April 2025 - San Diego Real Estate Market Update

April’s real estate market continues to reflect the broader economic uncertainty, particularly around interest rates and investor sentiment. While seasonal trends are still underway, higher mortgage rates are tempering buyer activity. Inventory is slowly increasing, yet remains well below pre-pandemic levels. This report outlines current conditions across rates, inventory, pricing, and sales activity to provide a clear picture of where the market stands and what may lie ahead.

Mortgage Interest Rates

April has been a volatile month for mortgage rates as the turmoil surrounding the economic impact of tariffs and uncertainty around the future of the Fed has weighed heavily on financial markets. Investors seem to be assuaged for the time being, and markets have improved, but mortgage rates remain near 7%, off from their lows of just over 6.5% earlier in the month. Rates are being driven less by traditional measures such as employment numbers and CPI right now, and more by investor speculation of political moves, making the rate environment very volatile.

Demand for Homes

Typical seasonal patterns of demand for homes still apply despite our current higher-rate environment, but at a substantially restricted level. Regardless of rates, we are still seeing increased demand in the spring and decreased demand in the fall/winter. However, when rates drop near 6%, we see a surge of demand regardless of the time of year. When rates are closer to 7%, we see stagnancy amongst buyers. Currently, we’re still in the price of the spring homebuying season, which will typically carry values and purchases into the summer, but at some point in the mid-to-late summer, a lull will begin, and at that point, buyer demand will be riding entirely on rates. If rates drop below 6%, we will likely see a buying frenzy. If rates remain at their current levels, we may be looking at another very slow year for home purchase volume.

Real Estate Inventory

Inventory of homes for sale has been slowly on the rise ever since mortgage rates began to climb from their rock bottom in the spring of 2022. This March, there were twice as many homes for sale as there were in March 2022. That being said, while pre-pandemic inventory of homes for sale fluctuated between 10,000-15,000 in any given month, today, if there are over 5,000 homes on the market, that’s above average for the last 5 years. Right now, demand is so constrained by rates that at 5,600 homes on the market, we’re seeing a fairly balanced market with homes selling at or near asking price and sellers and buyers coming to the table looking for a win-win, rather than one party calling the shots. A metric that takes demand into account to express supply is called “Months Supply of Inventory.” This metric expresses supply as a function of demand, meaning that if demand stayed constant, all homes on the market would sell in a given number of months. Depending on the threshold, we can determine if we’re in a buyer’s or seller’s market. After the market began to recover from the Great Recession until Covid hit, that threshold was around 4 months of inventory. Since Covid, that threshold is more like 2 months of inventory. We’ve spent most of the last two years with 2.5-3 months of inventory, which represents a balanced market where prices rise and fall gradually.

Home Prices

Home prices are still slightly below their peak from June of last year, but are about 3.5% higher than they were this time last year. Depending on which direction rates head, prices will move inversely. Without mortgage rate relief soon, we will probably see prices turn slightly negative year over year.

Sales Activity

Home sales for March are sitting just below March of the last two years, and 2023 and 2024 were two of the slowest years for home sales on record. This is all about affordability. Home prices are near their all-time highs, while rates are higher than they’ve been since the early 2000’s, and wages are not keeping pace in the long term. That being said, because of systemically-caused low inventory of housing that has few possible solutions, if prices fall substantially enough to impact affordability, we’d have bigger economic problems to worry about - and this scenario is unlikely. Therefore, although today’s “high rates,” are actually pretty average historically speaking, the US has become reliant on lower rates to facilitate a healthy housing market, since housing prices are unlikely to come down substantially, and wages haven’t risen (and likely won’t rise) to levels that support those prices.

Market Outlook

The thing about a recession is that you typically don’t know that you’re in one until you’re the better part of a year deep. Are we in a recession now? Probably not. Are we headed for one in the near future? That depends on who you ask, but the risk factors are high. Right now, we seem to be in something like a stagflation scenario. Keep an eye on employment numbers and the Fed’s moves to get a sense for which way things are going to shift.

Fortunately, housing prices are poised to remain strong, and the market is unlikely to see any sort of “crash” scenario due to immense homeowner wealth in equity and strong mortgage borrowers. But the housing market does face a different kind of challenge, one where homeowners can’t sell and buyers can’t buy - we’ve been watching this pattern play out over the last two years, and it seems to be restricting further. Everyone wants to move; they’re just waiting for the winds to shift in their favor so it becomes possible. Mortgage rates are the most important factor in this equation.

In Conclusion

While today’s market presents challenges, it also offers meaningful opportunities for both buyers and sellers. For buyers, increased inventory and more balanced conditions mean less competition and greater negotiating power. For sellers, home values remain strong, and motivated, qualified buyers are still actively searching—especially for well-priced, move-in ready homes. Although mortgage rates remain the key factor to watch, understanding current dynamics and approaching the market with a strategic mindset can lead to successful outcomes on both sides of the transaction.

Most importantly, if you have questions or concerns about your specific situation… CALL ME to help sort through them. That’s why we get up in the morning - not just to sell homes, but to serve our clients.

As always, we will be here to continue to provide you with updates about the housing market and answer any and all of your questions. Feel free to reach out to us anytime.

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