Like much of the state, San Diego County never fully recovered from the 2008 recession and financial crisis before the 2020 recession, financial crash and pandemic response arrived.

Residential construction has yet to gain much momentum in San Diego, falling back considerably in 2019. Multi-family construction has experienced more starts 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 2022-2023.

However, the economic response to COVID-19 and the underlying recession have caused record job losses in 2020. San Diego has already experienced a significant reduction in sales volume, likely to continue down and bottom in 2021-2022. Slowing sales means home prices will also cool, though today’s low interest rates have thus far counteracted slowing sales despite the bleak economic picture. As we head deeper into the 2020 recession, expect to see home sales volume and prices decline, dragged down by the coming wave of distressed sales, not to even begin a consistent recovery until 2022-2023.

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

Updated September 8, 2020. Original copy posted March 2013.

Home sales volume slows

Chart update 09/08/20

2019 2018 2017 2003: Peak Year
San Diego County home sales volume 40,100 39,600 42,500 60,800

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

40,100 home sales closed in San Diego during 2019, amounting to 500 more homes sold than in 2018. For perspective, this 1% increase still leaves San Diego 50% below peak 2003 sales numbers.

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 relatively flat-to-down rate.  As of July 2020, San Diego year-to-date sales volume in 7% below a year earlier.

The down sales volume throughout the past decade can be attributed to a lack of 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 slowed in 2017, following the increase in mortgage rates at the end of 2016. This slowing continued into 2018, with 2018 sales volume 7% below a year earlier. Sales volume remained flat in 2019.

The forecast for home sales volume in 2020-2021 is a further decrease. The job losses stemming from the recession and the novel coronavirus (COVID-19) has pulled many would-be homebuyers and sellers from the market. After volume and prices bottom in 2021-2022, homebuyers will return in greater numbers to push the housing market to its next recovery, expected to begin in 2022-2023.

Turnover rates are up: good for sales

Chart update 09/08/20

2018 2017 2016
San Diego County homeowner turnover rate 7.6% 9.4% 9.0%

San Diego County renter turnover rate

22.5% 23.6%
21.5%

The percentage of San Diego County homeowners and renters who moved in 2018 fell back from the previous year. This trend echoes other regions of the state, which saw turnover decline in 2018 following a brief burst in 2017. Turnover rates for both owners and renters still 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.

While the trends are similar to the rest of the state, the magnitude of decline in 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 09/08/20

Q2 2020
Q1 2020 Q2 2019
San Diego County homeownership 56.5% 57.0% 54.9%

San Diego County’s homeownership rate followed the general statewide and national trend of decline in the years following the Millennium Boom, bottoming in 2016 at 50.7%. In contrast, homeownership peaked at 63% in 2006 in San Diego County.

The homeownership rate in San Diego County has historically been comparable to the rest of the state, just slightly above the state average as of Q2 2020, at 56.5%. As home prices adjust downward in 2020-2021 due to declining home sales volume, the homeownership rate won’t rise significantly until homebuyers regain confidence in the housing market, returning in larger numbers in the years following 2022.

Home prices primed to fall

Chart update 09/08/20

Q2 2020 low-tier annual change Q2 2020 mid-tier annual change Q2 2020 high-tier annual change
San Diego County home pricing index +5% +5% +5%

The price of low-tier housing in San Diego County skyrocketed after the latter half of 2012. 2015 experienced another price increase, 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 continued to find fuel from increased buyer purchasing power.

But in 2018, home price increases sharply declined in reaction to slowing sales and rising interest rates, which began in late-2017. Home prices have since turned back up, but today lack the fundamental support of home sales volume to continue.  The annual pace of increase is now just 5%, lower than in recent years when the annual rise averaged around 10%.

Accurate home price reports run about two months behind current events. Even when caught up, sticky prices tend to persist several months beyond the moment when home sales volume begins to slow. Starting in March 2020, economic volatility and shelter-in-place orders caused home sales volume to decline dramatically. However, historically low interest rates have provided a boost for buyer purchasing power, which has propped up home prices thus far.

Later in 2020, the impact of record job losses will see downward pressure on home prices. The overall home price trend for the next couple of years will be down, the result of job losses and plummeting sales volume. As during the 2008 recession, the drop in sales volume and prices will first be most volatile on the coast, before rippling outward to inland areas.

Multi-family construction leads the way

Chart update 09/08/20

2019 2018 2017
San Diego County single family residential (SFR) starts 3,000 3,200 4,100

San Diego County multi-family starts

5,000 6,400
7,800

Residential construction starts continued to slow in 2019, declining 6% for single family residential (SFR) starts and 22% for multi-family starts. Until 2018, the recovery had 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 SFR construction starts in San Diego County is still far below 2002-2004 numbers. The next peak in SFR construction starts will likely begin around 2022.  Even then, SFR construction starts are highly unlikely to return to the frenzied mortgage-driven numbers seen during the Millennium Boom.

Historic job losses erase years of gains

Chart update 09/08/20

Jul 2020 Jul 2019 annual change
San Diego County employment 1,355,000 1,499,400 -9.6%

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 other parts of the state with less stable employment markets, San Diego surpassed the level of jobs held prior to the 2008 recession well before the 2020 recession set in. However, the job losses experienced thus far have the number of jobs held 9.6% below a year earlier as of July 2020. This is in line with the job loss experienced statewide, which is 9.5% below a year earlier as of July 2020. Expect a W-shaped recession in the coming months, with jobs rising and falling, not to enter a true recovery until 2022-2023.

Industry employment rises slowly

Chart update 09/08/20

Jul 2020 Jul 2019 annual change
Real estate
28,600
29,100
-1.7%

Construction

79,900 89,200
-10.4%

In the housing industry, construction jobs have gradually regained numbers over the past decade of recovery from the 2008 recession, nearing a full recovery. Likewise, the number of employed real estate professionals has remained low throughout the past recovery, rising slowly.

In 2020, both industries experienced a hit to job numbers. While construction will bounce back fairly quickly due to the unmet demand for housing, real estate professionals will see a slower rebound as they contend with reduced transactions and, in the coming months, lower home prices. The real estate profession will not likely experience a sustained increase until the next confluence of buyers and renters (members of the Generation Y and Baby Boomer generations) converge on the market in the years following 2022.

Per capita income has recovered

Chart update 03/03/20

2018 2017 Annual change
San Diego County per capita income $61,400 $58,100 +5.7%
California per capita income $67,000 $63,900 +4.9%

The average per capita income in San Diego County is $61,400 as of 2018, the most recently reported Census year. This shows a fairly large average increase in income of 5.7% over the previous year. Income took a hit in San Diego during the 2008 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 2018 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 slightly lower than the state average, and exceeds levels in the inland valleys by roughly 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, employment numbers and income won’t drive demand for significant additional new housing until after the recovery from the 2020 recession.