Things Are Looking Up for Home Buyers

• Urged to Beat the Rush •

If you’ve been feeling demoralized about the housing market, there’s some good news swirling. After a grim 2022 and 2023, it looks like the rest of 2024 is shaping up to be less hostile toward home buyers.

It’s been a rough few years since the pandemic frenzy gave way to rate hikes, fast. But 2024 might see improvement in mortgage rates, home prices, and availability of homes for sale. Buying a home won’t be easy in the second half of 2024, but it might be less frustrating than in 2022 and 2023. Here are some reasons why late 2024 might be better for home buyers than the previous two years.

First, my disclaimer: Nobody knows with 100% certainty, at this point in time, that the Fed will cut rates later this year. Economists, investors, traders, and market analysts all believe the first cut will come at the September Fed meeting based on the pace at which inflation is cooling, unemployment is rising, along with comments made by various Fed members over the last 30 days.

Recapping the Current State of Housing

The past year has undoubtedly been tough for San Diego homebuyers. If you started house hunting but decided to pause due to market challenges, you’re not alone. Recent studies revealed that Buyers paused their searches in late 2023 and early 2024 for several key reasons:

• Difficulty finding homes within their price range
• Struggles with successful Offers and high competition
• Inability to find the right home

Here’s a summary of what’s gone awry in the current state of our San Diego housing market: Home prices skyrocketed from the middle of 2020 to mid-2022. Then, mortgage rates took off, and the 30-year fixed-rate home loan crested at almost 8% in October 2023. Home Buyers have struggled with affordability as high interest rates eroded away borrowing power. There have been very few homes to choose from, anyway.

Meanwhile, would-be Sellers are staying sidelined as they cling to low mortgage rates that they would have to give up, often to take on a mortgage with a much higher rate, and have become reluctant to sell. At the same time, rising rents have also made it harder for Tenants to save up a down payment — or simply even to find an affordable place to live. The typical San Diego Tenant’s annual rent went up 6% in San Diego during 2022, and another 8% in 2023, after rising less than 4% each year in the previous 14 years.

If any of these reasons resonate with you, here’s what you need to know: the San Diego housing market is transitioning in the second half of 2024. Now could be the perfect time to jump back into your home search.

Mortgage Rates Should Keep Falling

With mortgage rates hovering around 7%, Buyer demand has lessened, reducing the fierce competition we’ve seen in previous years. Economists believe that San Diego market conditions in the latter half of 2024 are expected to be less competitive, potentially reaching five-year highs in inventory. This scenario offers you a unique opportunity to find a home with less stress and at a more favorable price.

The most important development involves mortgage rates. They have improved since rising again in February. Back in January, the average rate on the 30-year fixed-rate mortgage was 6.64% in Freddie Mac’s weekly survey. That was down from October’s average of 7.62%. Now in July, the average 30-year fixed rate mortgage is 6.89%.

More Affordable Monthly Payments 

That drop of nearly one percentage point makes a big difference in affordability: It would cut roughly $660 off the monthly payment on a $1,000,000 loan, just for the sake of using easy numbers as an example. If inflation finally cools off, as it’s expected to, forecasters believe mortgage rates will fall further in the latter months of 2024. Fannie Mae and the Mortgage Bankers Association predict the 30-year mortgage will average somewhere around 6% in the fourth quarter of 2024, down from 7.3% at the end of 2023.

Consumers seem pretty optimistic about rates, too. In Fannie Mae’s latest monthly survey of consumers, 36% of respondents said they expect mortgage rates to fall over the next 12 months. That’s the highest proportion in the National Housing Survey’s history, going back to June 2010.

Home Prices are Rising More Slowly

Home prices are also showing signs of moderation after years of rapid appreciation. This change is due to the growing supply and easing demand. While prices are still rising, they are doing so at a more manageable pace. The average forecast for San Diego home price appreciation in 2024 is aligning more closely with historical norms. This moderation reduces the likelihood of facing steep price increases.

Home prices, unlike mortgage rates, probably won’t fall in 2024. But they won’t go up as fast as they did from March 2020 through June 2022, when prices rose a startling 33.3% in less than two years.

Moderating Home Prices

The bidding war frenzy and price increases have already slowed down. It’s not the “50 Offers over asking price” market that we were in before, during the pandemic. There is more space to make decisions and occasionally even some room for negotiation, depending on the listing. Back in December 2023, the median resale price of an existing home was $949,000, according to historical data compiled by the San Diego Association of REALTORS®. That was about 9.2% higher than the same month a year earlier from $869,000 in 2022 – meaning the San Diego housing market more accurately posts a reasonable pace of annual gains on home price appreciation, compared to pandemic times.

Even though price increases have pumped the brakes compared to recent times, home Buyers are still reeling from those two years of accelerated prices. All things considered, because San Diego County is still faced with affordability challenges and an inventory shortage, it’s really hard to see any major driving force that would suddenly push home prices dramatically higher this year.

Builders Sell Homes at More Price Points

If existing homes still don’t catch your eye, there’s good news: new home construction is on the rise. Builders have been increasing the supply of newly built homes, focusing on creating smaller, more affordable options. This shift helps address the longstanding issue of housing undersupply and provides more affordable choices.

Another factor promises to prevent prices from running away: Home builders are diligently adding new construction to the San Diego housing stock. They completed a little over 600 new housing units in 2023 including everything from affordable homes and duplexes to high-rise apartments. Construction is still going strong. Looking at 2024 and beyond, over 4,000 more new housing units are currently being built around San Diego County, where builders are breaking ground on more houses, townhomes, and mid-to-high-rise apartment buildings.

Builders are also offering incentives, such as buying down mortgage rates, to make these new homes even more accessible. if you didn’t previously look at newly built homes as part of your search, you may have been cutting your pool of options.

Surge in New Home Construction 

The pace of new construction in San Diego helps home Buyers who want more options to choose from. At the end of 2022, a total of 4,406 new and existing homes were for sale in San Diego County. At the end of 2023, the number was 2,779 total active listings. This significant decrease is easily attributed to rising interest rates, which discouraged many would-be Sellers from listing their homes for sale and reduced overall housing inventory despite ongoing Buyer demand​. Home builders and developers are eager to increase the number of homes for sale, which is moving in favor of Buyers.

Though the market for affordable new construction homes in San Diego is limited due to the high demand and the increasing costs of land and building materials​, popular national home builders like Lennar, Tri Pointe Homes, Toll Brothers, and KB Home now offer a range of model homes that scale across price points based on location in San Diego County. These ongoing projects reflect the county’s efforts to meet housing demand and tackle our inventory shortage, despite economic hiccups and regulatory hurdles.

More Sellers Deciding to List

One of the most notable changes this year is the increase in homes for sale. Housing data reports by the San Diego Association of REALTORS® show a steady rise in inventory throughout 2024, particularly in existing homes. This trend means you have a better chance of finding a home that meets your needs and preferences. If finding the right home was your biggest hurdle, this increased inventory is a significant advantage.

When you combine these trends — falling interest rates, moderation in house prices, and vigorous home construction — it’s easy for optimists to conclude that houses will become more affordable in late 2024. The question is: Will homeowners continue to limit progress by keeping their homes off the market?

Growing Supply of Homes for Sale

Of homeowners with mortgages, over half have home loans with rates of 3.5% or less, according to data compiled by the Urban Institute, an economic policy think tank. With mortgage rates well above 6% today, these homeowners have an incentive to stay where they are instead of selling and then swapping their low mortgage rates for higher rates on their next home. This phenomenon, known as rate lock-in, restricts the supply of homes available for sale in San Diego, even as Buyer demand remains strong.

By and large, inventory is still going to be pretty low as people are staying in their homes. So prices will probably still go up in most places – just based on low supply and high demand. Yet there’s room for hope. Yes, people want to keep their low-rate mortgages. But people outgrow their homes or feel the urge to upsize, need to relocate, or just plain get sick and tired of where they’re living and long for new digs.

The San Diego Association of REALTORS® pointed to a 44% jump in home listings during June 2024 compared with the previous year. Each month, we can see more Sellers testing the market and more Buyers are finding their opportunities as well. The big upside here is that the inventory of unsold homes keeps building. That gives Buyers more selection to choose from and should limit the rise of home prices to a more moderate pace.

The Opportunity in Front of You

If you’ve put your homeownership dreams on hold, the second half of 2024 could be your chance to jump back in. While challenges remain, many significant hurdles are becoming more manageable. However, if you choose to wait, you risk increased competition as more Buyers recognize these market shifts too. Additionally, if mortgage rates drop, more Buyers will re-enter the market, intensifying competition.

Get Ready to Rumble

If this partly sunny outlook is accurate, the topmost advice when buying a house in 2024 is to prepare for competition when you make an Offer on a home. Get pre-approved for a mortgage, get ready to settle for a place that checks most of your boxes instead of a dream home, and if you lose a bidding war, brush yourself off and keep on looking.