San Diego County Housing Market Trends 2021
San Diego continues to lead the nation in significant property value increases every year. Even after the huge disruptor, Covid-19, the city booms with home sales and wealth.
It's not all sunshine and rainbows, though. Recent policy changes and events have exacerbated San Diego's disparities to the extremes. Tensions are rising in the market, where competition for homes is vicious.
This guide on the San Diego County housing market trends of 2021 will get you up to speed on the market and prepare you for what's to come.
San Diego County Housing Market Trends for 2021
The high numbers will fool you. San Diego continues to enjoy many home sales, but the numbers are down from recent booms. The price of homes in the area is up 8% from last year, which beats out every other area in the country, yet this appreciation isn't as impressive as last year.
What are some factors that affect the San Diego market? To start, employment is at a record high and the average income continues to rise.
People with high-income jobs were generally safe during the pandemic as they switched to remote work instead of being laid off or furloughed. Instead of losing money, they actually saved more by discontinuing commutes and not eating out as much. This demographic makes up much of San Diego's residents.
Long-term mortgage rates are really low as well, and property taxes have stayed favorable. Factors like this make home-buying tempting for even people who thought they couldn't afford it.
Despite the increase in demand, the supply is low. The number of homes for sale this past winter was much lower than in recent years, and experts have speculated that the pandemic discouraged many home sellers from putting their homes on the market. Many people didn't want to open their homes up to possible infection from crowds of strangers, and the thought of undergoing a huge life change during a pandemic wasn't very tempting.
Others have mentioned that that can't be the only reason for low supply. The numbers for new home construction are steady, which means they aren't increasing with demand.
What Will the Rest of 2021 Look Like?
For the most part, experts are calling 2021 a slump year for San Diego county. Housing market trends look impressive to the rest of the nation, but comparing numbers to previous years reveals slower growth than normal. As we begin to experience the second half of the year, there are a few indicators that we will be watching closely.
Big factors to watch are GDP, mortgage rates, employment, and the supply of housing. As housing market trends in 2021 show increased wealth and favorable conditions for selling and buying homes, the area will continue its reputation of becoming increasingly less affordable to the rest of the country.
Watching Millennials Closely
There seems to be some debate about where millennials will place their bets this year. This generation is at the ripe age for home buying and income has been increasing. Low mortgage rates also encourage more people to take out mortgages to buy homes they couldn't otherwise afford.
It's true, many millennials have newer, higher-paying jobs and may have been watching the market. As prices in the San Diego market have slowed their increase, it could be a good time to snatch up a home for a more affordable price.
On the other hand, reports show that San Diego is not the hotspot for millennials applying for mortgages. In fact, it's very low on the list. Further, in surrounding cities like San Jose and San Francisco that have higher rates of millennials getting mortgages, those millennials are older than the average person in their generation.
San Diego and surrounding cities are just plain expensive, and anyone who wants to buy a home needs a long time to save up the money needed. The 2021 San Diego County housing market trends don't show a big enough slump to entice a large increase in millennial home buyers.
Instead, much of the housing marketing in San Diego County will be targeted towards Generation X and Baby Boomers, who have had more time to build wealth.
It's Time to Sell
You might be thinking, why should I be so bullish in a market that's in a slump? For sellers, the environment has never been better.
Home values are rising and the supply is down, so you can sell your home for top dollar. Experts say that new construction is only happening at half the speed needed to keep up with demand as well, which means fewer options and higher prices for potential buyers.
Experts in the industry are continuing to call it a housing crisis. New home construction has increased since last year, but not enough to compensate for demand and years of insufficient supply.
People looking to buy homes are willing to pay higher prices to compete with other potential buyers. In fact, half of the homes on the market are currently selling for over the asking price, and buyers are desperate to put down the most competitive offer. They'll be looking to resale homes rather than new construction, which is great news for you.
Many real estate gurus are predicting home prices to rise around 4% and home sales to speed up in late 2021. If you're interested in selling your home, it might be a good idea to start preparing for the fall market.
Mortgage Rates Slowly Rising
The 2020 economic halt and lingering fear have caused mortgage rates to plummet. This past winter, they were down more than 3%, which meant it was never a better time to apply for a mortgage. In response, the real estate market exploded with new buyers.
People approved for mortgages have been scouring the market for their next home, placing insanely high offers in highly competitive areas. Potential buyers who have hesitated, however, might want to reconsider.
The longer you wait to apply for a mortgage, the less chance you'll now have of getting a good rate. People are becoming more optimistic and more economically involved in 2021 since the pandemic's grip on everyone has loosened. Now, mortgage rates are slowly climbing back up.
There are many other factors that cause people to look for homes, yes, but low mortgage rates were one of the key factors driving people to look for homes in San Diego that they couldn't otherwise afford. As mortgage rates go back to normal, this incentive will disappear.
Another thing to watch is inflation. Right now, experts are optimistic that the current inflation scare is only temporary, but if it continues, rates could quickly get worse. Current predictions are that the average mortgage rate will be about 3.6% by the end of the year.
The Mortgage Bankers Association has been tracking the steady decrease of mortgage applications over the last few months already.
Continued Improvements to the Area
When it's a seller's market, people experience increased equity that they can invest elsewhere. They might choose to buy a new home or make improvements to a resale home that they've snatched up. They could improve curb appeal as well as increase their home value.
They will also stimulate the surrounding economy more, which means an increased demand for improvements to the commercial areas.
All of these changes result in nice neighborhoods with more local resources.
Also, improved curb appeal and property value mean that home prices will continue to rise. California's median home price is up almost 24% from a year ago, so holding a home in this market means gaining value quickly.
More $1 Million Neighborhoods
Million-dollar neighborhoods are defined as communities that have at least 10% of homes that are valued at a million dollars or more. San Diego is notorious for its upscale areas, including downtown, Carlsbad, and Jamul.
As the average income continues to rise and employment stays high, buyers with high-paying jobs will continue to move into the area or upgrade from their existing homes.
As home values increase due to demand and efforts to renovate existing homes, the median home price will also continue to rise. The median home price for single-family homes is already $825,120, and it's increasing rapidly. It's only a matter of time before single-family homes are million-dollar homes on average.
New construction will also focus more on building these upscale communities, including luxury amenities. San Diego already has 346 million-dollar communities, and this number is projected to grow rapidly.
Rent Increases: But How Much?
San Diego rent is already among the most expensive rental markets in the nation. Renters use upwards of 40% of their income just to maintain rentals. The trend in San Diego has been rising rent for years, and this trend is projected to continue.
Rent has been rising about 5% every year. In 2020, there was a rent slowdown due to the pandemic, but the beginning of 2021 has already shown a quickened pace again. Dropping vacancy rates have begun to increase demand and raise rental rates once more.
But wait. New policy changes will change the game. California and San Diego laws recently passed two rent caps that will tie rental increases to inflation.
Last year, state law mandated that rental increases would only be allowed 5% increase plus inflation. This statewide ordinance is a permanent rental cap which currently lands around 9.1%.
More recently, the San Diego board ruled that an even stricter rental cap would be enforced for 2 months after the lifting of pandemic restrictions. From June 15th to sometime in August, rent will now be capped at 4.1% increases.
While the post-COVID rental cap pulls rental rates under normal rates for a small time, the statewide rental cap is barely relevant. The most rental rates have ever increased was about 7%, so landing anywhere close to 9% is unlikely.
A continued increase in rent combined with low mortgage rates could cause renters to consider buying. If buying is more financially responsible than renting, we could experience a flood of even more potential buyers into the single-family home market.
On the other hand, San Diego's multifamily construction now exceeds single-family home construction. A rise in supply for renters could mean a slowing of rental rate increases.
New Effort for Green Homes
The housing market in San Diego county will experience some changes to regulation for new construction starting this year. California has mandated that all new homes are constructed to function as generators of renewable energy. This law comes in as part of a greater effort to save the environment and stop climate change.
New homes will now become "net-zero ready," which means that they must generate at least as much energy as they use, if not more.
There is also a requirement that new single-family homes and low-rise multi-family buildings must also have solar panels installed. This policy is a plus for homebuyers because while it doesn't raise the cost of buying, it can save you money over time. Some companies will even buy the extra energy you generate and don't need.
Developers are already jumping on this opportunity for San Diego County housing marketing. Making homes green can make them more affordable and attractive to younger couples and families.
While housing prices continue to rise, residents can enjoy a break from utility bills and even possible profits.
Looking Towards a Bright Future
Now that we can see the light at the end of the tunnel from the throes of the pandemic, the economy is beginning to recover in remarkable ways. The real estate market is no different. Buyers are throwing money at sellers in desirable locations, especially in places like San Diego.
If there was ever a time to sell your San Diego home, this report of San Diego County housing market trends in 2021 should convince you to jump on it now. To start the process of selling your home today, and to find your new place, begin with a free market analysis from ListingsinSanDiego.com.