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Commentary: Don’t expect huge drop in home prices

By Bill Richard

As 2023 swings into full gear, San Diego’s real estate outlook is not as dire as some may believe.

Inflation, a recession and the economic downturn stemming from the pandemic are factors into why the market has cooled a bit, but it’s more of a market correction than real estate crash.

When analyzing the trends, there are several components to consider, such as the drop of the inflation rate from 9% to 7% and a recession not based on fraudulent mortgage loans.

That’s the big difference here. In 2008, the Great Recession was based on subprime mortgages, and we saw a global recession and economic devastation.

Now, there are many other factors contributing to a slowing economy and a decrease in real estate prices.

The war in Ukraine, supply chain issues, food shortages, and of course, interest rates at about 7%, although those will drop.

However, those factors will only contribute to a modest dip in the market as home prices correct to where they should be.

During 2020 and especially in 2021, the housing market went haywire. Prices soared and the movement was unsustainable as it was a seller’s market.

Our proprietary HomeDex market statistics for December 2022 show the median price for a home in San Diego County was still $849,500 but we are starting to see prices fall in some segments of the market.

The median prices for an attached home (condo/townhome) have dropped 8% to $600,000, which will be welcome news for those looking to get into the market.

But now conditions have turned, and the market has corrected. I see this as a natural correction to the overreaction of 2020-21 as inflation and interest rates will go down over the next 12 to 18 months.

Inflation will keep the prices where they currently are, while interest rates will see prices drop a bit and that conflict is the bottom and I believe prices will rise over the course of this year.

If not, sure we can expect a drop in home values; however, there is such demand for housing in San Diego it’s unlikely the region experiences an event like 2008. With mandated housing goals and a rush to build housing, the market is still on solid footing.

I expect prices to increase, and we return to “multiple offers” by March at the earliest.

Another factor is 99% of homeowners across the country have an interest rate at 5% or lower.

They will not sell unless they can get an interest rate to meet their budget, which will impact prices.

One common question, is what do you think your home is going to be worth 10 years from now, more or less? I’ve yet to hear a homeowner say less in my 20-plus-year career.

San Diego still has, and always will, one of the most desirable markets in the country, if not the world. So fear not, the value of your home is safe.

Bill Richard is the president of the North San Diego County Realtors Board of Directors.