December 2025 - San Diego Real Estate Market Update
As we close out the year and celebrate the holidays, I'm keeping this update brief. I’ve chronicled the 2025 market in detail each month, which you can review here if you’re interested in looking back. For now, let’s look forward…
Moving into the new year, total inventory of homes for sale is quite a bit higher YoY. I anticipate that January and February will see that inventory tick up further, as new listings hit the market. This is good news for buyers looking for choice and favorable negotiation conditions, but it’s also great news for the market overall, as the record-low inventory we’ve been operating with for the last several years is a symptom of an unhealthy market.
I expect to see little change in home prices over the coming year, with tame seasonal shifts - up in the spring, down in the fall, and a likely but insubstantial YoY loss in value. Home values have fallen slightly in the last year, but homeowners have managed to preserve the majority of their equity gains since values peaked in the spring of 2024.
Mortgage rates will be the thing to watch in 2026. Our market fundamentals and dynamics indicate that we will have trouble breaking below 6%, even with the anticipated Fed rate drops. The president is highly motivated to change this trajectory and bring rates down further, but has limited control over the mechanisms that would bring lower rates to fruition. At this point, we’d need a big, unexpected shakeup to see substantially lower rates. That being said, affordability is still improving as rates have modulated from their highs of the past few years, home prices have stabilized at a slightly lower level, and wage growth (while not super strong) continues to increase purchasing power for the gainfully employed.
Because of the extended government shutdown, it’s unclear exactly what the labor market looks like currently, and that will be another metric to pay close attention to. If employment numbers continue to weaken, we may be headed for recessionary conditions. How AI stocks perform in the coming months will also play a major role in the near-term future of the economy.
The worst thing that could happen for the real estate market at this point is more stagnation in the economy. If the economy gets better, it will drive more market activity and unlock pent-up demand. If we slide into a recession, the real estate market will benefit from lower mortgage rates and likely fiscal stimulus, with little risk to home values – especially in San Diego, where we have a well-insulated job market and desirable investment climate. So long as nothing major changes in a macro sense, we will continue to see homeowners feel locked in place and homebuyers remain on the fence, waiting to see if affordability improves. These conditions have naturally eased a bit in the last two years, but at a very slow pace. It’s time for a bigger change, and fortunately, I anticipate that change is coming.
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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