What goes up, surely must come down, right?
Like much of the country over the past few years, San Diego home prices have seen a stratospheric rise in value over the past 24 months, increasing at a rate of just under 2% per month! In the first quarter of 2022 alone, we saw a nearly +16% jump in the median single detached home values, from $860K in January to an eye popping $1M in April. That's roughly 4% per month!
To put that in perspective, pre-pandemic, San Diego averaged around 5% appreciation PER YEAR!!!
As I had discussed in many prior blog posts, this was always an unsustainable pace, much like speeding down the freeway at 120 mph, and that eventually, we would hit the ceiling. And so we did, in the form of rapid mortgage rate increases that poured some much needed cold water on this white hot environment.
Does that mean prices are falling?
Actually, not necessarily. As the market recalibrates and stabilizes (with stable being the operative word here), we have seen a halt to the rapid appreciation. The median sales price for single detached homes has come down at a rate of .5% per month since the peak in April, to about $970K. And while we typically see fluctuations on a month to month basis, (For context, median home prices dropped about 3% in August 2021 from the previous month, only to rebound later in the fall), this is effectively a sign of a stable home values.
So why all of the price reductions?
In short, many homeowners were caught off guard as to how quickly the market would shift. For the past 2 years, homeowners were able to take advantage of the white hot market to stretch their asking prices each month, (and were getting what they wanted and more!) It's understandable that many homeowners saw what their neighbors got for their homes and employed that same strategy, unaware that buyers has suddenly shifted in a different direction. Put into numbers, in April, when we saw the peak median sales price of $1.0M, the median homeowner had an asking price of $950K. Today, the median asking price is around $1.05M, yet the median selling price has dipped slightly to $970K. (according to SDAR July 2022 data). Homeowners are now finding themselves sitting on the market priced well above the market and have to cut prices in order to chase buyers.
As we progress forward, it will be important for potential sellers to keep the seasonality of the market in mind, and think back to what life was like before the boom of the last 2 years. Pre-pandemic, only about 15-20% of homes sold above asking price, not the 70-80% we saw over the past 2 years. That is where the market is going, and this is a good thing.