Will home prices in San Diego drop later in 2020, as a result of the coronavirus pandemic and the broader economic downturn?
This is a big question on the minds of many San Diego residents right now. While no one can predict future housing market conditions with complete certainty, we can make an educated guess based on current real estate and economic conditions.
Our view: San Diego home prices will probably rise more slowly, or even flatline, between now and the end of 2020. They might even dip slightly over the coming months. But we do not expect to see a major drop in San Diego home prices during 2020, despite the negative economic effects of the coronavirus health crisis.
Will San Diego Home Prices Drop in 2020?
One recent forecast predicted that house values in San Diego, California could dip slightly over the next year or so. That prediction came from the real estate research team at Zillow.
In early June 2020, analysts from Zillow stated the following: “San Diego home values have gone up 6.0% over the past year and Zillow predicts they will fall -0.8% within the next year.”
As of late May, the median house price in San Diego was around $680,000.
As mentioned earlier, we expect property appreciation in the area to slow down over the coming months, and possibly level off. But we do not expect San Diego home prices to drop significantly in 2020 or early 2021. Beyond that is anyone’s guess.
Other sources have weighed in on this subject recently, with views similar to our own. In a May 2020 article for the San Diego Union Tribune, one California economist explained why home prices aren’t dropping right now, as one might expect.
Ralph McLaughlin, chief economist with the real estate co-investing company Haus, told the Tribune:
“… we’re seeing sellers pull back even more than buyers. That’s actually leading to a scenario where prices are mostly not falling. The lack of price declines and demand outpacing supplies might be good news. That’s because it suggests we might not see the collapse of the housing market like we did in 2007 and 2008.”
A Strange Time for the Real Estate Market
We are at an interesting time right now, from a real estate perspective. Due to rising unemployment in the San Diego area, there are fewer buyers in the market looking for homes.
You might expect such a reduction in demand to take the steam out of home values, leading to price erosion. But we’re not seeing that right now, as of late spring 2020.
One reason is that many sellers have exited the housing market as well. A lot of sellers in San Diego and nationwide have taken their homes off the market due to coronavirus-related concerns, or because they feel there’s not enough demand out there.
It’s a unique situation where there are almost equal reductions in supply and demand. If it were just one of the other, it would likely have a significant impact on house values going forward. But with declines on both sides of the equation, San Diego home prices might actually weather the economic storm.
Population Growth Is Fueling Demand
Population trends in the area could also help prevent San Diego house values from dropping in 2020.
According to the U.S. Census Bureau, the city’s population grew by 9.4% from 2010 to 2019. That was well above the national growth rate of 6% during that same nine-year period.
With its great weather, beautiful beaches and other attractions, San Diego lures new residents from elsewhere in the state and across the country. This brings more home buyers into the local housing market, thereby increasing demand and helping to sustain home values.
Unemployment: A Dark Cloud Over the Housing Market?
If home prices in San Diego do drop during 2020 or 2021, it will largely be the result of rising unemployment.
According to the California Employment Development Department, the unemployment rate for the San Diego-Carlsbad metro area rose from 4.2% in March 2020 to 15% in April.
Of course it’s not just San Diego suffering that fate. The jobless rate has risen sharply across the nation as a whole, as local economies have been shut down to halt the spread of the coronavirus.
The state of California is gradually reopening its economy in a stage-by-stage fashion. According to the states “Resilience Roadmap,” California is currently in stage two of a four-part economic reopening plan.
As more and more businesses are allowed to reopen again, the jobs will slowly come back and the unemployment we will gradually decline. It will take time, but it will happen.
Whether or not San Diego home prices drop in the meantime will largely depend on how long all of this takes. There’s also a possibility that we might have to go back to the stricter stay-at-home orders, if coronavirus cases rise after reopening. Let’s all hope for the best on that front!
Bottom line: Will home prices in San Diego drop in 2020? No one cay say for sure. But based on the current supply-and-demand situation in the area, a major drop in home values seems unlikely. The more likely scenario, at this point, would be a slowdown in price growth — or a slight (and temporary) decline in house values.
Disclaimer: Economic and housing market forecasts are the equivalent of an educated guess and should be treated accordingly. No one can predict future housing conditions with absolute certainty. MetroDepth makes no assertions regarding future real estate conditions in San Diego or elsewhere.