Our market is still strong, but it is showing signs of cooling.

I’m sure you’ve been seeing it in the headlines: Real estate markets all over the nation are beginning to show signs of cooling. Is the San Diego market slowing? We have seen a red-hot market for the last 24 months with double-digit appreciation, historically low inventory, and low interest rates. However, those interest rates are changing, so I want to show you the numbers and talk about what is happening in the San Diego market.

The short of it is that we’re not seeing a cooling market here yet, but that’s a big “yet.” We are seeing some preliminary signs that the market may start slowing. However, we are seeing some signs pointing the other way, too.

The chart at 1:08 in the video above shows the list-to-sales price ratio for San Diego County. Properties are selling for 7% more than what they list for on average, and that number is even higher for more affordable ZIP codes. That is an indicator that buyers feel pressured to get something under contract before rates increase further. Some buyers have already been priced out of the market, but their strategy has been to look outside of their preferred ZIP code to find a more affordable one.

“I think this demand will eventually dissipate as interest rates continue to increase. ”

Another indicator of change is the days on market. At 1:56 in the video, you can see that the days on market have decreased from the beginning of the year. However, showings have picked up, so buyer activity is still strong, despite the increase in interest rates.

I think this demand will eventually dissipate as interest rates continue to increase. Our market will slow down, but it won’t crash or tank. We just won’t see this red-hot market where there could be 30 to 40 offers on one property. 

Keep in mind that there are a lot of cash buyers out there, and they aren’t affected by interest rates. However, if other buyers drop out, they won’t have to compete as much and won’t offer so much over the list price. We’re already starting to see buyers be reluctant to make offers on properties that are a little funky. 

I think we’ll see more of a flatline market, with appreciation levels of 5% or 6%. I’m always looking at the supply of homes, and I just don’t see any huge increase in inventory on the horizon. Potential sellers aren’t putting their homes on the market as much right now because they feel they have nowhere to go. If they try to buy a bigger house, it will cost them much more, and they might not be able to afford that move. 

Most people seem pretty secure financing-wise, so I don’t see our inventory increasing because people have to sell. Someone might have to move because they became unemployed, but I don’t anticipate a huge market correction.

If you are looking to buy a home, this is still a great market to buy in, even though interest rates have increased. Rates and prices will only keep rising, so it will cost more to purchase in the future. If you want to sell your home, this is still a market where you’ll get multiple offers that will drive the price past what you expected. This is still a good time to sell.

If you have any questions about our market or real estate in general, feel free to call me at (619) 200-3236. I’d love to hear from you.

Here are three ways finance buyers can compete with cash offers.

As I mentioned in my market update on the first quarter of 2022, cash transactions total 20% of all transactions in San Diego County. That’s up from 15% just a year prior. With cash offers on the rise, buyers who use financing are wondering how they can hope to compete. Today I’ll share a few strategies that I utilize with my clients so they can win out in multiple-offer situations.

Sellers are picking cash offers over financed offers because they typically come with better terms. So if you’re a financed buyer, you need to offer competitive terms as well. The main terms to consider are the loan contingency, close of escrow, and the appraisal.

Since financed buyers have to get a loan, the contract includes a loan contingency. However, a buyer can make an offer that’s not contingent on financing. That’s a risky move, though, unless you were conditionally approved. Some lenders will offer conditional approvals; they’ll take your file and send it to the underwriter, who will review all your assets, income, credit score, etc. Then, the only conditions left are to get a clear title and an appraisal. If you’re able to make an offer that isn’t contingent on a loan approval, you’ll look much more competitive in the eyes of the seller.

“If you’re a finance buyer, you need to offer more competitive terms.”

The other term to consider is the close of escrow. Getting conditionally approved will take longer on the front end; it could take seven to ten business days. The advantage in doing so allows you to cut all your time periods in the contract by seven to ten days. That means you could have a quicker close of escrow, putting your offer more in line with a cash offer. Check with your lender to see if this is an option they can provide you.

Finally, there’s the appraisal. Cash offers don’t require an appraisal contingency. So, being able to make an offer without an appraisal contingency is going to be looked at more favorably by the seller. Here the buyer can remove the Appraisal Contingency, the lender will still require an appraisal. However, the offer is not subject to the property appraising at the purchase price. This can be an effective strategy especially if you are a buyer putting down more than 30% as a low appraisal most likely would not change anything in the financing or down payment requirement. For a buyer that is putting down less than 30%, it is taking on risk and may require the buyer to bring additional funds to escrow in order to make up a gap from the appraised value and purchase price. Not all buyers are going to be able to do this financially. There is also an ability to put a cap on how much a buyer is willing to make up in the event of a gap in the appraisal. That way it's not just an open checkbook for any difference.

These are a few things to consider when trying to compete in this competitive San Diego real Estate market. The loan and appraisal contingencies and close escrow can be different with each offer. The stronger you can make yourself as a buyer the better off you will be in having different arrows in your quiver to use. Each client and price point have their unique situations. If you would like to discuss your situation more in depth, don’t hesitate to reach out to me via phone or email. I’d love to help you.

Here’s a recap of the first quarter of the 2022 market year.

It’s no shocker that the San Diego real estate market is marching forward positively. In Q1 of this year, single-family homes appreciated by 3.5%. That’s an 18.5% increase over Q1 of 2021, which appreciated 2.8%. In some markets like Point Loma, appreciation more than doubled, going from 3.1% in 2021 to 6.5% this year. Appreciation in University City nearly tripled, rising from 5% last year to 14.4% this year.

Even condos are getting more attention than they were a couple of years ago. That’s an indicator that many buyers are being priced out of the single-family market and diverting into the condo market. Condos appreciated by 4.6% this year compared to 2.8% in Q1 last year, and they're on track to reach 20% appreciation year over year.

Interest rates are on the rise; rates were around 3% at the beginning of the year, and they are now at 4.75%. As rates get higher, some sellers’ buying pools will be diminished. In most markets where rates have increased by more than 1%, appreciation rises by double digits, which will price some buyers out of the market. However, we’re in such a low-inventory market with so many buyers willing to make great offers that we’re still going to see positive appreciation.

It’s also important to consider cash purchases. Last year, 15% of countywide single-family home purchases were made with cash. In Q1 of this year, that number rose to 20%. In the San Diego Coastal markets, 38% of purchases were cash in Q1 of 2021, whereas this year, 42% were purchased with cash. So where is all this cash coming from? I think that many people are cashing out on their stock portfolios and seeking financing afterward.

“All these conditions point to a busy spring and summer market.”

It’s also important to keep in mind that rents are on the rise. Last year, rents increased by a mind-boggling 30%. In today’s market, it’ll cost you the same amount to rent a property as it would to pay for a mortgage on it. 

Our list-to-sale price ratio is 106.7%, meaning that we’re selling properties almost 7% above what they’re listed for. Some markets outside of San Diego are starting to see homes sell for less than list price. Homes in San Diego are still selling in less than a week or two, so I don’t see our ratio dropping.

All these conditions point to a busy spring and summer market. If you’re looking to sell, now might be the peak time to list if you want to take advantage of the multiple-offer situations we’re seeing. As the year moves on and interest rates rise, home affordability will wane. For that same reason, now is also a good time to buy a home. Your buying power will probably only get lower from this point on.

Whether you’re looking to buy or sell, if you have any questions or would like a more in-depth analysis of your situation, don’t hesitate to give me a call or send an email. I’d love to help you.

You shouldn’t overlook the value of these aspects of a listing.

Today I’ll talk about some key factors in a home’s value that are often overlooked and difficult to place a number on:

1. Location. This has always been the most important factor to consider when buying real estate. That’s obvious on a macro level, like comparing a coastal location to an Inland Empire location. How do you put a value on things like a great street with great neighbors? What kind of devaluation would you place on a neighbor that ran down the street naked at sunset every night?

2. Amenities. Things like a remodeled house or a nice yard are always winning attributes, and buyers may pay extra for them.

“Buy a house in a great location that fits your lifestyle.”

3. Lifestyle. I advise my clients to consider their lifestyle when they’re looking for a home. If they’re a family with young kids, having other kids on the street or in the neighborhood might be really important. On the other hand, if they don’t have kids, they may appreciate having a house on a street with no kids. Maybe they’ll want a street with neighbors at a similar point in life as them.

A good way to find out about the neighborhood is to take some time and walk around. You could even knock on some doors to see if neighbors have any insights to share about the area. Don’t just spend 30 minutes walking through the house. It is better to buy a house that needs work but is in a great location than buying a house that is fully remodeled in a location that doesn’t suit your lifestyle.

The same rules apply when I help my clients sell their homes. I try to find things of value in the neighborhood that buyers might love. Showcasing these features will help drive demand and drive up the price.

As always, these features can be subjective and specific to the individual property based on the potential buyers’ desires. If you would like to chat more about your specific situation, whether it be buying or selling your home, reach out to me and get the conversation started. You can reach me at (619) 200-3236. I look forward to hearing from you.

Is it a good idea to buy a home during inflation? Here are my thoughts.

During inflation, the cost of most goods increases across the board. That’s evident right now with things like used cars; cars that are four years old are selling for nearly the same prices at which they were purchased brand-new. Real estate is a good that will increase with inflation, and so is rent. However, when you lock in a 30-year fixed-rate mortgage, you secure your largest expense, which is housing. Sure, some items like property taxes will increase slightly as well, but 95% of the payment is principal and interest, which won’t increase.

Because real estate traditionally increases in value during inflationary times, it’s considered a great hedge against inflation. The population is always growing but the amount of land stays the same. In that way, you reap the benefits of the increased value. Whereas renters will continue to see increased housing costs as rents go up, which again is due to population growth and limited housing supply. Renters can’t reap the benefits since they don’t own their properties.

“Homeowners can reap the benefits of their homes’ increased values.”

Another important consideration is that interest rates generally increase during times of inflation. If you’re thinking about making a purchase in the near future, you may want to do it sooner than later to take advantage of the historically low rates that currently hover around 3%.

When it comes to which is better between renting and homeownership, consider factors such as how long you plan to live in the property. Perhaps you’re anticipating moving out of your area; if you’re doing so within the next three years, it may be more advantageous to rent, as the monetary and time costs of selling may not be ideal.

If you’d like to take a more in-depth look at your own situation to find out whether buying a home is right for you or if you have any questions, don’t hesitate to give me a call or send me an email. I’m always here to help you.

Let’s look back at 2021 and talk about what we might see in 2022.

I can’t believe it’s already January 2022; where did the year go? It’s time to take a look back at the 2021 market, and I also want to share some insight on where our 2022 market might be headed.

We all know that 2021 was a good year, so it should come as no surprise that the county as a whole appreciated 17.8% for both condos and houses. Some markets fared better than others; the coastal markets saw as much as 30% appreciation, and Rancho Santa Fe saw 40%. The college markets did very well, but we also had markets like Golden Hill and North Park that didn’t quite appreciate 18%.

The fall was a bit shaky; national headlines said that the market was cooling, so buyers pulled back. However, when we came into the holiday season, the market ramped up, and we’re still feeling the effects of that now.

“Demand will continue to be strong.”

Now I want to give you a forecast of what we can expect in 2022. The driving force of our market is still supply and demand. We have even lower supply than we did at this time last year; we have less than a month of supply for the entire county, and some local markets have less than half a month of supply. Back in 2018, we were nearing five months of inventory. We have less than 20% of that number now, and interest rates are 2% lower.

Demand will continue to be strong. I agree that homes are becoming less affordable, but you have to remember how much demand is coming from millennials. They accounted for 37% of all transactions last year, and that number is projected to grow. The largest age group of millennials is 30 to 31, while the median home-buying age is 34. That means we’ll see even more millennials in the market over the next three to four years.

It just doesn’t look like our supply will keep up with this demand. We’re getting to the point where affordability is an issue, but the demand is only increasing. Interest rates will increase a bit, so I think we’ll see just under 10% appreciation. The market should start strong in the spring and then flatline as interest rates rise.

I don’t see our market lightening up. Interest rates would have to increase drastically to make a significant impact. The millennials will keep the demand strong, and even though they aren’t buying at the top of the market, they’ll allow trade-up buyers to look for homes in the upper price ranges.

If you want a little more information about your specific situation or have any questions, feel free to call or email me. I’d love to hear from you.

Here’s how both buyers and sellers can get a great deal in this market.

Lately, I’ve been noticing again that buyers are getting fatigued and losing out on homes left and right because the market is becoming extra competitive. However, I’m also noticing that there’s a niche in the market where opportunities can be had. Even a buyer in this seller’s market can get the upper hand with a great deal. You have to have a little bit of patience, but it may be worth it.

It’s in all the headlines, so you likely know, but we’re still in a seller’s market. However, from my experiences and the data on the MLS, properties that need a little work and love aren’t getting the attention that completely turnkey properties are. I’m sitting here in the newest listing I have, and we’re already under escrow after four days for way over list price. The thing is, this property is all dressed up; it’s what every buyer is looking for—a fully turnkey property.

Properties that need to be remodeled or freshened up, aren't getting that same level of attention. This is partly due to buyers being so tapped out from prices rising up so high. They may not have the funds or patience to take on a remodel. However, if you as a buyer have the patience to withstand a remodel or to grow into the property, that's where you're going to win out on a home! There will not be as many buyers competing for that property, giving you an advantage. By letting the seller sit on the market for a bit, it will force them to get real with what they're asking for their home and that is where the deals are to be had.

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“The more work it needs, the less attention it’s getting.”

Also, construction costs are so crazy right now that even getting a contractor over to your house, something I’m currently trying to do, is extremely difficult. People are four to five months out from starting, not to mention that the supply chain is getting pinched right now and is further delaying things. So you can see why a property that is turnkey is going to get so much more attention than one that needs to be worked on. That is where the opportunity is and why you'll need to have a little thicker skin, and think more like an investor to increase your chance of getting a deal!

On the flip side of that, if you’re a seller listening, maybe there are some little tweaks you can do to the home that will drive the price higher. The property I’m sitting in here had the flooring and paint updated, a few thousand dollars in upgrades, and made much more on the return!

This is all kind of unique to everybody’s situation. If you guys need more information, you know where to find me: (619) 200-3236 or on the web at sdcoastalagent.com. Make it a great day, and merry Christmas; happy holidays!

Here’s why you may want to consider a holiday home sale this year.

We’re heading into the holiday season, and as the market is cooling, a lot of my clients are asking me if it’s a good time to sell. I’m going to answer that question for all of you today.

Nationally, we are seeing a bit of a market cooldown, but that’s not the case here in San Diego. We’re seeing some seasonality as the holidays approach, but this is still a great market to sell a home in. A lot of sellers are focusing on the holidays, which is keeping inventory super low. The less competition, the more you’ll sell for. 

We just put a listing on the market that sold in six days to a cash offer over list price, and this client is going to see a nice profit. I have two more listings that are coming on the market right after Thanksgiving that I’m excited about as well.

"The less competition, the more you’ll sell for."

Interest rates are going to rise eventually, but we don’t know when for sure. That will make homes more expensive, and it will price a lot of buyers out of the market. Those same buyers are looking to lock in a rate before that happens, so it makes sense to put your home on the market right now. Each situation is different, but in general, market conditions are ripe for home sellers in San Diego.

If you have questions for me about selling your home during the holidays or anything else related to real estate, don’t hesitate to reach out via phone or email. I look forward to hearing from you soon.

You can still find success in this transitioning market.

The market is starting to transition, and it’s not as hot as it was in the spring and summer. The market isn’t tanking, but we’re seeing a bit of buyer fatigue start to set in. They’re sick of overpaying and losing out against multiple offers. There’s still a window of opportunity for home sellers as inventory remains low and buyer traffic remains strong. If you have one or more of these four items in your home, this might be the absolute best time to sell:

1. Bad location. If you’re located near a freeway or busy intersection, you’ll have high traffic. You won’t have to sell with as much of a discount in this market as you would in a normal one because inventory is still low.

2. Functional obsolescence. Let’s say you have a home with a steep driveway or detached garage. If buyers have a ton of options, they'd be less inclined to make an offer. However, in this market, they don’t.

"You won’t have to sell for as much of a discount in this market."

3. Long commute. If you’re a long way from downtown or other amenities, that’s usually a huge factor for buyers. With low inventory and more buyers working remotely, long commutes aren’t quite as big of a deal to homebuyers.

4. Needed remodel. If your home needs some significant work, you won’t have to sell for as much of a discount. Remodeled homes aren’t getting quite as much of a premium as they have in the past.

If you have questions about selling a home, your situation, or anything else related to real estate, don't hesitate to reach out via phone or email. I look forward to hearing from you soon.

Here’s the four reasons why the end of forbearance isn’t an issue.

Will the end of forbearance cause a tidal wave of foreclosures to come in and crash the market like what happened in 2007? No, it’s unlikely that this will happen, and we can tell by looking at these four factors:

1. There are far fewer mortgages in default. In 2007, there were 9.3 million foreclosures or short sales. As of July, there are around 1.8 million houses at risk of foreclosure which is still a big number, but it is nowhere near the last market’s numbers.

2. Most properties in forbearance have equity. Of that 1.8 million, about 87% have 10% or more equity in their homes. This gives them enough of a buffer to sell the home and still make a profit, meaning they don’t want to let it go to foreclosure. The remaining 13%, about 240,000 homes, is still not a small number, but it’s lower than even pre-pandemic numbers from 2017 and 2018 of around 275,000 homes in foreclosure.

"It’s highly unlikely that a surge in inventory would cause the market to crash."

3. Inventory is so low that the market would easily absorb the foreclosures. In 2008, as foreclosures started to ramp up, we already had 9 months of supply in San Diego. It really caused a problem when we started adding foreclosures to the market. Right now, we have less than 1 month of supply, so we might actually appreciate a little more.

4.The government will implement programs to ease foreclosures. Some government loans are already letting people roll their missed payments back to the end of the loan, which is basically pausing and extending the loan by the amount of missed months.

Given these four reasons, it’s highly unlikely that a surge in inventory would cause the market to crash. However, there might be some opportunities coming up for people who have a lot of cash to put down and can close quickly. If you have any more questions about forbearance ending, or any other real estate-related topics, reach out to me at 619-200-3236. I’d love to help.