To quote my son, “Dad, the shift is on” – of course, in the context of my son’s vocabulary, he’s likely speaking about the defensive position of his favorite baseball team! In the context of his dad’s vocabulary, however, “the shift” refers to the change we’re currently experiencing in the housing market from a “white hot” seller’s market to something slightly more buyer friendly.
As we approach the peak home-selling season of the year, I thought it appropriate to examine some recent market data to understand current trends in light of our interest rate environment and the resulting shift. For the purposes of my analysis, I looked at four-bedroom, three-bath homes with 2500+ square feet of living space that sold for between $800K and $2.5MM in San Diego County over the past 24 months. The chart in Figure 1 shows the Average Sales Price per Square Foot (Avg. SP/SqFt) and the Average Days on the Market (Avg. DOM) on a month-by-month basis over the last two years. From the chart, we can see that San Diego County is down (on average) almost 17% on a price-per-square-foot basis from hitting its peak in the Spring of 2022. Looking at the time it took for a home to go under contract, the 3-month rolling average (solid orange line) hit a low of about 10 days in June 2022 before beginning a gradual climb up to roughly 45 days in March 2023.
The chart in Figure 2 shows a similar story. Specifically, the Average Sales Price (Avg. SP) of homes sold peaked in April/May 2022 before falling by 16% by March 2023. To see how buyers’ purchase prices compared to sellers’ asking prices, we look at the Average Sales Price-To-List Price ratio (Avg. SP/LP). The 3-month rolling average of this metric (solid orange line) shows that homes sold for as much as 7% above the list price (on average) in May 2022 before crossing the threshold where homes sold for exactly the list price in July/August 2022 before finally settling out at 3% below the list price towards of the end of 2022. Figures 1 and 2 clearly show that the San Diego housing market (much like other housing markets in California) has shifted away from the “white hot” seller’s market of the Spring of 2022 as mortgage interest rates have bounced off their historical lows. Given the above, the most common question I get these days is “What does this shift mean for buyers and sellers today?"
Seller Guidance: Knowledgeable home sellers will recall that through the Pandemic (i.e. from Q1 2020 through Q1 2022), the above housing segment in San Diego grew by ~20%+ per year for a total appreciation of ~45%+ in just two short years! And while a 17% decline from the peak may seem significant, home sellers today still enjoy strong equity positions should they find themselves wanting to sell their home. However, unlike the Spring of 2022 when everything was selling above the list price in under 10 days, selling your home today requires a Realtor that understands how to properly price your home. Failing to do so may leave you chasing the market with multiple price reductions and buyers smelling blood in the water. Secondly, prudent home sellers will recognize the need to hire a Realtor that understands how to use home staging to ‘tell a story’ and get potential buyers to fall in love with your home – buyers in love pay more for homes – period. Staged homes sell for between 6-10% more than unstaged homes and spend 50% less time on the market. Finally, astute sellers, now more than ever, will seek out a Realtor that puts their money where their mouth is by offering a “performance guarantee,” whereby the Realtor is financially penalized for non-performance. Buyer Guidance: Rarely are buyers offered any guarantees when it comes to house prices. Today’s home buyers, however, are guaranteed to be purchasing at a 14-17% discount relative to the peak back in the Spring of 2022. And while the days of 2.5% mortgage interest may be a thing of the past, put in perspective, today’s interest rates are lower than the average rate (since 1971) of 7.75%. Plus, buyers today may find refinance opportunities in the future should mortgage rates drop. However, like sellers, buyers must also exercise caution. To illustrate, pay close attention to last month’s average sales price per square foot in Figure 1 – notice the uptick (~5%) from March 2023. Furthermore, draw your attention to last month’s fall in the 3-month rolling DOM average also in Figure 1. Similar trends can be seen in Figure 2. The point is, there are still many qualified buyers making offers on homes in full force. And in order to get your offer to stand out amongst the crowd (yes, multiple offers are still a thing!), informed buyers will seek the assistance of a Realtor that understands how to write clean offers with all “I’s” dotted, all “T’s” crossed, and a demonstrated ability (in my case, as recently as last week!) to get offers to stand out with listing agents and their sellers. Wrap Up: While the San Diego housing market has shifted, it still represents an opportunity for both sellers and buyers alike. If you are in need of a Realtor that can navigate today’s changing market, one that offers a “performance guarantee” for sellers, and one that leaves listing agents advising their sellers to accept your offer, give me a call – you’ll be glad you did!
Create an Account
Search the MLS and featured property listings in real time.