The San Diego housing market is undergoing a major shift, with affordability continuing to be an obstacle for buyers.

As interest rates increase, buyers can afford less and less. Mortgage rates have obviously greatly increased, in fact doubling since March, but home prices still remain elevated due to a limited supply of homes as well as the inflation effect. Many homeowners are choosing to wait to list until market conditions improve.

However, some sellers need to sell now, due to life changes, health reasons, or financial motives and are increasingly cutting prices and offering concessions to attract buyers. The number of new listings coming on the market has decreased 25% from a year ago and closed sales are down 42% from this time last year. Inventory of homes for sale is up 80% from last year.

Many sellers are waiting until at least 2023 to list. A couple of things are going on currently.

One is the election, as this time two years ago the market also slowed as people waited to see what direction the political environment went. But in early 2021, the market picked up again.

Another factor currently is that buyers are now very finicky.

Many active buyers are still monitoring the market regularly, sifting through new listings, looking for a great value. When a highly desirable property comes on the market at a value-price (maybe 10% below peak prices from 6-months ago), offers are being made, and those properties are being purchased.

However, buyers are asking for longer inspection contingencies and reasonable repair requests as well as other concessions to get a deal closed. But average properties coming on the market and listed at peak prices, are generally sitting.

Some sellers I am speaking with are anchoring to the highest recent prices and wanting to list high. But the market sentiment has shifted and buyers are skittish and looking for a deal. Properties are still selling but at new market equilibrium prices which are a bit lower now.

Over the summer, Jerome Powell, Chair of the Federal Reserve, stated that the Fed intends to bring down the real estate market over time. This a one of the most powerful entities in the world, making moves to push down real estate prices. Obviously, continuing to increase interest rates, is having an effect.

Where do we go from here?

I think everyone just needs to get used to the new normal. Sellers need to accept that listing at the highest possible price and generating multiple offers is not on the table right now. Homes will sell but at a new market price, typically less than recently. Interest rates are actually still historically competitive in the 6’s but buyers just need to wrap their arms around this reality and accept it. If rates drop a little in the future, a refinance is certainly a possibility.

I expect that in 2023, the market will return to a normal state with prices down a bit for sellers and interest rates up a little for buyers and people will again come together to get properties sold. It’s just going to take some time.

Single Family Properties October Market Report:

College Area 92115: Median home price $865,000 with 43 homes currently listed for sale and 30 days average time on market until offer accepted.

92119 San Carlos: Median home price $955,000, with 29 homes for sale and 34 days average market time.

92120 Allied Gardens, Del Cerro: Median home price is $1,037,500, with 29 homes for sale and 23 days on market until offer accepted.

– Sarah Ward is a REALTOR with Fine & Coastal Real Estate.