Where is the Market now?
A market study by my team leader, Steve Matsumoto. January 28, 2025
Welcome to the first Matsumoto Realty Group 'State of the Market' letter!
Our goal is to provide you with a data-driven, San Diego-focused perspective of the real estate market. This report offers high-level context to help you understand the broader forces impacting home prices. Whether you’re a homeowner tracking the value of your property, an investor evaluating opportunities, or a prospective buyer navigating current market conditions, our aim is to deliver insights to guide you through the first half of 2025.
Let’s dive in!
WHERE DID WE COME FROM?
In December, the median price of all homes sold in San Diego County was $867,250, reflecting a 5.1% year-over-year increase. Although the number of sales in the last quarter was on par with the past three years, there was noticeably less market activity in terms of open housetraffic, showing requests, and offers received.
December Median Home Price | All Homes San Diego
2019 2020 2021 2022 2023 2024
$575,000 $650,000 $759,000 $750,000 $825,000 $867,250
The election likely kept many buyers and sellers on the sidelines, contributing to a more hesitant environment. While home prices typically flatten or dip after the spring selling season. 2024 experienced a more pronounced decline. From June to December, home prices decreased by 6.7%, marking the second-largest drop in the past decade.
The ratio of sales price to original list price steadily decreased from 100% in July to 98.4% in December, while the median days on market climbed from 9 days in May to 21 days in December. December. These shifts underscore a more tempered pace, as buyers exercised caution and sellers adjusted their expectations.
THE UNEXPECTED:
NATIONAL ASSOCIATION. of REALTORS SETTLEMENT
On August 17th, new procedures regarding buyer representation and commission were implemented following the landmark settlement involving the National Association of REALTORS (NAR). The changes were aimed at enhancing transparency in real estate transactions, ensuring buyers and sellers have a clearer understanding of representation agreements and their associated fees.
The most dramatic change is the bifurcation of commission, meaning the seller’s agent and buyer’s agent are now compensated through separate agreements, negotiated independently.
This places a greater importance on buyers having an employment contract with their agent to clearly outline their financial arrangement. Additionally, in a notable departure from past practice, the Multiple Listing Service (MLS) no longer displays offers of buyer’s agent commission.
After a “sky is falling” moment, the real estate industry adjusted to its new reality. Dozens of new forms were created to clarify the rules of engagement, including a lengthy five-point disclosure that real estate agents are encouraged to present when greeting open house visitors. Despite the worst-case fear that buyers would now be on the hook to pay the entire buyer-side commission, the vast majority of sellers are still willing to consider offers in which they contribute to buyer’s agent commission.
The NAR settlement triggered a seismic shift in the industry, underscoring the importance of working with full-time, professional agents who are committed to staying up-to-date with evolving regulations and best practices.
INTEREST RATES
When real estate agents weren’t freaking out over the fallout from the NAR settlement, they were celebrating the half point rate drop by the Federal Reserve in September. There were exuberant TikTok dances and many hoped that the days of 5% mortgages were on the horizon.
Unfortunately, for those real estate influencers, the market had already anticipated the rate cut, meaning potential reductions in mortgage rates were already reflected in the current offerings.
It serves as a valuable reminder that mortgage rates are more closely tied to movements in the bond market than to the Fed’s rate decisions.
Here are various forecasts for average 2025 interest rates:
Fannie Mae 6.4%
Mortgage Bankers Association 6.4%
National Association of Home Builders 6.36%
National Association of REALTORS® 5.9%
Wells Fargo 6.41%
Buyers have largely come to terms with the reality of higher interest rates, adjusting their expectations and budgets accordingly. This isn't 2022, when buyers initially pre-approved at a historical low rate, were later forced to recalibrate their housing expectations after losing purchasing power as rates climbed throughout the year. Most 2025 buyers will have only experienced interest rates north of 6%.
On the other hand, homeowners with pandemic-era refinance rates are far less motivated to sell, as a move-up purchase could double their current interest rate. According to the Federal Housing Finance Agency, 28.8% of California mortgage holders had interest rates below 3% as of Q3 last year—the highest percentage in the nation. These 'golden handcuffs' are a major factor to housing gridlock, as homeowners with ultra-low rates are hesitant to sell, further tightening inventory.
INVENTORY
In July 2024, San Diego's supply of unsold homes climbed to 3.2 months, its highest level since August 2019. Housing inventory in San Diego has shown a general upward trend since January 2022, when it bottomed out at 0.8 months. Even with this modest increase, 2024 inventory levels remained far below the six months typically considered a balanced market. The region has faced a chronic undersupply of housing for the past decade, driven by a combination of underbuilding, high construction costs, regulatory constraints, and geographic limitations.
As expected, inventory declined in November and December due to seasonal trends and reduced seller activity during the holidays. Many sellers, particularly those with flexible timelines, often opt to wait until the new year or spring to list their homes, aiming to take advantage of heightened buyer activity and potentially higher sale prices during the peak selling season.
3,083 homes were listed in San Diego in January of this year, which is 12% more than January of 2024 (2752 listings) and 34% more than January of 2023 (2296 listings). There are currently 3,967 active San Diego listings in the MLS, a number consistent with January averages over the past five years.
A LOOK TO THE FUTURE
Expect increased activity in the housing market in 2025. Jordon G. Levine, Chief Economist of the the California Association of REALTORS projects that the number of sales of existing, single-family homes will increase by 10.5% this year. While his projection is greater than the number of actual homes sold in either 2023 and 2024, it’s lower than any year from 2013 -2022.
Additionally, Levine is a projecting a 4.6% increase in California’s statewide median home price, which San Diego typically outpaces. In a recent San Diego Union-Tribune article, 13 out of 14 economists surveyed projected that San Diego County home prices would go up in 2025, with an average increase of 5.97%. Realtor.com is also optimistic about the local market and predicts a 7.3% annual appreciation for San Diego. We’re forecasting a more modest 3-4% gain in home prices for 2025.
The median sales price in January for all homes in San Diego County was $900,000, which represents an 8.4% year-over-year increase. We expect to see an active real estate spring, starting in February, but not as frenzied as the past few years.
Two significant unknowns that could shape the San Diego housing market in 2025 are the impact of the recent LA wildfires on local housing demand and the short-term effects of the new presidential administration. We’ll send another 'State of the Market' update over the summer, which may provide more concrete data and insights into how these factors are influencing the market..
While we’ve provided an overarching perspective on the San Diego housing market, applying these trends to your unique situation requires a more personalized approach.
