The Big Picture
- After raising interest rates 4 times in 2018, The Federal Reserve did an about-face in 2019, cutting rates 3 times to ensure a cooling U.S. economy didn’t slip into a recession. They have stated at this time that they have no plans to raise interest rates in 2020.
- Interest rates and unemployment rates remain below 4% - which hasn’t happened since the conclusion of World War II.
- Mortgage delinquency rates are down to 3.8%, a 20 year low.
- Low interest rates combined with low inventory have buoyed buyer demand, continuing upward pressure on home prices.
- Strong overall growth for the stock market this year. The S&P 500 is up almost 25% for 2019.
- Millennials have emerged as the dominant group of buyers in 2019. According to CNBC, millennials are expected to account for 50% of new mortgage originations for 2020.
The San Diego Real Estate Market
- Millennials (ages 23-38) represent a high percentage of the buyer demand driving the market. As a result, we saw significant activity and growth in more affordable markets with starter homes and condos. For example, La Mesa, Clairemont, Carlsbad and Oceanside.
- Luxury markets saw less activity this year, but prices still grew modestly. While millennial buyers are targeting entry-level price points, there appears to be fewer luxury buyers in the market. Luxury markets are feeling this reduced demand. As you will notice on the percent chart on the back page, Solana Beach and Cardiff home prices are down relative to prior years. This is due to the fact that in the prior 2 years, prices rose significantly.
- The second-home market struggled in 2019. We suspect that the 2018 tax legislation, capping the SALT deduction at $10,000 in addition to the cap on the mortgage interest deduction for loans up to $750,000, has reduced the incentive for buyers to invest in a second home.
- While low-interest rates caused many buyers to jump into the market in 2019, we have noticed that some buyers have continued to subscribe to the “wait and see” mentality - opting to sit out until there is more clarity about the direction of the real estate market.
- Most sellers are still benefiting from high buyer demand and rising prices. However, since we’ve been in a seller’s market for about 8+ years, buyers have become very savvy and sensitive to over-priced homes. If you over-price your home, buyers are more likely to pass. Even if sellers reduce their price down the road, buyers can remain disenchanted. There is wisdom in correct pricing at the beginning.
- HGTV has changed the game. Buyers want updated homes and beautiful, trendy presentation. It’s become the standard and expectation, and buyers will often pay a premium to get it. Homes well presented perform the best. (Read about our Compass Concierge program on the next page).