San Diego home sales recently dropped to their lowest level in years, likely much more to do with affordability constraints than the economy, but it might be a sign of things to come.
In June there were 3,927 home sales in the county, CoreLogic said, which is the lowest in four years. However, all drivers of the real estate market are good — job growth, low unemployment, rising wages — and June’s median home price hit its highest point ever.
The phenomenon is nationwide, largely led by a shortage of homes for sale, said Alan Gin, economist at University of San Diego. A lack of homebuilding during the Great Recession meant there wasn’t much inventory available for the growing population once the economy improved.
“That was a period where construction really dried up and I think we are still seeing the impact of that,” Gin said. “There wasn’t construction back then and the result is fewer homes.”
In San Diego County, 18,031 residential building permits were issued in 2003 but those dropped to less than 3,000 in 2009 during the recession.
Gin said a lack of sales has a ripple effect across the real estate job market, even if it has little to do with the overall health of the economy. He said everyone along the job chain, from real estate agents to title agents, could be affected.
Jason Cassity, a real estate agent who primarily focuses on downtown, said he has seen some properties sit longer on the market than last year and predicts a tough go for some real estate agents.
He said top agents can wait for three months for a deal to close, and that will be very tough for struggling agents who won’t be able to go as long without getting paid.
“For the last five years, it’s been really easy to be a real estate agent,” Cassity said. “Now, I think you’re going to start to see maybe lower-end to middle-of-the-pack agents finding it tougher to wait 60, 90, 120 days to get a check.”
There has been a slight increase of days on market for San Diego County homes, but it is still market conditions that most real estate agents would kill for in other parts of the nation. In July, a county home stayed on market an average of 32 days, up from 29 the past three months, said data from the local Multiple Listing Service.
Matthew Shaver, a San Diego senior mortgage consultant with Finance of America, said he also predicts a drop off in workers for his profession. He said demand for refinance loans has dropped since interest rates rose.
Nationwide loan applications in early July to refinance mortgages hit their lowest point in more than 17 years, said the Mortgage Bankers Association.
At the same time, Shaver said many buyers are hitting an affordability wall, so there is not as much loan processing happening.
“There’s only so much new business to go around,” he said.
Shaver said potential buyers are having more trouble than last year qualifying for loans because prices have risen so much and, even if they do qualify, mortgage rates are high enough for them to want to avoid the payments.
Historically, interest rates for mortgages are still pretty low. The rate for a 30-year fixed-rate mortgage was 4.71 percent Tuesday, said Mortgage News Daily, but was around 8.3 percent in January 2000.
Millennials generally highly value home ownership, according to several surveys, but it doesn’t always mean they are sold on homeownership if the numbers don’t work out. Software engineer John Dorman, 31, of Mission Valley, started looking for a place to buy around June 2017 because of a desire to have more space and control of his own property.
He got prequalified for a loan and began viewing properties, including condos in downtown, East Village, Mission Valley and College Area for $450,000 to $600,000. He also looked at a few run-down single-family homes for around $650,000 but wasn’t sold on them.
Dorman said he just didn’t see enough value for what he would have to pay and decided this May he wanted to use his money for other investments.
“I think the market out here is reaching its peak and it is a terrible time to buy,” he said. “I decided to keep my savings liquid, as opposed to tied up in a house.”
Chris Thornberg, economist and founding partner of Beacon Economics, said looking too much at the recent slowdown in sales is not the smartest idea. He said the economy is still strong and looking at sales numbers alone doesn’t tell the whole story.
“There’s just not a lot there to panic about,” he said. “It’s just a really tight market out there. There’s just not much to sell.”
There is no doubt that the desire for homeownership in San Diego County is strong, said Evan Morris, real estate agent based in Golden Hill. However, he has had potential buyers start to draw the line with rising prices.
“People don’t want to pay $350,000 for a one bedroom, one bathroom (condo),” he said.
However, Morris said there is opportunity for buyers if homes stay on the market longer, especially with many homes for sale that are priced much higher than what other homes in a neighborhood are going for. He said he recently was able to get $60,000 off the asking price for his clients purchasing a home in Bay Ho.
Morris said investor interest already seems to be on the wane with rising prices, making it tougher to quickly get enough cash flow to make the deal worth it. Although he has yet to have it happen with a client, he predicted slowed investor interest with the San Diego City Council’s restrictions placed on short-term rentals set to take effect next July.
The decision from the city would only allow vacation rentals at primary residences, limiting investor interest because they typically would not live in the home. The regulations still must be approved by the California Coastal Commission.
Najla Wehbe Dipp, a real estate agent primarily in East County, said sometimes it’s hard to tell at first if the market is slowing down — or if it is just too hot outside. Last weekend, she listed a $585,000 home on Dahlia Way in El Cajon that has three bedrooms. The 1,709-square-feet property also has hardwood floors and apple and avocado trees on the outside.
Dipp said she held an open house Saturday at the property and expected at least eight groups of people to show up. She got two, but it was also 95 degrees in El Cajon, up from the historic average for that day of 88 degrees.
“It could be that the weather was too hot and people didn’t want to come out,” she said, “or that there are just not enough buyers in the market.”