Market Update - August 2022

I believe a visual representation is the best way to give you an update on the market. It will give you a good ideas of what has been happening over time. At least for me as soon as someone starts talking about year over year percentages, my eyes start to glaze over (that’s usually when I pour myself another cup of coffee).

If you’re in the market to buy or sell, I hope you’ll reach out with questions so we can talk specifics. With that being said, this is general information that I hope you’ll find helpful.

As of right now, it’s still a pretty strong seller’s market based on inventory and prices. However, we have started to see some changes over the last couple of months (also, let’s be honest… it’s almost always a seller’s market in San Diego). It’s true - there’s more inventory than there has been since January 2020, but that doesn’t mean there’s a lot of inventory. Homes for sale are sitting on the market longer and pricing is starting to flatline, if not decrease. There’s no doubt this is the friendliest market for buyer’s we’ve seen in the last 2.5 years! Especially after mortgage interest rates dropped again late last week. If you’ve been waiting to buy, NOW could be your time.

This market segments table gives tons of perspective to the data. The data on the market overall is useful, but breaking it down into four segments really clarifies things for most homeowners. You are most likely going to look at 1-2 of these segments. You’re either considering upsizing, downsizing, or you’re potentially sitting between two segments.

Most of the conversation revolves around how much interest rates have increased since the beginning of the year. While it’s true that the rates have roughly doubled, it’s also true that we’ve had a small decrease recently. Last week, we hit a 34-day low for interest rates. And after the Federal Reserve met last week, rates have dropped significantly. Mortgage interest rates as of today are 5.05% on average for a 30 year fixed conventional loan. From a historical perspective, these are not the highest interest rates we’ve seen. The rates were double digits back in the 80’s (median home prices also weren’t $1M though). The rate increase does make your payment more expensive, but the biggest kicker is your debt to income (DTI) ratio. If your DTI exceeds 50%, then it’s going to be highly unlikely you’ll qualify for a loan. These stricter lending rules were put in place after the subprime mortgage crisis in the late 2000’s.

According to the Mortgage Bankers Association (MBA), a weak economic outlook, high inflation, and affordability has decreased buyer demand. That has led to the drop in purchases and refinance applications.

Figure 4

Builder confidence is also down as they continue to deal with supply chain issues, inflation, rising costs of goods, and decreased buyer demand. You can see in the graph (Fig.4) that single family home construction is trending down. Fewer home construction ‘starts’ means they’re beginning to have big concers about where the market is headed. The demand is decreasing since many buyers are getting priced out by rising rates. The last thing builders want is to have a surplus of homes with no buyers. Bottom line: builders can’t sell a home for less than it cost to build.

Last but certainly not least, the cost of renting continues to trend in the upward direction. It’s interesting to note that even during a recession rent increased, sometimes dramatically. All that to say, it’s still a good time to be in the market whether you’re a buyer or a seller. However, even though it’s still a seller’s market this is the best opportunity to buy in the last 2.5 years!

There are plenty of options and I’d love to discuss what’s best for you and your family.