no claims or assertions about future real estate trends. Economic and housing-related forecasts are the equivalent of an educated guess and should be treated as such.