SAN DIEGO, CA – According to recent article in the Wall Street Journal, the U.S. housing market has weakened for the 12th month in a row. In January, nationwide the home sales have declined by 36.9% from a year earlier to the lowest level since 2010.
In San Diego County, the home sales volume was the lowest in 35 years (since 1988). This streak of back-to-back consecutive declines is the longest since 1999.Home prices are adjusting as well. The median price in San Diego County has dropped by about 2.8% year-to-date in 2023.
Looking at the home price charts, it seems that the peak of this housing market cycle was sometime in the spring or summer of 2022. The segment of the residential market, which is most resilient, although not completely immune to the market downturn, are the lowest priced properties, which are more affordable and thus have a broader market appeal.
On the luxury end, coastal and Ocean-front properties are still doing well. Typically, during the downturns, real properties located near water and/or with Ocean views are performing much better than the inland ones. There is no question that the rapid escalation of the interest rates and resulting higher mortgage rates and payments, are the biggest contributing factors to this market shift.
Just a little over a year ago, mortgage interest rates were at 2-3%, now they are at 6-7%. The speed at which the interest rates are being increased by the Federal Reserve Board is mind-blowing and pretty much unprecedented. Yet, I hear some real estate professionals and economists saying: “yes, but the inventory of available homes for sale is still very low.”
That’s true, but so what?
The mortgage interest rates have more than doubled in the past 12 months, which makes it much, much less affordable to purchase a home. Basically, all classes of real estate are showing signs of being negatively affected by the higher rates and the financial markets are reacting accordingly. The Secondary Market and Primary Mortgage Lenders are raising their interest rates, and even more importantly, limiting the availability of financing by implementing much stricter loan qualifying requirements.
So, what’s the bottom line?
For buyers of all classes of real estate, there are some emerging value opportunities, but we recommend caution. Cash will be king, again. Buyers should make sure that the properties they are considering purchasing offer exceptional values, even with further deterioration of property values, or be ready to hold them until the downturn runs its course.
How does one find an exceptional value?
In our opinion, by working only with knowledgeable, experienced, and well-connected real estate professionals who can help with finding and evaluating real estate opportunities. For sellers, we recommend assessing whether they want to sell the property now or hold it for a while, maybe a few years, till the downturn passes.
The alternative is to sell the property for a lower price during the downturn. Keep in mind that major real estate downturns take years, not months. I realize that perhaps this is not the most cheerful market update, but as they say: don’t shoot the messenger. The key is to acknowledge the reality and adjust your strategy accordingly.
The silver lining might be that looking at the historical mortgage interest rates, they averaged around 7.75% over the last 50 years (1971-2023), which is close to where we are right now. The other good news, especially for real estate buyers and investors, is that there will be, perhaps substantial, real estate buying opportunities. Remember 2008-2010?
The Blu Summit Real Estate team offers FREE Real Estate Counseling available exclusively to their Clients and Referrals, at no cost and no obligation. They offer help and answer questions about buying, selling, or financing real estate, at no cost or obligation.
For more information contact Robert Dudek at: 619-541-8853, firstname.lastname@example.org, www.BluSummit.com . CA Real Estate Broker Lic. 01037546, HI Lic. RB-21367, NMLS 313005.