San Diego’s residential real estate market for single family homes is cooling down, with some brokers reporting that homes are taking longer to sell than they did just a few months ago and rising mortgage rates are putting a crimp on sales.
Even so, prices continue to rise, although slower than they did earlier this year and in 2017, according to brokers and real estate analysts.
They predict that the trend of slower sales with slowly rising prices is likely to hold, although some said the market could pick back up in early 2019.
Home Sales Drop 8.9%
According to CoreLogic, which tracks housing prices, the median single family home in San Diego County sold for $583,000 in August 2018, up from $535,000 in August 2017 — at 9 percent, the highest year-over-year price increase in Southern California.
Nationally, home prices increased 5 percent from August 2017 to August 2018, according to CoreLogic.
The number of single-family homes sold in San Diego County dropped from 4,120 in August 2017 to 3,753 in August 2018, according to CoreLogic — among the highest drop in sales in Southern California at 8.9 percent.
Only Orange County in Southern California had a bigger decline in sales — 10.9 percent.
“The market is definitely cooling,” said Steven Fraioli, president of the San Diego Association of Realtors.
“People just don’t know what to do right now. Everyone thinks, ‘I better wait.’ People are on the fence about buying a property because they think prices are going to come down. I don’t think that’s happening for some time,” Fraioli said. “As long as you can afford to hold a home, you’re going to wind up being OK in the long run. In the short run, we don’t know.”
Among real estate agents on the ground, Cheryl Chase-Berkson of Chase Pacific Property Management & Real Estate Services, said “The market has stalled.”
From January to June of this year, “people were standing in line” to buy single-family homes, sellers were getting multiple offers and homes were being sold for more than the asking price, Chase-Berkson said.
“I could feel the market slow-down in mid-August. Then, through September, it was like, whoa,” she said. “I’ve got listings right now and people are coming to open houses but they’re not making offers. They’re looking just for fun or maybe seeing what’s out there, checking out prices. It’s a slower environment that we’re into right now.”
Chase-Berkson said that in her experience, sales typically fall-off as the holidays near, but the fall-off has been more dramatic this year.
“These properties are just sitting there with not too much activity on them,” Chase-Berkson said.
John Steele of Team Steele San Diego said that he, too, has seen a cooling off.
Steele said buyers he represents are running into less competition when they make an offer, and sellers are more willing to offer concessions.
“As far as I’ve seen so far, I would say this trend only happened in the past month or so,” Steele said. “I don’t necessarily think it’s a bad thing.”
Slowdown ‘Not a Big Deal’
The market slowdown “is not a big deal,” said Kevin Burke, incoming president of the San Diego Association of Realtors.
“This is a normal adjustment in the market, a normal wave,” said Burke, a broker/associate with Burke Real Estate Consulting.
“We’ve been riding a pretty good wave now for the last five or six years. Now, people are backing off just a little bit,” Burke said. “It’s not a crash. It’s not a bubble that’s going to burst.”
Burke said one sign of the slowdown that he’s seen is that so-called “pocket listings” are disappearing where brokers keep listings to themselves rather than share them on multiple listing services.
With houses taking longer to sell, Burke said it’s no longer to a broker’s advantage to keep a listing private in hopes of making a quick sale.
Burke said earlier this year, houses would be on the market for as little as six days.
“When you have a six-day market time, the buyer has absolutely no bargaining time whatsoever,” Burke said.
A more reasonable market time would be about 90 days, Burke said.
“It’s not panic buying or selling,” Burke said.
Mortgage Rates Rising
Rising mortgage rates are partly to blame for the slowdown in sales, according to some analysts.
With rates running at a little more than 5 percent for 30-year fixed-rate loans, CoreLogic reported that mortgage rates this summer reached the highest level in seven years, making it harder for some buyers to enter the market.
Mark Goldman, a real estate lecturer at San Diego State University and mortgage broker, said the San Diego market “has been a little overheated” when it comes to housing prices.
“When you have (price) growth over 5 percent, that isn’t sustainable, especially when household income isn’t keeping up and interest rates are increasing,” Goldman said. He said interest rates are likely to continue rising through the beginning of the year.
“My personal opinion on real estate values is I expect to see appreciation continue to decline but I don’t see prices going down,” Goldman said. “I don’t think the market’s going to collapse. I think it’s going to slow down.”
‘Prices Have Hit a Ceiling’
Nathan Moeder, an adjunct professor at the UC San Diego and principal of London Moeder, said housing prices have hit a ceiling and “things could go flat for a while.”
“We’ll see a leveling off of price and rents,” Moeder said, but he said it’s unlikely that home prices and rents will drop.
“In San Diego especially, when you have a supply constrained market, there’s not a chance of overbuilding and having prices and rents come crashing down,” Moeder said.