July 2023 Real Estate Update

In April 2022, San Diego County reached its highest median detached home value of $1,000,000. However, due to increasing mortgage interest rates and rising inventory, the median detached home values experienced a consistent decline throughout the rest of 2022, reaching $865,000 in December. This trend led to forecasts of declining San Diego real estate values for 2023. A study conducted by UCSD predicted a 12% decrease in 2023, and other sources echoed similarly dire predictions.

Contrary to these forecasts, the countywide median detached home values actually saw an increase from $865,000 in December 2022 to $990,000 in July 2023, marking a significant 14.5% rise. Notably, the median for June 2023 reached $1,000,000, matching the all-time high. This remarkable recovery to peak values occurred despite mortgage rate hikes throughout 2023. According to Freddie Mac, the 30-year fixed-rate mortgage averaged 6.13% at the close of January 2023, steadily climbing to 6.81% by the end of July 2023.

What Happened?

The supply of homes decreased from the end of 2022 through the first quarter of 2023, resulting in a housing shortage. As of 08/17/2023, MLS reported 1,599 active listings for detached homes in San Diego County. Over the past three months, spanning from May to July, an average of 1,342 detached home sales took place each month. As a result, the current active listings represent only a 1.20-month supply, indicating an undersupply. Notably, the median marketing time for detached home sales in San Diego County through July 2023 was 14 days, a decrease from the 20-day median marketing time observed in the three years prior to the onset of the Covid-19 pandemic (2017-2019). The combination of low supply and short marketing times is consistent with an appreciating market.

What’s Next?

Fannie Mae’s projections indicate that 30 year fixed rate mortgages will average 6.8% in Q3 2023 and 6.6% in Q4 dropping to 6.4% in Q1 2024 and 6.2% in Q2 2024.  The National Association of Realtors and the Mortgage Bankers Association also predict mortgage rates will decline through Q2 2024.  Detached median values increased significantly in 2023 despite increasing mortgage rates, but if mortgage rates dropped significantly while inventory was still low, detached median values would be expected to appreciate at an even higher rate.