Is there strong demand in the San Diego home market or just the …

Demand for San Diego County homes, affected by rising interest rates, hasn’t been this low since the Great Recession.
Real estate firm Reports on Housing says demand, measured by the number of pending sales the previous 30 days, is the lowest it’s been since it started tracking in 2012. It said there were 1,863 homes that entered escrow in that time period, down 12 percent from the same time last year.
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Looking at a more normal time in the market, the firm said pending sales were down 75 percent of the three-year average from 2017 to 2019. The data is point-in-time, as opposed to a monthly report, and tracked the 30 previous days from July 25.
Reports on Housing uses a narrow definition of demand that only accounts for homes that entered escrow. There are still plenty of people that would like to buy a San Diego home, but can’t afford it. Those who can afford to buy can’t find any homes for sale.
Steven Thomas, founder of Reports on Housing, said pending sales are a more authentic view of demand because packed open houses don’t necessarily tell you anything.
“We get the argument from people that there is crazy demand out there,” he said. “The problem is the same buyers are writing multiple offers because they aren’t getting anything. It makes it appear that there are tons of buyers in the marketplace.”
Thomas said an analogy would be going to Disneyland on a busy summer day and being told only half the people are let in. At first, you’re happy you got in and it’s less busy, but then they shut down half the rides and all of a sudden you are in extremely long lines. It seems like it’s busy, but it’s all artificial.
He said he gets an argument from real estate agents that demand is off the charts right now, but he said a lot of the potential buyers are the same ones at every open house and have written offers on multiple properties.
“The same buyers are bumping into each other, looking at the same exact homes,” Thomas said.
Thomas said the limited number of properties for sale — roughly 2,600 homes in the last two weeks — means competition is enough to push prices up. That’s down from an average of 7,049 homes for sale per month from 2017 to 2019.
San Diego County homes are still worth less than a year ago but prices have been inching up in recent months. In May, the median home price was $812,250, down 3.3 percent annually but up 0.9 percent from the previous month.
As of Friday, the average rate for a 30-year, fixed-rate mortgage was 7.12 percent, said Mortgage News Daily. Rates hit a high point of 7.37 percent in late October but dropped to 5.99 percent in February before accelerating again. Average rates haven’t gone below 5 percent since April 2022.
Homeowners are less likely to want to sell if they already have lower rates locked in. In the last quarter of 2002 (most recently available data), 82 percent of homeowners had a mortgage rate below 5 percent, said the Federal Housing Finance Agency. It also said 62 percent of owners were below 4 percent, and 24 percent were below 3 percent.
In the first half of 2023, only 1 percent of the nation’s homes changed hands, said Redfin, which was its lowest in at least a decade. San Diego metro had one of the lowest turnover rates in the nation with seven in every 1,000 homes changing hands, close to the weakest home market in the country — San Jose — with six in every 1,000.
Thomas cautioned that sellers shouldn’t ask more than fair market value in their asking price because, unlike the low-interest days, buyers don’t have a lot of wiggle room in their budgets for price increases. Thomas said demand always drops off in the fall after the busy summer buying season, and sellers who list too high might find themselves sitting on an unsold house.
Reports on Housing said homes for $750,000 and under stayed on the market an average of 29 days, down from 43 days last year. Luxury housing still takes longer to sell, despite also seeing the effects of limited inventory. Homes from $4 million and up were taking 182 days to sell, down from 220 days last year.
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