Our real estate market is starting to soften a bit. Some of it is typical of the season, but not all of it is.
I’ve got a quick update for you today on the San Diego real estate market: November continued a downward trend in activity and sales prices for San Diego County. You can easily break the market up into two segments: attached and detached homes.
The attached home market saw the biggest hit. The number of sales was down by about 20%, but what was more alarming to me was the price reductions. We have seen a 6% drop in prices in the last two months and the median price is currently only 1% over last year. At the same time, we have 40% more homes on the market than we did last year. This is adding to pressure to drive prices down. Expect to see prices continue to drop.
As for detached homes, that segment of the market is faring much better. Prices were down for the third consecutive month, but in those three months combined, we’re only seeing about a 3.5% decline and we’re still 9% above where we were last year. We’re seeing softness here, but most of it’s seasonal.
When trying to determine what’s going on in the attached home market, we’re seeing a seasonal slowdown in price reduction that’s compounded by a couple of other factors, such as:
1. Interest rates. With lower-priced homes, we tend to see many first-time buyers who are using larger loans and putting less money down. As rates are going up, these people are being affected much more. In the luxury home market, those buyers are paying more in cash and with large down payments, so the rates are not affecting them as much.
2. Taxes. Nobody really knows what these new tax laws will mean until we get our taxes back in April. A lot of people are saying that they’ll wait until they see what’s on their tax return this year. Will they have extra money or will they owe more money? Expect some of this inventory logjam to get reduced as we get closer to tax day and these questions are answered.
3. Tax law. With the increase in the standard deduction and the reduction in the number of deductions you can take for your mortgage interest and state taxes, it has taken away a lot of the benefits of homeownership. You have to have a mortgage above $400,000 before your mortgage interest deduction will exceed the standard deduction. For right now, expect the bottom of the market to stay soft because of this.
I would expect the attached market to stay soft throughout the next year and the detached market to ebb and flow per usual, depending on the time of year.
This isn’t the best news for a lot of people, but it is creating opportunities for certain people in certain segments. If you’d like to talk about how you might be able to benefit from the current conditions, don’t hesitate to give me a call or send me an email. I look forward to hearing from you soon.