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s I finish writing this article on a warm La Mesa afternoon, the real estate market is anything but sunny. "Frozen market" is the phrase I keep hearing from agents in the trenches. At a recent Women's Council of Realtors luncheon, President-Elect Joy Parker described it as "agents-quitting-the-business slow."
Newer agents are struggling to make headway in this challenging market. My advice to them is to join an established team and focus on hosting Open Houses in specific neighborhoods. Being an expert in the communities you serve can also give you a competitive edge.
The root of the low inventory issue lies in homeowners being "trapped" by their mortgages' low interest rates, making it difficult for them to sell and buy again at today's higher rates. Economist Stephen Thomas explained this mathematically: with interest rates rising from 2.65% to 7.04%, a $1M La Mesa home's mortgage payment would increase by over $2,100 per month.
This means that even if the house has appreciated in value, the increased mortgage costs make it unaffordable for many buyers. For example, someone who bought a $1M home in 2020 at 2.65% interest and wants to buy another one today would need to put down over $900,000 just to keep their monthly payments the same.
According to Zillow and Redfin, you'd need to earn at least $242,560 to $273,613 per year to afford a typical San Diego home ($1,048,600). The average monthly mortgage payment in San Diego is $5,757 (PITI), making it increasingly difficult for even high-salary earners to buy a house.
Despite the challenges, real estate realities continue to drive the market. People get married, divorced, transferred, and die, creating demand for homes. Cash buyers and those with substantial down payments are less affected by interest rates. If rates drop to 6% or lower, expect a real estate boom.
Millennials are getting help from their Gen X/Baby Boomer parents and grandparents, making it easier for them to buy homes. Beautiful turnkey properties in desirable areas still command premium prices, while fixers priced like fixers get snapped up quickly.
The devastating fires in Los Angeles have highlighted the need for California to ease its stifling homebuilding regulations. Drastic changes are needed to stop people fleeing the state's high prices for more affordable ones. Young people deserve to enjoy the American Dream of homeownership, just like every generation before them.
