San Diego Real Estate Market Forecast for 2022 (Just Updated)
We are moving into the final months of 2021, and this has been an amazing year in so many ways. Real estate in San Diego does not stay still for long, and 2021 so far has seen the average price of a house go up almost 25% according to the Core Login Index, which is the second fastest in the nation. We can anticipate the housing figures will fluctuate in the coming months as demand and mortgage rates impact the housing market in Southern California.
For now, let’s polish up the crystal ball and look at what the rest of 2021 and all of 2022 has in store for buyers, sellers, and real estate investors in the near future.
Here's a quick rundown of our list:
• Whither the Mortgage Rates?
• The Rent Scene
• What to Do, what to Do?
Prices Might Be Hot, Hot, Hot!
The April 2021 Zillow Real Estate Market Report noted that a desired housing inventory relief did not happen this spring. The inventory figures went north instead of south. Some experts are hinting that the inventory figures will start growing again in the latter half of 2021 and continue into 2022. It depends on the conditions in local markets whether buyers will consequently get some relief from rising prices.
Zillow’s figures showed the annual value growth for an American home in April 2021 was 11.6%, the highest recorded since 2005. That did not happen here. The annual growth value figure was 16.5% in San Diego. In addition to that, over 45% of available homes in the area are selling above the list price. That is amazing when you compare the figure to the 29% that the United States as a whole registered. The San Diego market is not standing still.
There is still an argument out there that home prices in San Diego are approaching peak figures. The contrary view is based on an affordability gap. Buyers might not be able to afford the increasing prices and force a period of pricing stability. An interesting development rests with the foreclosure moratorium. There were homeowners who were in dire straits before California’s foreclosure moratorium went into effect. These same people may have been unable to improve their financial situation and are still in jeopardy of losing their homes. The point here is that once the foreclosure moratorium is lifted, there will be people forced into distressed sales to pay the banks. The future may include a period in late 2022 and early 2023 when prices go down.
Everyone should look at what is happening right now with the possibility that existing housing trends will hold into early 2022. Zillow is expecting home value appreciation of 11.8% through the spring of next year. CoreLogic HPI echoes the projection with an estimate of home price growth of 11% until May 2022. It is not just the low inventory that is pushing up the cost of buying a house. The construction of new housing units is low and only time will tell if the construction figures improve.
Here is a development that bears watching. San Diego’s costs are high but housing in Los Angeles is a nightmare. The price of a San Diego home can be tempting to someone in Orange County, who would move to San Diego County for a good deal. The work commute to Los Angeles once discouraged people from living in San Diego and working in L.A. That has changed because of the trend toward remote work. An employee can now work for a Los Angeles based employer and live in San Diego. Remote working can impact real estate prices in this area.
Whither the Mortgage Rates?
Anyone who wants to see what terrible interest rates are can look at those charged in the spring and summer of 1980. It is no exaggeration that rates of 12% or higher for a mortgage loan were not uncommon. We are lucky to have rates as low as they are. Will the good times last? Maybe not.
As of this writing, here are the mortgage rates in San Diego:
30 Year Fixed: 3.06%
15 Year Fixed 2.42%
5/1 ARM 2.78%
Trends have been stable, although the rates have gone up a touch recently. San Diego’s rates are currently a bit higher than California’s average, but the mortgage rates are favoring the buyer. Rates continue to be low as compared to 2020, and that will make life a lot easier for a home buyer. The big question is the future and will mortgages continue to have low rates.
The Mortgage Bankers Association (MBA)is predicting rate increases. The forecast has mortgage interest rates nationally heading up to 3.2% by the end of this year and continue to grow in 2022 until a 3.6% peak is reached. That final figure is .0054% higher than the above-mentioned mortgage rate for a 30 Year Fixed Mortgage (3.06%). It doesn’t seem like much until you calculate the dollars and cents.
Assuming that a house in San Diego costs $700,000, the .0054% increase means that the buyer might be paying as much as $3,780 more per year over the life of the mortgage. The MBA statistics are national figures, and you can literally bet the mortgage that the rates will be higher in sunny California. Hopefully, any rise in interest rates will be balanced by sellers asking less for the house they have on the market
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The Rent Scene
Roughly 46.7% of San Diego residents continue to rent. It is a smart idea if a person is looking to buy a house in 2022 and wants to save cash for a down payment. While we have been concentrating on houses, we should ignore the future of rent in San Diego and what the trends are telling us.
The cost of rent depends on the size of the apartment and whether it is a one, two, or three-bedroom residence. Here are the average rent figures reported earlier this year.
- Studio: $1595 per month
- One Bedroom: $1,828 per month
- Two-Bedroom: $2,400 per month
- Three Bedroom: $3,340 per month
These were all increases from last year and the cost additions were under 5% except for the Studio, which increased 9% from last year.
Rent is currently trending upward. Here are the figures as of July 26, 2021.
- Studio: $1,695 per month
- One Bedroom: $1,975 per month
- Two-Bedroom: $2,695 per month
- Three Bedroom: $3,400 per month
What is causing the increase? One main reason is that San Diego does not have rent control and the market has a major influence on how much a tenant must pay. People should keep in mind the many tourist attractions in San Diego. These create a demand for short term rentals in America’s Finest City. Comic-Con alone created an increase demand in rental units and rents for temporary places such as Airbnb will prevent the cost of rent from going down.
Renters can find some great opportunities if they are willing to do some detective work. The average rent in Carmel Valley is currently $2,839 per month. However, the average rent in Alta Vista is $975 per month. There are neighborhoods that are affordable for middle class folks and here are the average monthly rents for some of them.
- Broadway Heights: $975 per month
- Emerald Heights: $975 per month
- Darnall: $1,439 per month
- Rolando: $1,484 per month
The Downtown/City Center is a special gem where the median rent is approximately $1,491 per month. Over 70% of the residents rent, so a tenant is surrounded by his or her peers. The area has a thriving nightlife and the public schools in the Downtown/City Center are above average.
BTW, if you are looking to buy a house, the median home value in Downtown/City Center is $572,100 and the price is expected to go up 4.5% over the next year. This leads us to a real estate strategy a prospective house buyer may want to consider.
Let’s assume a renter could afford to live in Carmel Valley. Instead, that person decides to rent in Alta Vista, and save the difference between the two locations. It would mean in 12 months that renter would be able to save $22,368, which would be enough to meet the 3.5 % down payment required by FHA for the mortgage on a house in the Downtown/City Center. A little planning will go a long way in making the American Dream of owning a house a reality.
We discussed earlier the effect remote workers might have on the housing market. Well, that can work to a San Diego resident’s advantage. Here is an example.
According to Glassdoor, the average annual salary for a computer engineer in San Diego is $85, 320 and the average annual salary for a computer engineer in San Jose is $100,593. A San Diegan can go looking for a comparable job in San Jose that pays more. Depending on that person’s expertise, the employer in San Jose might be willing to allow a remote working relationship that doesn’t require relocation to San Jose (the employer will save thousands of dollars in relocation costs). The difference between the two example wages is $15, 273. If you add that to the difference in rent between Carmel Valley and Alta Vista we mentioned earlier, you come up with an annual savings of $37,641, which is more than enough to cover the 3.5% down payment requirement for an FHA mortgage in San Diego. Pretty clever, don’t you agree?
What to Do, what to Do?
Consumers’ mood can sway one way or the other, depending on the market. We want to be upfront and let folks know that anything or everything can change depending on the local economy and national politics. San Diego has a fairly stable job market and employers are paying top dollar for various jobs. It is more than likely that housing will be affordable for many people in San Diego County.
Astute planning is going to be essential for the buyer. This means more than just saving money for a good down payment. Using a mortgage calculator and making some assumptions about house prices and mortgage rates can help those who wish to jump into the housing market in the coming months.
Although many eyes are watching what will happen to the eviction moratorium, a better focus of attention is the foreclosure moratorium. It officially ended on July 31, 2021, and the Consumer Financial Protection Bureau does not intend to ban future foreclosures. However, the Bureau has new rules that go into effect on August 31, 2021, that can delay the foreclosures until beyond January 1, 2022. Whether there will be another mandated foreclosure moratorium or a tsunami of foreclosures in 2022 remains to be seen. Either is going to impact prices of homes.
People might want to continue renting until the market cools down. That is not a bad idea and choosing to rent is not a sign of defeat. Rather, it is deployment of financial resources that might prove smart in the long run.
Staying in the apartment a few extra months permits more time for planning and targeting where to go house hunting. However, a renter looking to buy a house soon needs to be careful. Any lease renewal should allow the tenant to move out when a purchasing opportunity surfaces, and without having to pay a penalty for the decision.
You need to remember that everything that has been predicted for the San Diego real estate market can dramatically change at a moment’s notice. Property is subject to swings in consumer taste and, particularly in an election year like 2022, politics.
The moratoriums might be extended, and the best laid plans can go haywire because of that. It makes sense to develop a Plan B to deal with that possibility. Setting an overall goal for 2022 is a start. You then make any changes in strategy or tactics to arrive at it.
There is a rule of thumb in California: everything is too damn expensive. Please don’t follow that. Where there is a will there is a way, and you can overcome the money obstacles to get what you want. Working with an experienced real estate agent will help. Be ready for 2022 because it will be here sooner than you think.
Those who want more information about home buying in specific areas of San Diego or who are looking to see what is on the market should contact me.
I would love to help.
Your Market Forecast Insider,
Scott
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