The number of contracts to purchase a home in San Diego and the rest of the country has dropped. Actually, it dropped for the second consecutive month in a row! Is this the market shift home buyers have been waiting for? I wish this I could say yes but unfortunately this is not so good, here’s why:

On the surface, it appears there is a major San Diego real estate shift starting. It must be right? Less sales equals less buyers? Unfortunately the answer is no. This doesn’t mean the real estate market is slowing down in the slightest. In fact, it kinda means the opposite.

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The Math Is Deceiving

The ONLY reason the number of contracts has dropped is because there isn’t enough homes for buyers to buyer. If additional homes were available, they would have most likely sold and that REPORTED contract figure would be higher.

What does this mean? At the very least, I would continue to expect to see fierce competition to buy homes. Most homes within the range of the median home price depending on where you are located  (here in San Diego that would be about $500,000 up to say $1,000,000) are receiving offers from multiple buyers.

The average home on market for sale is getting around 4 offers or more. That’s usually within the first couple days on market! The best homes are receiving double digit offers, sometimes as high as 30 offers or more.

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With so much home buyer demand happening and a decrease in the amount of homes for sale, expect home prices to keep rising. When will the prices slow down you might be thinking?

Well a few scenarios could have an effect:

Mortgage Interest Rates

Most likely, when mortgage interest rates eventually start to rise, we could start to see a slowdown. Most analysts are predicting this to happen soon but as of this week and last week, we saw yet another drop in rates igniting even more home buyer demand and activity.

An Increase in Homes For Sale

An increase in the amount of homes for sale could generate a reduction in the current level of buyer competition. This could lead to softening on home values. The most likely scenarios to cause this would be a seasonal increase in the amount of homes on sale this time of year, that would be welcome news to most home buyers.

Most markets see an increase in supply (and demand) in the spring and summer months. We are still dealing in unusual and uncertain times so that may or may not happen this year.

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Vaccinations

Also, as more and more people continue get the shot, more home sellers could become more comfortable with putting their home on market and allowing people through to during the marketing process. That could eventually trickle down and result in more homes for sale.

Market Overview

This is an incredible market for sellers, a very tricky market for buyers. The biggest issues are once home sellers sell, they quickly become home buyers in most cases. Also, this is extremely difficult for first time home  buyers. Every time those home values rise, that purchase price rises with it. If you own a home, not such a big deal. If you don’t own a home yet, it’s a problem and it keeps getting worse. All in I would say that although we are seeing a drop in the amount of homes going under contract, it is only because we don’t have enough homes to satisfy the demand. Until we do, expect to see home prices to continue to rise.