The cooling off of the real estate market continues as we move into Spring and what is traditionally the high season for homes sales activity in San Diego County. Since August of last year the inventory of available homes and average number of days on market have been increasing steadily throughout the county. The factors contributing to the slow down include the brief spike in mortgage interest rates late last year, the Home Affordability Index dropping to a 10 year low, and a general uncertainty about where the real estate market is going.
Mortgage rates have been on a wild ride over the last few months. Starting in the Fall of last year they began to climb and seemingly put a chill on the housing market. There were concerns that higher rates were going to turn off buyers and the market was in for trouble. Then starting in December the rates began to fall fueling some renewed optimism that the real estate market will crank up again. While the market did seem to get a small bump in activity the overall cooling has continued. It appears that the mortgage rates will be volatile this year so we expect to see them rise and fall several times over the next few months.
It is no secret that Southern California is an expensive place to live and in San Diego renting is more affordable than buying. According to the US Home Affordability Index affordability is at a 10 year low, meaning we are at levels similar to 2008 right before the crash. This is no doubt contributing to the cooling off of the real estate market. For many potential home buyers it has become less attractive to buy a home as opposed to renting. Home sellers will need to adjust to the new market conditions and listing agents will need to set proper expectations as to how much a home will likely sell for and how long it will take. Home buyers have become less aggressive and more cautious when it comes to making offers on homes that are priced too high.
Since 2010 home prices have been increasing and over the last 4 years they have been increasing a lot. This steady reliable appreciation of home values has made it easy to make decisions for both buyers and sellers. Buyers knew that they could pay top dollar and their value would continue to increase, thus there was little risk. Sellers could simply list their home for top dollar and expect multiple buyers to compete without having to do much in the way of marketing their property or providing concessions in escrow. The current real estate market is no longer as predictable and more risk has entered into the equation for buyers and sellers. Buyers have started wondering if this is the top of the cycle and perhaps lower prices are around the corner if they simply wait. Home sellers on the other hand are starting to wonder if they may have missed out on the peak or maybe it will pick back up again in the Spring like it always does. Bottom line there is more uncertainty now than we have had in a long time and this uncertainty will continue to have an impact on the market as we move forward.