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The downtown San Diego condo market was a little soft coming out of the super slow forth quarter of last year. Buying activity has been picking up this spring with buyer from Arizona and Palm Springs shopping for second homes before summer arrives.
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Thats right as of the second quarter of 2023 prices rising now at a 25% annual pace of they can keep it up for the next 9 months. Quick little history, prices were rising for about 10 years in a row till mortgage rates shot up like a rocket from 3% 6% over just a couple months. This really froze the market and sellers needing to sell took a hit on price and prices dropped in the 3rd and 4th quarters of 2022. Sales volume also dropped in half to roughly 50 units selling per month vs historical averages of about 100 units per month.
Prices were flat in the first 3 months of 2023 and rose 6.1% in the second quarter as the desert buyers from Scottsdale and Palm Springs bid up prices to get places before the summer heat back home.
For sale inventory seem to hit a low of about 80 units a few months back but is now up just over 100 units in 92101, which is still really tight inventory out of almost 11,000 condos in our zip code.
The last brand-new condominium building was finished and completely sold out four years ago; the next one won't be finished until at least 2026.
Two enormous job centers are almost finished and should start to fill up with employees (in about six months), some of whom will be buyers looking to purchase condos in the downtown. As a result, there will be fewer units for sale, prices will rise even more, and there is a chance that there will be multiple offers once again.
Need help shopping for a condo in downtown San Diego, here is one chart that will make the process easier. A way to compare condo buildings relative to each other. Here I have ranked the condo buildings quality on one scale and showing the 2022 average sold prices in the building on the other axis. This is a great tool to help you understand relative quality when comparing between condos. Ideally you want to be in the bottom right of this chart, where you get the highest quality for the lowest price. Shopping strictly on value would lead you to the Park Laurel and Parkloft buildings.
If you simply want the best building than you would choose the Pacific Gate condominiums.
The San Diego condo market in downtown sort of had two different lives during 2022. In the first half of the year prices were rising about 1.0% per week! Prospective buyers were faced with a lot of competition and almost always there were multiple offer and almost always the selling price was above the asking price, sometimes as much as 20% over asking. As for prices, they peaked in May 2022. Thats because the rate of inflation was rising rapidly and investors began wanting a higher interest rate. We saw mortgage rates climb from 3% to 6% and this really froze the market.
Buyers were no longer as anxious to buy and were worried of house prices falling and Sellers decided to stay put and keep their 3% mortgage and not sell and buy something else with a 6% mortgage. This led to prices falling in the 3rd quarter and again in the 4th quarter but at a much slower pace. As I write this in Feb 2023, prices have stabilized with the luxury market doing better and rising in price while the entry level is still soft and very interest rate sensitive.
As 2023 kicked off, the market started off flat and the available inventory was the lowest level its been in 15 years.
Following the release of the downtown San Diego condo market's third quarter results sales statistics, two crucial questions have emerged:
1. Sellers - Did you miss the chance to sell when the market was at its peak?
2. Which direction are prices going?
Prices decreased by about 6% on average from the second quarter in the third quarter of 2022. This occurred for the following reasons:
1. Higher mortgage interest rates
2. Were currently in a "recession."
Prices reached their high in May 2022 and have been slowly declining ever since. So, how much longer will the price cuts last and when will they resume rising?
In order to respond, one must consider the market's fundamentals, or how supply and demand are balanced. Only 115 condominiums are now on the market in downtown San Diego, which represents around 1% of the whole condo market. Supply is still quite low. One percent availability is regarded as extremely low inventory, creating what we refer to as a "Sellers Market" in any micro market and at any point in the past.
In a sellers' market, prices typically increase, but over the past five months, prices have fallen. This is due to a somewhat uncommon occurrence called a "Frozen Market." In a frozen market, buyers stop making purchases and sellers don't put their homes on the market. Markets freeze when consumers are unsure of what to do. In this market, uncertainty can be your ally because it reduces the amount of competition.
So, in response to the first question, yes, selling today will often result in a lower price than if you had sold in March of this year. In March, you would have received multiple offers which today is practically unheard of.
Answering the second question. It's never easy to forecast the future, but I believe that by spring, the increase in mortgage rates to 6% will become the new norm. Buyers will stop waiting for mortgage rates to drop to 3% and act to buy rather than continue to rent. Therefore, I predict that by the spring of 2023, the market will thaw and more homes will be bought and sold, bringing back more regular market activity in downtown San Diego.
In conclusion, prices dropped 6% in Q3 vs Q2 2022, prices for the last 12 months are up 17% and for over the past 3 years prices have risen 30%.
I believe that inventory will be low for a number of years, and that by the spring of next year, when buyers return to the market, prices will increase again. I predict that the appreciation rate will reach 10% if mortgage rates fall to 5% or below, whereas if interest rates rise above 7%, the rate of gain will only be a few percent in 2023.
Prices of Condos in Downtown San Diego have reached a new high through the second quarter of 2022 reaching an average sold price of $815 per square foot. Condos in the luxury market, defined simply as those over 1,200sf also reached an all time high coming in at $912/SF.
The market appreciated at a fast pace as there was talk of raising interest rates encouraging buyers to get in before mortgage rates rose, which they did quite a bit in June. This jump in interest rates from about a 3% 30 year fixed rate mortgage in Q1 to about a 6% rate has slowed the market rate of sales and will slow down the appreciation rate.
Sellers are now seeing fewer offers in the market place and for the first time in over a year we are staring to see a lot of price reductions on listings as Sellers adjust to the lower demand. I expect prices to come down 5% in the 3rd quarter of 2022 and not begin to go up again till Spring 2023.
The desire to live in downtown San Diego continues to be very strong as people are relocating here from less desirable cities now that they can work remotely from anywhere. Also as the baby boomers are retiring a lot of them wish to live in downtown San Diego for its amazing weather and walkable lifestyle.
This strong demand continues even as interest rates have risen from their lows of under 3% to close to 5%.
The supply of condos in downtown has not kept up with the demand as only two condo buildings have been added in the last 13 years.
This imbalance of more demand than supply has pushed the prices of condos in downtown San Diego up 12.3% in the first three months of 2022. In the last 12 months prices have risen 28.6%.
Here is a graph of the price trends of condos in downtown San Diego.
If your trying to buy a condo and want to find one before the general public finds out about it and you get into a multiple offer situation please reach out to me as I often hear about some condos being available for purchase before they show up on the internet.
Condo prices in downtown San Diego hit a new high record in the 4th quarter of 2021 with the average price per square foot reaching $684. Prices roughly range from $400 - $1,500 per square foot.
Condo values rose just over 15% in 2021. Over 1,300 individual condo units were sold in 2021, out of 10,850 condos in the downtown market.
Current inventory is extremely tight with only about 50 condos currently for sale. Almost every condo coming on the market receives multiple offers in just a few days, this is happening at both the lower price points and the very high price points.
Demand is strong because San Diego is such a great city in many ways and a lot of existing residents in both the Los Angeles and San Francisco markets are relocating here now they can work remotely as well as a good number of new retirees.
I expect prices of San Diego condos to rise 10-20% in 2022.
Appreciation could be limited to 10% if mortgage interest rates rise above 5%.
If interest rates stay below 4% prices should climb as much as 15%.
If interest rates stay below 4% and the Campus at Horton announces a major tech company is going to relocate a few thousand workers from Silicon Valley to downtown San Diego, those employees will surely want to live downtown adding even more demand and push prices upwards of 20% in 2022.