San Diego County continues its steady recovery from the 2008 recession and financial crisis. Jobs and income are recovering quickly — a good sign for San Diego’s housing market. In San Diego, as in other regions, the strength of home sales volume depends on a complete jobs recovery.

Residential construction continues to falter. Thus far, multi-family construction has experienced a quicker recovery than single family residential (SFR) construction. Expect the demand shift from SFRs to rentals to continue, injecting growth into multi-family construction in upcoming years, peaking around 2019-2020. Vacancy rates will then increase, as tenants will increasingly go for homeownership.

View the charts below for current activity and forecasts for the San Diego housing market.

Updated December 31, 2017. Original copy posted March, 2013.

Home sales volume still low


Chart update 12/31/17

2017 projection* 2016 2015 2003: Peak Year
San Diego County home sales volume 42,600 43,200 42,800 60,800

*first tuesday’s projection is based on monthly sales volume trends, as experienced so far this year.

Home sales volume in San Diego County saw its last significant increase in 2015, which was 12% higher than 2014. This boost was partly due to lower mortgage rates in 2015 and to the area’s relatively swift jobs recovery. Since then, sales volume as continued at a steady rate.

Today’s flat sales volume can be attributed to end users who have yet to return to the market in significant numbers. Total sales volume in 2016 was just 1% above 2015. Sales volume has continued to slow in 2017, following the increase in mortgage rates at the end of 2016.

A full recovery of jobs lost in the recession took place in 2014. However, with the intervening population gains, jobs won’t reach a complete recovery until around 2018. At that time, home sales volume will take off, reaching its cyclical peak around 2020-2021.

Turnover rates are up: good for sales


Chart update 12/31/17

2016 2015 2014
San Diego County homeowner turnover rate 9.0% 7.8% 7.7%

San Diego County renter turnover rate

21.5% 23.0%

The percentage of San Diego County homeowners moving in 2016 rose over 2015, while renter turnover declined slightly. This trend is much more promising than most parts of the state, where renter turnover has declined sharply over the past few years. This improvement demonstrates San Diego is farther along the path to a complete housing recovery. However, turnover rates for both owners and renters remain well below pre-recession levels.

Lower turnover rates are indicative of cash-strapped households that simply cannot afford to move, whether they are homeowners or renters. When turnover is low, home sales volume is hindered.

The turnover rate in San Diego County has not suffered as much compared to the rest of Southern California. This is partly due to a better jobs outlook and San Diego’s large military population, which traditionally experiences high turnover. Agents can gain an “in” with this population by familiarizing themselves with the various benefits available to military renters and homeowners such as Veteran’s Administration (VA)-guaranteed and CalVet mortgages, then advertising themselves as experts.

Related articles:

Servicers must assist underwater military members to relocate

Foreclosure of service members’ property prohibited during nine months after service

Homeownership rebounds from bottom


Chart update 12/31/17

Q3 2017
Q2 2017 Q3 2016
San Diego County homeownership 54.1% 56.1% 61.5%

San Diego County’s homeownership rate has followed the general statewide and national trend of decline in the years following the Millennium Boom. It peaked at 63% in 2006 for San Diego County, finding a low of 52% in 2010. 2014 saw a surprising jump in homeownership in San Diego County, peaking in mid-2014.

The homeownership rate in San Diego County has historically been comparable to the rest of the state, though it is roughly the same as the statewide average of 54% in Q3 2017. With elevated home prices and the forward movement in mortgage rates reasserting itself after mid-2017, the homeownership rate won’t rise significantly until homebuyers return in larger numbers around 2019-2021.

Home prices continue to rise


Chart update 12/31/17

Q3 2017 low-tier annual change Q3 2017 mid-tier annual change Q3 2017 high-tier annual change
San Diego County home pricing index +9% +8% +8%

The price of low-tier housing in San Diego County skyrocketed after the latter half of 2012. 2015 experienced another price increase. This is likely due to the boost given by decreased mortgage rates throughout 2015 and 2016.

Lower mortgage rates free up more of a buyer’s monthly mortgage payment to put towards a bigger principal. Thus, San Diego’s high home prices continue to find fuel — not from speculators as in 2012-2014 — but from increased buyer purchasing power.

The flat performance in home sales volume since the 2014 dip reflects the downward pressure from rising mortgage rates and forecasts flattening prices in 2018.

Multi-family construction leads the way


Chart update 12/31/17

2016 2015 2014
San Diego County single family residential (SFR) starts 2,200 3,200 2,500

San Diego County multi-family starts

7,800 6,100

Residential construction starts began to show signs of life in San Diego County in 2013, but the rise waned throughout 2014, only to pick up again in 2015. Thus far the recovery has been concentrated in multi-family starts, due to the increased demand for rental housing experienced during this recovery. Fueling this increased rental demand are:

  • a demand shift from suburban living to city dwelling by the youngest generation of homebuyers, Generation Y (Gen Y);
  • an increased resistance to homeownership following the housing crash; and
  • the higher barriers to homeownership due to the return of mortgage lending fundamentals which tightened mortgage lending.

Today, the general trend for single family residence (SFR) construction starts in San Diego County is up, but still far below 2002-2004 numbers. The next peak in SFR construction starts will likely occur around 2020.  Even then, SFR construction starts are highly unlikely to return to the frenzied mortgage-driven numbers seen during the Millennium Boom.

Jobs recovery leaves other SoCal counties in the dust


Chart update 12/31/17

Nov 2017 Nov 2016 annual change
San Diego County employment 1,469,000 1,448,200 +1.4%

Before end users can provide sufficient support for the housing recovery, they will need to acquire income in the form of jobs and wage increases. San Diego continues to outpace the state’s jobs recovery, which is clearly good news for San Diego’s housing industry.

Unlike much of the state, San Diego has far surpassed the level of jobs held prior to the 2008 recession. However, with the working-aged population increase of roughly 240,000 individuals in San Diego County since 2007 (compared to the 131,000 increase in jobs), the real jobs recovery which will bring on mass wage increases isn’t expected until around 2019. Home prices will follow that increase.

Industry employment gives mixed signals


san-diego-re-construction-jobs-nov-2017Chart update 12/31/17

Nov 2017 Nov 2016 annual change
Real estate


82,000 79,000

In the housing industry, construction jobs took a huge hit and have just barely started the recovery process. Likewise, the number of employed real estate professionals has remained low throughout this recovery and will not likely increase until the next confluence of buyers and renters (members of the Generation Y and Baby Boomer generations) converge and enter the market around 2019-2021.

Per capita income has recovered

san-diego-per-capita-income-2016Chart update 12/31/17

2016 2015 Annual change
San Diego County per capita income $55,168 $53,963 +2.2%
California per capita income $56,374 $54,718 +3.0%

The average per capita income in San Diego County is $55,100 as of 2016, the most recently reported Census year. This shows an average increase in income of 2.2% over 2015. Income took a hit in San Diego during the recession, and it took three years for income to finally catch up to 2008 levels.

After factoring in an additional 10%-11% increase in income needed just to cover eight years of interim inflation, homebuyers in 2016 had only slightly higher purchasing power to buy a home or rent as they did in 2008 – all else remaining unchanged. Per capita income in San Diego County is roughly level with the state average, and exceeds levels in the inland valleys by over 50%.

As long as income remains diminished across most job sectors, home prices and the price of rents are limited. This is due to the reality that buyer occupants ultimately determine selling prices in this economic environment  — buyers can only pay as much for a home as their savings and income qualify them to pay — nothing more, unless lenders and landlords want to take on more risky, less qualified individuals. The same fundamental truth is also applicable to tenants’ capacity to pay, which ultimately works to set the ceiling on rental amounts.

Expect per capita income to rise with increases in job numbers. When considering the jobs needed to cover population growth of one percent per annum in the years since 2007, it will take until 2019 for employment numbers and income to again drive demand for significant additional new housing.