The bottom line is that San Diego is currently a seller’s market, and that trend is expected to continue for the coming calendar year. The good news is that San Diego realtors will be able to enjoy the fact that the city is still ranked in the Top 20 of the country for rising real estate prices. Realtors in San Diego will also benefit from the fact that the city can offer some of the most desirable properties on the West Coast, so whether you have a boutique real estate firm, or you’re part of one of the biggest companies, there should be plenty of movement in San Diego real estate. In this article, we’ll break down some of the most important factors affecting real estate prices, and discuss housing availability as well as some of the hottest markets in the area.

How inflation will affect the market

Throughout the San Diego area, it is expected that the Rate of inflation will be somewhat higher than the national average over the coming twelve months. There are of course, a number of economic factors that contribute to escalating inflation, but increase in real estate will definitely have an impact on the inflation rate over the coming year. During the past 12 months, the inflation rate rose 8.2% in San Diego as announced by the Consumer Price Index for this area.

If you break that down into the components contributing to the inflation rate, you’ll find that the itemized area for housing shows a 7.3% increase over September of the previous year. The next report is expected to come out in December of 2022, and it is anticipated that it will make note of a 2% rise in inflation since July. The upward trend in inflation is very likely to continue on into 2023, since consumers and rising wages are very likely to influence the upward trend. Inflation rates will also have a significant impact on future mortgage interest rates, since they will affect the amount charged by lending institutions for mortgages. 

Mortgage rates for the coming year

There’s no getting around it – inflation will have a strong impact on mortgage rates over the next year. That being the case, it is to be expected that the interest charged on mortgages will increase right along with it. As of September 2022, a 30-year mortgage rate was 6.1%, compared with the previous year when it was 2.9%. The best hope for real estate buyers in the San Diego area will be to find a reasonable mortgage interest rate from a lending institution that offers a competitive rate in a given week. Even these probably won’t be extended for any length of time, so you’ll have to watch the marketplace very closely, and act quickly when you see a favorable mortgage interest rate. Here are some of the projected interest rates for some of the more popular sources of financing for mortgages:

• Federal Housing Administration – presently, a 30-year mortgage is projected to be at at 8.75% interest rate and a 15-year mortgage will be at 8.25%. Both of these could drop during 2023 significantly, possibly going as low as 6.0% and 5.2%.
• United States Department of Agriculture – beginning on November 1st, 2022, the rate for a single family home stands at 3.2%, with qualified buyers being those in the low-income and very low-income bracket. These interest rates only apply to eligible rural areas, rather than any municipal real estate offerings.
• Veterans Administration – the mortgage interest rate for a VA loan stands at 6.74% as of November 7th, 2022.

Depress the real estate market

From the above, it can be seen that mortgage interest rates are high enough to depress the real estate market somewhat. It can be expected that it will be a while before rates drop down anywhere near the 3% figure. Keep in mind that all this is simply a projection, and may not be borne out by the actual facts of the matter. Interest rates are currently being driven by soaring inflation, and real estate professionals are all waiting for the Federal Reserve to see what kinds of actions might be taken.

As one example, it’s possible that energy prices might drop immediately because the war in the Ukraine ends suddenly. It’s also possible that the November 2022 elections will have an influence on any decisions made by the Federal Reserve. A number of other government decisions can also have an impact on job creation and inflation rates.

It’s very possible that the economy might take a significant upturn in the second quarter of 2023, thereby influencing interest rates to drop rapidly. According to the best guesses of experts in the real estate market, interest rates are likely to rise a bit in 2023 before eventually starting to settle back down. That means timing will be critical for anyone becoming involved in real estate market, and you’ll have to pay close attention to developments throughout the coming year.

Availability of housing

During the next two years, it is expected that housing availability in the San Diego area will undergo a slight decline. A great many people are still moving to the San Diego metro area in order to benefit by the terrific quality of life here, and the number of outstanding career opportunities. Given that this influx of new residents will continue to increase, that will also have an impact on available housing, decreasing the number of homes on the market.

This doesn’t mean that San Diego residents will be without lodging, because it’s really the type of housing that will be most affected. Realtors in San Diego know that home builders prefer to construct multi-family dwellings rather than single family units, and this will make a great many more rental properties available, as opposed to single-family units that can be purchased. At present, the percentage of renters in San Diego stands at 53%, while the homeowner percentage stays around 47%, and there are no signs that the rental market will take a downturn in the coming years.

Hottest San Diego real estate markets

Recent forecasts have identified some of the hottest real estate markets in San Diego County, and these forecasts will probably hold true throughout 2023, and they’ll be the ones most prominently featured in the MLS for San Diego. That means any real estate company in San Diego can expect the greatest real estate activity to occur in Serra Mesa, Kearny Mesa, North Park, South Park, Golden Hill, East Village, Liberty Station Point Loma, Normal Heights, and Downtown. A boutique real estate brokerage might want to focus on these areas for maximum effectiveness.

These areas all have terrific job opportunities available, along with quite a few amenities, as well as some fantastic natural beauty. They are considered highly desirable places to live, and that will attract a great many new buyers for the coming year. San Diego realtors expect that the greatest amount of real estate activity will occur in these communities throughout San Diego, so anyone looking to buy will have to pay close attention to availability and timing in these areas.

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