Today we’re taking a closer look at the real estate market conditions in San Diego as we head into the 4th quarter of 2018. Rising home prices, higher interest rates, and increased building materials have pressured housing affordability to a 10-year low, according to the National Association of Home Builders.
Market observers have been watching this situation take place for quite some time. Nationally, the median household income has risen 2.6% over the last 12 months, while home prices are up 6% overall. This kind of gap will eventually create fewer sales due to affordability concerns.
In our area of San Diego County, closed sales have decreased by 18.2% for detached homes and 17.3% for attached homes. The number of sales going into escrow has also decreased by 6.3% for detached homes and 5.8% for attached homes.
The biggest indicator for us as we look into the 4th quarter might be our inventory. Inventory increased a total of 15.4% for detached homes and a whopping 31.5% for attached homes. More homes mean softening values and a slight market shift. The good news for homeowners is that the median sale price was up 9% to $670,000 for detached homes and up 6.3% to $425,000 for attached homes.
Days on market remained relatively flat for detached homes, but it has increased 9.1% for attached homes. While some are starting to look at recessionary signs such as fewer sales, dropping prices, and foreclosures, others are taking a more cautious, research-based approach to their predictions. The fact remains that the trends do not yet support a dramatic shift away from what we have all been experiencing over the last several years. Housing is still performing, prices are still inching upward, and supply remains low. Consumers are truly optimistic. The U.S. economy has been under scrutiny lately, but it is certainly not deteriorating.
The potential discussion of affordability has veered into the national spotlight, as household wages struggle to keep pace with home prices. Those home prices just keep increasing, but it’s still ill-advised to predict a heavy shift toward fewer sales and lower prices.
Consumers have learned a lot in the last decade. The biggest key factors to keep an eye on as we move toward the end of the year is the Federal Reserve, which is selling off treasury bonds in a big way. Rates have to go up over the next few years, so educating our clients to understand that they need to transfer their potential equity into another property that will fit their needs for the long haul should be the message. If your home isn’t going to fit your needs for the next five years or more, it’s imperative that you do something about your potential equity and move before rates get too high or the inventory becomes too much of a surplus.
I do not see a huge crash coming, nor am I here to predict that, but rates have to go up. Some buyers are pushing back and saying that they’ll wait for them to come back down, but I think that’s a big mistake. Trying to time the market perfectly could result in throwing away a bunch of money on rent and potentially still have a higher mortgage payment with more competition.
Any buyer should be buying a home for the five-year-plus program. If possible, buyers should be looking to get a 30-year fixed rate mortgage while rates are still extremely low. Our government bought so many treasury bonds that it takes them years to sell them all back. The current number is $50 billion per month being sold.
I don’t mean to be scary, but there are some shifts happening in our market so we need to be aware of all these factors. Sorry for the long-winded message, but I felt the timing was right to give you a closer look at our market.
If you have any questions for me or you’re thinking of buying or selling a home any time soon, give me a call or send me an email today. We’d love to help.