San Diego is among the home markets expected to cool the most in 2023, according to a new report.
Redfin’s long housing website Analysis of the coming year says the West Coast markets and subways that have seen the biggest gains during the pandemic will slow the most. He picked the markets by looking at data from February through November that showed price declines, inventory declines, the number of homes for sale and other factors.
The San Diego metro area was No. 9 in its list of markets expected to cool the most. He said the areas that would fall the most would be Seattle, San Jose, Las Vegas and Salt Lake City. The metros least likely to experience declines were Lake County, Illinois, Chicago, Milwaukee and Albany.
Redfin stopped short of predicting how much prices could fall in metropolitan areas, instead relying on recent trends to forecast which markets could cool the most. By October, home prices in San Diego County had fallen by five months in a row. Redfin said prices nationwide are expected to fall about 3% by the end of next year.
Here are Redfin’s national predictions and how they relate to San Diego:
Home sales will be at their lowest since 2011
Redfin predicts 16% fewer home sales in 2023 compared to the previous year. There are two reasons for this: potential buyers are overpriced due to rising mortgage rates and potential sellers don’t want to have to search for a new home when interest rates are likely higher than their mortgage. current.
“People will only move if they need to,” wrote Taylor Marr, Redfin’s deputy chief economist.
San Diego County home sales recently hit their lowest point in years. There were 2,354 home sales in October, CoreLogic said, its lowest monthly figure since May 2020, when the initial shock of the pandemic brought the market to a standstill, to drive prices and sales higher from of the following month.
Redfin said his prediction was based on a variety of factors including inflation and interest rates that hurt affordability. Still, he said it’s possible inflation will continue to decline and the Federal Reserve will feel less pressure to keep raising rates that drive up borrowing costs.
Redfin expects mortgage rates to gradually decline by the end of 2023, to around 5.8%. The interest rate for a 30-year fixed-rate mortgage was 6.38% on Monday morning, said Daily Mortgage News.
The hottest markets are no longer cool
Redfin said relatively affordable metros in the Midwest and East Coast — which haven’t seen explosive home price growth like San Diego — should hold the best next year.
Marr wrote that markets that haven’t been caught up in the pandemic home-buying frenzy should be better protected from price corrections. He said cities booming from the pandemic — Austin, Boise and Phoenix — could take a big dip.
Metro San Diego was consistently in the top 3 fastest growing markets in the closely watched S&P Case-Shiller indices throughout the pandemic. The 20-city index reported a 30% annual price increase for San Diego in March, but fell to 9.5% in September.
Rents will go down
Redfin said rents will come down, based on rising vacancy rates in recent months and a larger-than-normal supply of rentals.
Multifamily construction was at a 50 years high from September, which means there are a lot of new buildings competing for tenants. Additionally, owners who had planned to sell single-family homes are now more likely to put them on the rental market.
This week, real estate tracker CoStar said the apartment vacancy rate in San Diego County was 3.4%, down from 2.3% at the same time last year. Average asking rent was $2,321 per month, down from $2,352 in the third quarter.
Redfin said rents would have fallen further, but Millennials and Gen Z are increasingly less likely to become first-time home buyers and are more likely to rent indefinitely. He said higher mortgage rates and few homes for sale make renting the most likely long-term scenario for many.
Migration will slow to expensive metros
San Diego employers, desperate for workers, may be frustrated to learn that most migration forecasts indicate people will prioritize cheaper metropolitan areas.
Redfin said Gen Z, in particular, will have more flexibility to move wherever they want with the growth of remote working. This means they can look for more affordable places that are pay people to move there.
Tucson has a program who pays for remote worker moving costs, free internet access and other benefits up to $7,500; Northwest Arkansas has a program who pays $10,000 and donates a mountain or road bike; Savannah, Georgia, pays tech workers up to $2,000 in moving expenses; and Topeka, Kansas, will give up to $15,000 after renting or buying a home.
San Diego has promotions and advertising campaigns to entice workers to move here, but it does not offer direct economic payments. The San Diego Economic Development Corp. has a “Just Say No to Winter” advertising campaign and recruitment toolkit which focuses on tech jobs, weather, craft brews and the weather.