The Affordability Index in San Diego County Is 25 Percent.  This Means 1 in 4 residents can afford the median home price.  Rates Are Going Up. Another Housing Crash?

san diego housing

If you are thinking of buying a home in San Diego in June 2018, it is more expensive than last year. In April 2018, the median home price hit a record high of $570,000, which was a big 8.6% increase from a year ago. This has surpassed the previous peak of $550,000 from March.

The hike in prices was largely due to the increasing price of resale condominiums, which have gone up 11% in a year to a record high of $430,000 with 1100 sales. This rise of prices means that only about one out of four residents are able to afford current median prices in San Diego County. But they were even higher at the peak of the housing boom, when the median home price hit $517,500. This would amount to more than $655,000, after adjusting for inflation.

But many financial experts note that the current market, while high, is safer and more ‘real’ than the last boom market because some of the run up was due to too easy access to mortgage loans. These days, while prices in California generally are near record highs, underwriting requirements are much tougher now so most people who get a mortgage must prove they can afford it.

There is no doubt that growing prices in San Diego County are making it hard especially for people who want to buy their first home. When you do not have available equity in a property to rely on for a down payment, putting together the capital for even a 10% down payment can be daunting.

And if you think San Diego County is bad, looking towards Orange County is even worse. The median home price in Orange County and the Los Angeles area is $715,000. These home prices make it more challenging for many Californians to buy, especially with what is going on with interest rates. Rates have not been this high in years.

Interest Rates in 2018 Continue to Rise

As of June 2018, the average mortgage rate for a conventional, 30-year fixed mortgage is 4.75%. This is a major change from a year ago when it was possible to get a mortgage well under 4%. As the US economy continues to add jobs and economic growth is topping 3%, it makes sense that mortgage rates are increasing. For the most part, people continue to buy homes because they have higher wages and more work. According to the latest Ellie Mae Origination Insight Report, mortgage purchase loans are at their highest since 2014, and builder confidence remains strong. Most builders feel good about the sale of new homes in the next six months.

Experts believe the rising rates are worrying people who want to buy homes, especially in expensive areas such as San Diego County. They are continuing to buy homes because rates are rising and they fear them going to 5% or even higher.

Increasing rates also tend to push less certain buyers into the markets who were on the fence about buying. This is probably good thinking because the Housing and Mortgage Market Review from Arch Mortgage Insurance states that rates are only likely to go up more as 2018 progresses. In fact, it is believed that projected monthly payments to buy the same priced home could increase by 10% in the next year.

But in parts of California such as San Diego County, it could happen eventually that the housing market will slow as affordability of $500,000 or $600,000 mortgage is beyond the reach of average consumers.

The bottom line is that homes in San Diego County are still being purchased even though the home prices are near record highs, and interest rates are getting close to 5%. How long this will continue remains to be seen. It could be that the US economy will continue to gather strength and if so, rising wages especially in California could continue to cause many people to buy homes in San Diego County.

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