Median Prices Up Double Digits in San Diego

By Tristen Campanella, San Diego Realtor

Median Prices Rising Despite Higher Interest Rates: Unraveling the Paradox

In the world of real estate and finance, there's a commonly held belief: as interest rates rise, home prices should fall. The logic is straightforward. Higher interest rates mean higher monthly mortgage payments, which should deter potential buyers, leading to a decrease in demand and, consequently, a drop in prices. However, recent market trends have shown that median home prices are rising even in the face of increasing interest rates. Let's dive into this intriguing paradox.

Housing Market Crash? We don't think so!

Despite today’s higher mortgage rates, home prices are still strong, says Lawrence Yun, NAR’s chief economist . Even if they decline 5 percent (or 10 percent in California) next year, that’s not anywhere close to crashing, which he says is characterized by a one-third drop.

“A crash happens with oversupply,” Yun says. “A 30 percent decrease will not happen because there isn’t enough inventory.” He believes the housing supply will balance out within five years.

Many other experts agree that there is no danger of an imminent housing market crash. Not only is inventory is too scarce, as Yun notes, but lending standards today are much stricter than they were back in the days of the Great Recession. Lenders are largely not issuing loans that borrowers can’t really afford anymore, which helps keep foreclosure rates low.

San Diego Median Home Prices Increase

Despite the headlines of a housing market crash, the Housing market in San Diego continues to increase in prices despite higher mortgage rates. In August the median prices for single family homes in San Diego County increased from $889,000 to $1,001,000, a gain of 12.6%. Attached homes increased in median price from $616,000 to $675,000 + 9.6%. There is no denying that owning a home in San Diego is one of the pathways to building long term wealth. In fact, since 1941 homes have appreciated every year except 7.

Its latest revision, Zillow predicts that U.S. home prices will rise 6.5% between July 2023 and July 2024—up from the 6.3% call it made last month. For perspective, U.S. home prices as tracked by Case-Shiller have averaged a 5.5% annual increase since 1975.

"Limited for-sale inventory continues to push home prices upward even as mortgage rates remain elevated," wrote Zillow housing economists. "Just over half as many homes were listed for sale in July compared to the same month in 2019, and 29% fewer new listings entered the market in July than what was typical this time of year prior to the pandemic. This shortage has buoyed competition for the homes that are for sale. Homes that went under contract (or 'pending') in July did so in 12 days – a week and a half faster than what was typical in 2018 and 2019."

So what gives? When will prices come down in California?

Supply Constraints:

One of the primary reasons for rising median prices, even amidst higher interest rates, is the ongoing issue of supply constraints. In many markets, there simply aren't enough homes available to meet demand. This scarcity can push prices up, regardless of the broader financial environment.

While it might seem counterintuitive at first, there are several plausible explanations for why median home prices can rise even when interest rates are climbing. It's a reminder that the real estate market is influenced by a myriad of factors, and no single element can dictate its trajectory. As always, whether you're a buyer, seller, or investor, it's crucial to stay informed and consider the broader picture when making decisions in the property market.