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San Diego, CA Real Estate Market Forecast 2017

The San Diego real estate market has experienced steady appreciation over the last year, with home prices rising 4% – 6% (depending on the source). While home values are expected to continue rising in 2017, they might do so at a slower pace. This outlook is based on several San Diego real estate market forecasts for 2017.

San Diego Real Estate Market Forecast for 2017

According to the real estate information company Zillow, home prices in San Diego, California rose by approximately 4% between November 2015 and November 2016. That’s slightly below the national average for the same 12-month period.

Looking forward, the forecast for San Diego’s real estate market in 2017 suggests an even slower rate of appreciation. Zillow has predicted a home-price increase of only 1.7% for the 12-month period ending in November 2017.

A lack of affordable housing and slower population growth are two factors that could lead to smaller gains in 2017.

Demand Is Strongest for Lower Priced Homes

The San Diego real estate market has always benefited from steady demand. After all, the area has some of the best weather found anywhere in the United States, nice beaches, a world-class zoo, and other attractions. This attracts people to the area and puts more home buyers into the real estate market, bolstering home prices.

But there are different levels of demand as you move up or down the pricing spectrum. Higher-end homes appear to be sitting on the market for a long time, while the market is much more active on the lower end.

Chris Thornberg, economist and founding partner of Beacon Economics, told the San Diego Union Tribune that the Southern California market was being dragged down by the more expensive homes.

“That [higher-end] market is just saturated. There’s too much coming online and not enough well-heeled people to grab all of them. Everything suggest these units are sitting on the market longer and longer.”

Thornberg added that “the lower end of the [San Diego real estate] market is still hot.”

This is often the case. It’s fairly common for housing markets to have a higher level of demand at the lower price range, for the simple fact that there are more buyers in that bracket. The higher the price, the fewer qualified buyers you’ll find. It just seems to be amplified in San Diego.

The bottom line is that there’s a lot more activity and demand in the more affordable price range, which includes first-time buyer “starter” homes. So those who are planning to buy their first house in 2017 should be prepared for stiff competition.

Related: 3 housing predictions for California

Millennials Not Lured by San Diego?

Another interesting trend (and one that is influencing San Diego real estate market forecasts for 2017) is the millennial factor. Young, upwardly mobile residents are a key demographic in many housing markets across the country. Some cities attract high numbers of millennials, while others do not. And according to a recent study, San Diego is not one of their ideal destinations.

Apartment List recently conducted a detailed study of millennial movement in the U.S. They examined Census data from 2005 to 2015 “to understand where young Americans are moving to and choosing to settle down.” Charlotte, North Carolina was #1 on the list, followed by Houston, Texas; Austin, Texas; and Seattle, Washington.

San Diego didn’t appear to be on the radar with this group. Perhaps that’s because homeownership is comparatively expensive in Southern California. In fact, when you look at the 50 largest metro areas in the country, ranking them by the rate of millennial homeownership, San Diego drops into the bottom three (along with Los Angeles and New York City). It’s just not the kind of real estate market that young people who are just starting out flock toward.

Generally speaking, millennials are attracted to cities with strong job markets and affordable housing. San Diego’s employment rate is on par with the national average, but it’s lacking in the affordability department.

MBA Prediction: Mortgage Rates Will Inch Upward

According to the latest data, the San Diego real estate market appears to be leveling off to some degree. Forecasts for 2017 suggest that home-price appreciation could slow even more. This is good news for home buyers who are planning to enter the market in 2017. Rapidly rising house values have created affordability issues in San Diego, as they have in much of the state. A “cooldown” period is much needed in this market.

But home prices aren’t the only consideration for San Diego home buyers. Mortgage rates are another. Or, more to the point, the threat of rising rates. While 30-year mortgage rates have been hovering below 4% (on average) for most of 2016, they are expected to rise gradually in 2017.

When this San Diego real estate market forecast was published, in November of 2016, the average rate for a 30-year fixed mortgage loan was 3.57%. That was based on the weekly market survey conducted by Freddie Mac. The question on the minds of many home buyers is: What will mortgage rates do as we move into 2017?

Analysts with the Mortgage Bankers Association (MBA) expect the average rate for a 30-year fixed home loan to rise to around 3.7% by the end of this year, and climb above 4% during 2017.

Here is MBA’s quarterly outlook for 30-year loan rates, from their November forecast:

  • Q1 2017: 3.9%
  • Q2 2017: 4.1%
  • Q3 2017: 4.3%
  • Q4 2017: 4.4%

Should I Buy a House in San Diego?

If you’re thinking of buying a home in San Diego, you might benefit from purchasing sooner rather than later. While local house values are forecast to rise more slowly in 2017, they will probably continue rising to some degree. So buyers who put off their purchases until later in 2017 could end up paying more for a home.

Related: Is 2017 a good time to buy in CA?

Additionally, mortgage industry analysts expect loan rates to rise gradually between now and this time next year. This, combined with the possibility of continually rising house values, could reduce your buying power down the road. So the case could be made for buying sooner, rather than later.

Of course, this is all based on predictions and forecasts for the San Diego housing market in 2017, and such projections don’t always pan out. But they’re worth considering at the very least.

Disclaimers: This article includes predictions for the San Diego, California real estate market in 2017. Projections, data and commentary were provided by third parties not associated with our company. We have simply compiled and presented them here as a service to our readers.

Need a mortgage loan in San Diego? Bridgepoint Funding has been serving home buyers in California for more than 15 years. We offer a variety of mortgage products with flexible criteria and competitive rates. Please contact us if you need a home loan in the San Diego area. Just call (925) 478-8630, or email us at mtrejo@bpfund.com. We look forward to hearing from you!

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