July 2025 - San Diego Real Estate Market Update

As we move past the prime of the real estate season and into the latter half of the year, not much has changed over the course of 2025 in the market thus far. We are experiencing a seasonally expected slowdown in purchases and new listings, and our market’s pace is almost entirely reliant on the movement of mortgage rates at this point. As far as where rates are headed, it’s anyone’s guess, as the impacts of our current administration’s policies play out on the bond market (which mortgage rates are closely tied to). Still, despite how it may appear, there are actually many perks to being a home seller or a homebuyer right now. Read on to learn why…

Mortgage Interest Rates

Mortgage rates have been climbing again as of late, mostly as a result of unexpectedly high tariffs. Rates are still below 7%, which is on the better end of the spectrum over the last few years; however, rates are still the primary factor keeping the housing market frozen. It’s unlikely that we will see meaningful change in homebuyer behavior until and unless rates dip below 6% and move closer to 5%. That eventuality is likely, however, and when it comes, home prices will probably rise. Smart money is on securing a lower sales price and refinancing when rates are lower to take advantage of the savings.

Demand for Homes

We are in the third year of declining demand for homes, despite mostly flat home values and rising inventory. This is a direct result of mortgage interest rates and wage growth, as would-be homebuyers feel the burden of the lack of affordability of homes. When mortgage rates move down, demand moves up, and the opposite is also true. We observe this trend with younger generations as the median age for homebuying rises. We also see it in older generations who are locked into their current homes, where they enjoy immense equity and low mortgage rates, even if the home no longer accommodates their lifestyle. If rates dropped below 6%, that would likely unlock some of this demand, but could also cause prices to rise and erase the benefit of the interest savings.

Real Estate Inventory

Inventory of homes for sale has risen to levels not seen since the first half of 2019, before the pandemic took the housing market on a wild ride. That’s not to say that real estate is not still impacted by the aftershocks of COVID on the market, only that homeowners have chosen to enter the market at higher rates. That being said, new listings have begun to drop, as is seasonally expected at this time of year, so we are likely near the peak of 2025 inventory, which it’s worth noting is still much lower than the low points of most years prior to 2019. We’re still in a low inventory environment, just not as low as we saw in 2020-2024. The homebuyers who are in the market right now are enjoying more options and more power at the negotiating table than they’ve seen in several years.

Home Prices

Median home prices are down slightly both month-over-month and year-over-year, but not by much. Median home values tend to turn negative in the second half of a normal year as demand slows and sellers make more concessions to sell on their preferred timeline. Because inventory is up and demand is down, we are seeing a decrease in the average percentage of the listing price that homes are selling for, as fewer and fewer homes see bidding wars. We are also seeing an increase in concessions paid by sellers to buyers, a hidden metric that impacts a seller's bottom line, but doesn’t show up in sales price data. There is still demand adequate to keep home prices mostly flat with only single-digit fluctuations. The good news is that home prices are still near their all-time highs, so homeowners who choose to sell now won’t have left much on the table. Despite the slow pace of home sales, the real estate market is enjoying strong fundamentals, and it would take a lot to decrease home prices severely.

Sales Activity

It looks like sales activity has peaked for the year, which is typical in our market. Unless something major happens with interest rates, 2025 will likely close out the books as the third consecutive year with record-low sales volume, despite increased inventory and some improvement in interest rates over the majority of 2023 & 2024. Consumers have spoken - they want lower rates if they’re going to come off the fence in droves. Until then, sales activity will remain low, and we will continue to see a shift towards a buyers' market, where sellers need to be flexible and present their home in the best possible light to get buyers in the door and net the highest sale price possible.

Market Outlook

All-in-all, it’s not a bad time to be a seller or a homebuyer. Sellers are enjoying near all-time-high home prices and more relaxed timelines. As great as it may have sounded to have 10 offers after 2 days on the market and short escrows, it was actually quite stressful for homeowners to move that quickly. Homebuyers are now enjoying more options in their house hunt journey and have more power at the negotiation table. Between the prevalence of seller concessions paid to buyers and the decrease in home prices adjusted for inflation, buyers stand to get better deals than they think in this market. Also worth considering for homebuyers is that once interest rates fall, home prices are likely to rise. You can refinance your mortgage and take advantage of lower rates in the future, but you can’t get money back on the purchase price. In this somewhat frozen market, if you want to move and have the option of either selling or buying, it’s worth it to look more closely at your options - you might make out better than you’re expecting.

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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