The San Diego Housing Market Is Misunderstood!

🏙️ San Diego Real Estate Market Round-Up – Late October 2025

Last week, I began a deeper dive into the rapidly shifting macro trends and how they may impact our local real estate market in 2026. I lay out where my head is at so far in this week’s update.

📊 Weekly Snapshot (October 10–16, 2025)

(Source: SDAR & Mortgage News Daily)

We’re getting to that point in the year where new listings fall off a cliff. Buyer demand usually falls with it, but not as prominently — and that seasonal pattern repeats reliably.

As you can see in the chart below, it happens every year:

(Source: Real Report)

📈 Why Q1 Often Rebounds

This seasonal drop in supply — plus the price declines that come when some sellers dump homes during the slower holiday season — is what typically sets up Q1 for a seasonal price recovery when more buyers jump back into the game.

(Source: SDAR Infosparks)

To build a thesis for what Q1 2026 will look like, we have to frame the two biggest variables: mortgage rates and inventory.

🏠 Inventory vs. Demand Matters

As inventory rises relative to demand, the seasonal swing (the Q1 pop) gets smaller — which is exactly what we saw in 2025’s modest recovery.

(Source: Real Report)

Based on trend lines, inventory in relation to demand looks likely to be even tougher in 2026, which adds downward pressure on prices.

💰 Mortgage Rates: The Wildcard

Mortgage rates are the big wildcard, which is why I work hard to form a solid theory about where they’re heading. The arrows below show mortgage rate moves in Q4 over the last four years, plus our current 2025 trend.

• Big rate drops at the end of 2022 and 2023 set up bigger Q1 price gains in 2023 and 2024.
• A rate rise at the end of 2024 set up a tepid Q1 2025.

Where we are now: we’re seeing a gradual reduction in mortgage rates that’s helping to stabilize values despite the inventory headwinds. If rates hold in the 6.0–6.25% range, 2026 likely rhymes with 2025 — a small Q1 recovery, then a gradual year-over-year softening.

But if rates start dropping faster — for example, if the Fed ends quantitative tightening, we get better inflation prints in Nov/Dec, and the labor market keeps cooling — there’s a path to 30-year rates near ~5.75%. In that case, Q1 2026 could see a steeper price recovery (probably not as strong as 2023 or 2024, but stronger than 2025). I’d still expect it to be short-lived given affordability, but pent-up demand could temporarily tilt us into a brief seller’s market.

Big picture: there’s tremendous pressure to bring rates down (the federal interest expense is accelerating fast). Inflation risks remain, but long-term deflationary forces from AI and automation could give policymakers room to take that bet. I’m still testing my assumptions and fighting confirmation bias — I’ll revisit my official projections after the full October data is in.

📝 How’s Wesley feeling about the market right now?

Rates have found strong support roughly in the 6.25%–6.50% band lately. With a softening job market but sticky inflation, there’s no clean path up or down — so I’m assuming sideways unless/until data surprises.

Note: I use median price per square foot as my value metric to smooth out anomalies.

• 3-month outlook (Dec 2025): Typical late-year slippage as casual buyers pause; motivated sellers make concessions.
• 6-month outlook (Mar 2026): Recover much of Q4’s dip, but still ~1–3% YOY lower vs. Mar 2025; inventory trending higher.
• 12-month outlook (Sep 2026): A stable but cooler market; buyers retain leverage; ~2–4% YOY lower vs. Sep 2025.

🌏 Macro Market Round-Up

• The average 30-year mortgage rate ended the week at 6.19%, down from 6.23% the week prior.
• Purchase mortgage demand ticked down week-over-week but is still ~20% higher YOY.
• CPI came in softer; shelter costs slowed to 0.2% MoM (from 0.4% in August). Since shelter is ~1/3 of core CPI and lags reality, continued moderation should keep headline inflation leaning lower if other baskets behave.

We’ve seen asking rents flat-to-lower for a while, so I expect the shelter component to keep easing as older, higher prints roll off the 12-month window. For a concise recap of pros/cons in the CPI report, Mortgage News Daily has a good quick read.

Other Macro Notes: Purchase demand softer; refinance activity nudged higher.

The Week Ahead: All eyes on the Fed policy meeting (announcement & presser Wednesday, 2:30pm ET). With limited fresh data during the shutdown, the market will parse every word on the future of quantitative tightening. Also on deck: U.S.–China trade talks — a perennial market mover.

📰 Local News to Watch

• San Diego considers a new tax on STRs and second homes. 😵‍💫

🏡 Buyer & Seller Strategy Corner

Planning to buy and sell at the same time in San Diego? Strategy matters. With rates stabilizing and seasonal supply tightening, this window can favor well-prepared buyers and sellers.

Looking to explore options in the heart of the city? 👉 View Downtown San Diego Condos for Sale

Want a personalized plan to buy and sell concurrently? 👉 Schedule a Meeting with My Team

Or browse everything San Diego has to offer: 👉 Search All San Diego Homes for Sale

💡 Final Thoughts

Seasonality is doing its thing — but rates, inventory, and affordability will dictate the size of the Q1 bounce. If rates drift toward 5.75%, expect a stronger (likely short-lived) pop. Otherwise, plan for a modest recovery and a slow-grind market where preparation and pricing win.