As sales drop, the number of homes for sale has risen. Affordability challenges appear to outweigh favorable interest rates, modest wage gains and low unemployment.
For the first time in years, the San Diego County housing market is starting to cool.
In the initial six months of 2019, sales were down 8.4 percent from the same time last year. This meant homes stayed on the market longer and there were more options for potential homebuyers.
Even knowing that, there are two things that are confusing to analysts and possibly for the frustrated San Diegan trying to make heads or tails of what is going on.
- Prices are still going up. In June, prices rose 2.6 percent year over year. If sales are down, how is that possible? Most real estate economists and real estate agents have said prices rose so quickly in recent years that the median home price is far out of reach for many potential buyers. However, San Diego County still has a very small number of homes for sale each month compared to the rest of the nation. That means there is still a lot of competition for what is left, even if fewer people are competing, and that pushes prices up.
- All indicators show the home market should be on fire, but it’s not. The San Diego County unemployment rate was near a record low for most of the first six months, and the region had been adding the most positions in the higher paying professional and business services category. Also, the stock market is still showing gains and mortgage interest rates are much lower than they were a year ago.
Dana Kuhn, a director at John Burns Real Estate Consulting, said while there is still plenty of demand, buyers and sellers have less common ground now.
He said a lot of home sales, especially single-family homes, are tied to emotion. Sellers’ perception of value has been shown to be harder to change with a cooling market, and it is often married to a certain profit figure they have in their mind despite any other evidence, said Kuhn. While buyers, in a cooling market, often are convinced a price peak has been reached.
“They are less likely to stretch to be able to make a payment,” Kuhn said of buyers who are betting a peak has been reached, “in the hopes the future will bail them out.”
Homes are staying on the market longer, but that’s up from very aggressive numbers last year. In the first six months of 2018, homes stayed on the market an average 28 days — the quickest in 19 years of data from the Greater San Diego Association of Realtors. For the first six months of this year, homes sold in an average 35 days.
Yet, there is more to the story than just looking at the numbers, said John Yen Wong, founding chairman of the Asian Real Estate Association of America. He said slowing sales goes beyond San Diego and are happening across California and the nation.
Wong cited several issues impacting sales: The passage of the 2017 Tax Cuts and Jobs Act that capped state and local tax deductions, making buying a home in high price markets less advantageous; The Chinese government clamping down on its citizens buying U.S. property; and concern of buyers about the future of the economy, agitated by trade wars.
Wong said sales almost always go up as interest rates drop, but that was not the case in the first half of the year.
“It’s evidence in my mind — and I’m not an economist, just been a Realtor for 38 years — it’s not just the numerics,” he said. “There’s a little bit of an attitude shift in buyers. Either they are waiting for the bottom to fall out, or they are just not as confident in the housing market.”
The sales slowdown does not seem to be in just high or low cost areas. The biggest drop in home sales was in Imperial Beach (91913), down 38.5 percent in the first six months compared to the same time last year. It was followed by Logan Heights (92113), down 26.7 percent; Rancho Santa Fe (92067), down 26.6 percent; and Solana Beach (92075), down 23.9 percent.
Some of San Diego’s most visible markets were not immune to changes. Downtown went from 578 sales in the first six months of 2018, to 457 sales this year. The downtown median home price was $580,750, down 5.6 percent from the same time last year.