October 2025 - San Diego Real Estate Market Update

After years of extremes, the housing market finally seems to be finding its footing. With mortgage rates approaching three-year lows and inventory returning to healthy pre-pandemic levels, the stage is being set for renewed activity… just not quite yet. The holiday season will likely keep things quiet through the end of the year, but the conditions forming beneath the surface suggest that 2026 could bring a long-awaited revival in buyer confidence and overall market movement.

Mortgage Interest Rates
Mortgage rates have been steadily improving since the spring, and we’re now nearing 3-year lows that seem to have the potential to sustain at that level or even continue pushing lower. Fed Chair, Jerome Powell, has begun indicating more concern for the tough state of the job market than inflation, which is a positive sign for the future trajectory of rates, as is the fact that the Fed is now going to stop reducing its bond holdings. It’s tough to celebrate rate improvements when they’re the direct result of a struggling labor market, but in a healthy market, rates should only go down when there are signs of economic strain. The question will be whether the means justify the ends.

Demand for Homes & Sales Activity
Mortgage demand has been higher through 2025 than it was in the previous two years, and purchase applications have held steady through September and October. We have seen mild improvements in home purchases in that time period, but homebuyers are still wary as they face steep home prices, a wavering job market, and a lingering suspicion that home affordability might improve in the not-too-distant future. Still, when considering the typical seasonal slowdown at this time of year, activity is holding steadier than typical due to the benefit of interest rates.

Real Estate Inventory
Inventory of homes for sale has improved dramatically in 2025, reaching the highest levels we’ve seen since 2019, pre-pandemic. Homeowners have finally reached a tipping point after years of being locked in place with golden handcuffs, of near-record high home prices and equity, and mortgage rates they find acceptable. But the pool of buyers has been inadequate to absorb new monthly inventory, so the stock of homes available has grown. Now, a record high number of sellers are pulling their homes off the market as they sit unsold, as they remain confident in their homes’ values despite the slow buyer activity. We will probably see most of those homes hit the market again in the new year, which, if it comes to fruition, would have an impact on home prices depending on demand performance at that time.

Home Prices
The supply/demand dynamics of our current market have brought home prices into equilibrium, a marked difference from the ever-rising prices that defined 2020-2022, and even into 2024, when, despite some periods of correction in the two years prior, home prices hit their all-time highs in the San Diego area. The degree to which rates improve and the speed at which that happens, coupled with the performance of the job market and overall consumer sentiment, will determine where home prices head from here.

Market Outlook
The job market woes aside (and that’s a big aside), the real estate market is poised for the start of a rebound, and while there’s no magic 8-ball to validate this prediction, 2026 may be the busiest year for home sales we’ve seen in some time. As rates improve and home prices steady, homebuyers with steady income, and sellers who have waited for years will feel the market steady and move forward confidently without the threat or promise of a major shift just around the corner. If that’s the case, we could see years of pent-up demand finally unlocked, except this time with an adequate supply of homes for buyers to choose from. There’s little evidence that the real estate market would overheat again in the short term, and much to look forward to if these pieces fit together to allow a new normal to arise, where supply and demand stay in balance at a high enough level to ease the locked-in-place effect that has defined the last three years. In the longer term, this scenario should also boost the labor market – another bright light to look forward to at the end of the tunnel.

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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