Is buying a condo in San Diego as expensive as buying a house? Are there any neighborhoods in San
The San Diego housing market is up 18% over the last 12 months. This means that very same home on the very same street, with no changes other than time would have cost you a little over $775,000 12 months ago. Let’s take a step back another year. Ready for this… that same house would have cost $677,000 in 2020! The median home price in San Diego is now $1,000,000! When will this insanity end. I mean, will San Diego ever be affordable again?
Really what we are talking about here is sky rocketing house prices versus SAN Diego wages that are struggling to keep up.
So there are 3 ways I see the San Diego affordability crisis changing:
- Make more money (easier said than done).
- The housing market price appreciation slows down and changes course.
- We see less home buyers which speaks to fundamental supply and demand.
The first way is going to be an increase in wages.
This is going to be dependent on so many different factors from person to person or household to household. Bottom line here is bringing in more money will make a big difference. Not exactly rocket science. The median San Diego household wage for 2022 is right about $80,000 or so. That’s not going to get you into the median home price range at $1,000,000. In fact, affordability at $80,000 is closer to $500,000 give or take. Not even close.
A work around here is look at condominiums or town homes to start. The prices on those are much closer to the $500,000 range. It doesn’t have to be your dream home but at least it gets you in the mix and you can start to take advantage of that San Diego home price appreciation every other home owner is getting right now. Condos have actually outpaced homes as far as price appreciation the last 3 months by about 3%.
Let’s talk about the housing market slowing down.
I might have some good news here. Part of the reason so many home buyers have been in the market and fueling this crazy price run up is the amazing mortgage interest rates. Historically low like high 2 to mid-3% range. Those days appear to be over. I checked the rates today and they were just about 5.75% for a 30 year fixed mortgage. It’s should eliminate some homes for some buyers because it affects affordability. It also means you pay a lot more in interest for home and that will likely turn down the appeal for some would be buyers.
We see less home buyers.
I think the end result here is you are going to start to see a reduction in home buyer competition. Could this be the end of the ridiculous bidding wars happening right now? I hope so.
Another interesting fact is generally a 1% swing in mortgage interest rates causes a 10% increase or reduction in household affordability. We are talking about over 1% increase which historically would make that 18% increase turn into something much closer to 7 or 8%.
There is an x factor out there that not too many people are talking about but it’s there and becoming more and more prevalent. Institutional investors or buyers like black rock and black stone. They are buying up residential properties like crazy. I think the last statistic I saw was they wanted to buy 120 million units this year or something ridiculous like that. That includes big apartment complexes in addition to homes but they are expanding. Their end goal is to own as many rentals as possible. Not great for the end use home buyer.
Not to mention inflation and the sputtering stock market. Investors looking for somewhere to park their money are looking at real estate right now and it’s looking pretty good. Real Estate is an amazing hedge against inflation and at the moment, a heck of a lot less volatile than the stock market. Statistically we have seen a rise in cash buyers competing with end use buyers. Statistically it’s over 30%. That does not mean 30% of the buyers are investors. That just means cash.
We have a unique problem in San Diego. People relocating to San Diego in droves. People are leaving San Francisco and Los Angeles and other California cities because, well they can. Virtual well-paying jobs are now basically the norm for Silicon Valley and other historically high paying but less desirable areas. Given the choice, would you want to live in San Diego or somewhere else in California. For those of us who have traveled all over California, it’s a pretty quick and simple answer.
This housing market is so non-affordable for many right now. No doubt about it. It won’t be this way forever. I do think the latest signs and statistics support the early beginnings of a change.
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