Oct. 5, 2022
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.