You’ve probably noticed some big changes in San Diego County home values lately. I mean, who hasn’t? It seems like every time you drive through a neighborhood or check Zillow, prices have shot up again. Things have gotten pretty crazy in the local real estate market over the past five years.
Overview of the San Diego County Real Estate Market
Housing prices are on the rise
Over the past five years, home values in San Diego County have increased significantly. According to the S&P Case-Shiller home price index, home prices were up over 60% since 2018. The median home value in the county is now a whopping $1,117,255.
While prices had declined during the housing crisis, the recovery and subsequent boom have led to many would-be buyers getting priced out of the market.
Interest rates at 20+ years highs
One somewhat baffling phenomenon is the resilient run-up in home prices in spite of the fact that mortgage rates are over 150% of what they were just three years ago. As of early Feb 2024, the average 30-year fixed rate for mortgages is hovering around 7% for conventional mortgages. Back in February 2021, we were looking at rates under 3% for the same type of loan. So, while rates went up over 150%, the average price of homes has also gone up 65% to be exact. How does one reconcile that? Typically when prices go up, demand slows down, and eventually, prices flatten. Home buyers seem to be having none of that. Why, let’s go to the next section to find our answer.
Inventory is at all-time lows
The NUMBER ONE reason prices have continued to go up in San Diego County is lack of inventory. There are simply more buyers than available homes for sale. This continues to cause multiple offer situations and bidding wars on many properties. Until more homes are built and listed, limited supply will likely continue to drive price growth in the county.
Median Home Prices in San Diego County From 2019-2023
If you’ve been following the San Diego real estate market recently, you know home prices have been on a wild ride. Back in 2019, the median home price in San Diego County was around $683,000. Not too shabby, but certainly not as high as the peak before the housing crash over a decade ago.
A Steady Climb
From January 2019 through December 2023, home prices climbed at a steady rate of about 13% each year. By September 2020, the average home price in San Diego County had surpassed the $800,000 mark, mostly due to low mortgage rates. While prices were increasing, interest rates were decreasing, so housing affordability remained somewhat stable for buyers.
Pandemic Price Surge
Then came 2021, and the COVID-19 pandemic turned the real estate market on its head. With interest rates at historic lows and many people looking to move into larger homes, demand skyrocketed while inventory plummeted. The result? A shocking 35% increase in the average home price to over $970,000 in just 12 months as of June 2021. The market was on fire.
The Forecast for 2024 and Beyond
Experts predict home prices will continue to rise over the next couple of years but at a slower, steadier pace. In fact, depending on who you ask, prices have actually started tapering off slightly. The Southern California MLS reported declines of around 1.2% for the months of Nov 2023, Dec 2023, and Jan 2024. These could be a seasonal adjustment, but considering the huge swing from the same period las year when prices jumped an astronomical 18% on average, this is worthy of notice.
Interest rates are also expected to remain steady, with the Feds threatening to reverse course from the last three years of hikes. If you’re looking to buy a house in San Diego County, you’ll still pay a premium, but the rapid price escalation of 2021 likely won’t continue at the same breakneck speed.
The San Diego real estate market has been through many ups and downs, but one thing is certain – home prices in America’s Finest City will remain higher than the national average. For those who can afford to buy in, the rewards of living in this Mediterranean paradise make any price seem reasonable.
Notable San Diego County Neighborhoods and Price Changes
Over the past five years, some of the most notable home value increases in San Diego County neighborhoods have been coastal communities and those near downtown. Areas like Pacific Beach, Mission Beach, La Jolla, and North Park have seen double-digit growth.
Pacific Beach and Mission Beach
Home values in Pacific Beach and Mission Beach, popular beach communities just north of downtown San Diego, have increased over 50% in five years. The laid-back beach vibe and nightlife draw both homebuyers and vacationers. Proximity to the ocean and activities like surfing, swimming, and sunbathing give these neighborhoods a resort feel that translates into high demand and rising prices.
La Jolla
The affluent coastal community of La Jolla has also seen substantial growth, with median home values up over 40% since 2016. La Jolla is known for gorgeous beaches, coastal cliffs, and Mediterranean-style mansions. It attracts high-income residents and has some of the most expensive real estate in San Diego County. Limited supply in such an exclusive area has led to large price increases.
North Park
For those seeking an urban vibe, the North Park neighborhood near downtown San Diego has become popular. Home values have increased over 50% in five years. North Park is known for its hipster culture, craft beer, and dining scene. As revitalization has brought new restaurants, bars, and apartment buildings to the historic neighborhood, demand from younger homebuyers has intensified and inventory has tightened, fueling price gains.
Other areas that have significantly appreciated include Point Loma, Carlsbad, and Oceanside. While prices have escalated across San Diego County, coastal and downtown neighborhoods have generally seen the most substantial increases due to high demand and limited supply. For homebuyers, the competition in these markets may require adjusting expectations or looking to more affordable neighborhoods.
Factors Driving the San Diego Housing Market
The San Diego housing market over the past five years has been shaped by several key factors. For a time, low interest rates, although that is a thing of the past. Now, persistent demand and limited supply continue to contribute to rising home prices in America’s Finest City.
Interest Rates
Mortgage rates were at historic lows over the last few years, hovering around 3 to 4 percent. As we mentioned previously, that is no more. However, for a time, this made homes more affordable for buyers and spurred many to take advantage of these low rates, which fueled demand and spiked home prices. With interest at twice what they were during the record lows, there are less buyers but still more than enough to maintain home prices at record highs for the moment.
Increased Demand
San Diego remains an attractive place to live, drawing new residents from other parts of California and the country. The city’s beautiful weather, outdoor lifestyle, job opportunities in industries like tech and biotech, and proximity to the border have made it a magnet for migration. More people moving into the area means more competition for the available housing, putting upward pressure on home prices.
Limited Supply
While demand for housing has increased in San Diego, the supply of homes has not kept up. New home construction slowed dramatically following the housing crisis and recession of 2008. Builders have been unable to build new homes fast enough to meet the demand from buyers. With more buyers chasing fewer properties, simple supply and demand takes over and prices get bid up.
The interplay of these factors—low interest rates fueling demand, strong in-migration increasing demand, and limited supply constraining choice—has been the primary driver behind San Diego’s hot housing market and rising home values over the past several years. Unless there are significant changes to mortgage rates, migration patterns, or new home construction, the upward trend in home prices is likely to continue in the coming years.
Forecast and Predictions for San Diego County Home Values
Over the next few years, San Diego County home values are predicted to continue rising at a steady and moderate rate. According to industry experts, home prices in San Diego County are forecasted to increase by around 2-5% annually through 2025. This means the median home price in the county could reach over $1,250,000 by 2025.
Several factors are driving this continued price growth:
Strong Job Market and Economy
With San Diego’s job market and economy continuing to expand over the next few years, more people will be moving into the area for work. This increased demand combined with limited housing inventory will put upward pressure on home prices.
Millennial Homebuyers
As Millennials age into their prime homebuying years, they will make up an increasing share of San Diego County’s housing market. Millennials tend to prefer living in higher-cost, amenity-rich areas like San Diego. Their entrance into the market will boost demand and prices.
Affordable Interest Rates
Although we can’t really call 7% a low rate, it is certainly not obscenely high as we had in the 1980s. A 7% rate is simply a rate, not cheap, not high, a moderate interest mortgage rate. Mortgage interest rates are predicted to remain in this range over the next couple of years. Apparently since people keep snapping up homes within minutes of them coming on the market, that means the rates are not causing the market to crash.
Of course, there are risks to the forecast like a recession, job losses, or interest rate spikes that could slow or reverse price growth. However, barring any major economic events, San Diego County home values should continue their upward trend over the next 3-5 years. If you’re looking to buy a home in the area, plan for prices to be significantly higher in 2025 versus today and be ready to face strong competition from other buyers, mostly because there are just not enough houses for everyone.
Bottom Line
So there you have it, a quick look back at the San Diego County real estate market over the past five years. Home values have steadily climbed, interest rates have jumped up to 20+ year highs recently, and inventory remains tight for buyers. As you consider buying or selling a home in the near future, keep an eye on these key factors that impact prices and demand. With high quality of life, great weather year-round, and a strong job market, San Diego County will likely continue to be a desirable place to live in the years ahead. Just remember to consider timing and be ready to act quickly when you find the right opportunity. The journey to homeownership here may require patience, but the rewards can be great if you find the perfect place to call home.
