You’ve probably been noticing headlines about the housing market changing.
In fact, according to the recent Knock Buyer-Seller Market Index, “the national housing market will favor buyers slightly more in 2023.” Forbes explains what this means for the price of homes throughout the next few months: “As more markets slowly shift toward favoring buyers, the median home price [in the U.S.] is expected to bottom out in January 2023 at over $385,000. It is then projected to begin rising again, reaching $401,000 in June 2023.”
Some markets, especially on the West Coast, are already favoring buyers. San Diego, actually, is #4 on Forbes’ list of cities currently favorable to buyers.
While the housing market is undoubtedly in a state of flux, this could mean a huge opportunity for buyers who are able to enter the market right now. If you’re looking at landing a home in San Diego and seeking a strong long-term return on your investment, you’re in the right place. According to Redfin, the Median Sale Price in San Diego is still up 11% from this time last year—indicating San Diego is continuing to secure its place as one of the most profitable real estate markets in the United States even while prices elsewhere in the country are declining.
But if I buy now, and the housing market crashes, what then?
While fearing a housing market crash is certainly understandable, a crash, like we saw in 2008, simply isn’t going to happen. And fears of a crash are costing many potential homeowners a chance to enjoy a great return on their investment if they enter the market now and plan on staying in the home they buy for at least the next five years.
How can I be sure the market won’t crash like it did in ‘08?
A decade ago, mortgage lending practices were so loose that they led to mass foreclosures and a global recession. Today, the Dodd-Frank Wall Street Reform and Consumer Protection Act requires lenders to demonstrate an ability to repay before issuing a mortgage. Unless there is a drastic change in lending practices, this type of crisis won’t happen again.
But home prices are dropping. Doesn’t that mean they’ll continue dropping through 2023?
Looking at the numbers, it’s simply not possible.
Even with the downward pressure on demand (rising mortgage rates and the recent upticks in inventory), current demographic factors keep the need for houses (as well as the value of homes) high. Millennials—the largest demographic of homebuyers right now—need places to live and with a major percentage of affordable homes already gobbled up by institutional investors, as well as slow-downs in new home construction due to supply chain issues, the demand has remained high despite pricey mortgage costs.
That mortgage rate is costly, how should I handle that?
It’s true! Mortgage rates are higher than they’ve been in years. According to Zillow, the average rate for a 30-year-mortgage in San Diego was 6.26% as of the beginning of October. That means a monthly payment for a $600,000 home will be about $3705 per month. That’s a steep monthly housing bill, but this also means if you’re a buyer with a lot of cash on hand for paying more toward a downpayment, you’ll be facing less competition from other buyers. Also, there are a few options for reducing the cost of your loan:
Get a 15-year mortgage
A 30-year mortgage will cost you more due to interest. So if you want to save money over the long run, get a 15-year mortgage. It means a higher monthly payment, but a lower cost in interest over the long run.
Look into an adjustable-rate mortgage
Adjustable-rate mortgages (ARMs) offer lower monthly payments in the beginning, so if you anticipate having more income or the ability to refinance later, they may be an option to look into.
Use discount points
Discount points are a way to pay less per month. By buying discount points, you’re basically prepaying some of the interest the bank charges on the loan. In return for prepaying, you get a lower interest rate which can lead to a lower monthly payment and savings on the overall cost of the loan over its full term.
Know you can refinance when mortgage rates drop again
If you have a conventional mortgage, you can usually refinance into a lower interest rate as long as you’ve been making your payments regularly, keeping your credit score high, and maintaining your home in good condition for an appraisal. So, if you have the means to do so, you can take advantage of the buyer’s market that the current high mortgage rates have created and nab your dream home without the risk of competition outbidding you, pay the high mortgage rate for a while and then refinance once mortgage rates drop again.
What are the advantages of entering the San Diego housing market now?
Continually ranked among the top cities for growth and job opportunities, San Diego will continue to see home prices appreciating even as the market shifts to favor buyers. Luckily that rate of appreciation is slowing, so now is a great time to start looking around and seeing what’s available.
What makes San Diego special?
- Money.com included San Diego in its 50 Best Places to Live in the U.S. for 2022-2023—ranking it #22, and mentioning its housing market specifically, stating: “home prices in San Diego are more affordable than in other large cities like San Francisco and Los Angeles.”
- A 2022 Homebay.com survey found that San Diego ranked #3 as the most desirable city in the United States, according to respondents drawn to its “attractions and amenities.”
- Bankrate.com names San Diego #7 on its list of best cities for families citing its weather, low unemployment, and low crime.
- Using data from the US Bureau of Labor Statistics, Moneygeek.com found that San Diego was #2 in the nation for job growth with 8.3% growth in the last 12 months and #23 in the nation for a combination of factors including job growth, job competition, and housing affordability.
- FierceBiotech.com placed San Diego as the #3 biotech hub in the nation pointing to firms such as Neurocrine Biosciences and Bristol Myers Squibb all recently leasing new research and development campuses here.
- Dealmachine.com names San Diego the #5 city in the nation for maximizing profits house flipping and wholesaling.
Buying a home is arguably one of the smartest investments out there, especially if you’re looking for somewhere like San Diego which boasts a growing economy and job market. Long considered an excellent hedge against inflation, a 30-year fixed-rate mortgage is a safer place to put your money than leaving it in cash. And it certainly beats paying someone else’s mortgage (which is the reality for renters).
Looking at the numbers from Robert Shiller, who put together a database of U.S. home prices from 1890 to the present, you’ll see that the total return on investment for housing is .5% above inflation year over year since the end of the 19th century. Especially if you plan to purchase real estate in one of the top 15 markets for real estate (San Diego is #13), you’re making a smart move.
Ready to move forward with your home ownership ambitions?
The Cassity Team studies the market and understands the needs of individual homeowners, buyers, and sellers. Reach out and tell us your plan. We love helping people make the right choices for their finances.
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