It may be sunny and 79 degrees as I finish this article on a warm La Mesa afternoon, but make no mistake, it’s downright chilly in the real estate market. “Frozen market” is the phrase I hear in the trenches.
At a luncheon last week hosted by the Women’s Council of Realtors, I asked President-Elect Joy Parker about her take on the current market, and she described it as “agents-quitting-the-business slow.”
Though seasoned Realtors like Parker and I have worked in all kinds of hot and cold markets, new/newer agents I have spoken with describe struggling in this challenging market.
My best advice to them is to join an established team, host as many Open Houses as you can (imperative to use your signs & stick to the same neighborhood), and be an expert in the communities in which you work.
The week before the WCR Luncheon, I attended a Winter Housing Update Seminar hosted by Economist, Broker (and brainiac) Stephen Thomas, who founded Reports on Housing.
He boiled down the current market to math: the chief cause of low inventory is homeowners “trapped” by their mortgages’ low interest rates and cannot afford to sell their homes and buy another one at today’s interest rates.
An example of interest rates then vs. interest rates now math:
Let’s say someone purchased a $1M La Mesa home in 2020 at an interest rate of 2.65%. With 20% down, their mortgage (Principal + Interest only) would be approximately $3,224 per month. The cost of that loan over 30 years is $1,160,640.
Fast forward to January 2025’s interest rate of 7.04%. The mortgage (Principal + Interest only) on a $1M La Mesa home would be approximately $5,344 – $2,120 more per month, every month, for the 30-year life of the loan. The cost of that loan over 30 years is $1,923,840.
Since 2020, the principal + interest mortgage on a $1M home has nearly doubled. Incomes have not.
A more accurate scenario in today’s real estate market:
The $1M house you purchased in 2020 is now worth about $1.4M – 40% more. You’ve lived in it for five years and want something new. You sell your home for $1.4M and, in a lateral move, purchase a home for $1.4M. If you put 20% down on the new house, your mortgage (principal + interest) is $7,482 – $4,258 more per month!! For a lateral move!
No one in their fiscal right mind will pay $7,482 for a new monthly mortgage when they were paying $3,224 for the same quality of house.
To lower the mortgage to what you are used to paying, your down on a $1.4M home would have to be $900,000. Your borrowing power is cut by more than half.
According to Zillow and Redfin, to afford a typical home in San Diego ($1,048,600), you need to earn at least $242,560 to $273,613 per year.
The average monthly mortgage payment in San Diego is $5,757 (including Principal + Interest + Taxes + Insurance (PITI)).
It’s getting harder to buy a house in San Diego County, even for people with high salaries.
The income needed to buy a home in San Diego is more than double the national income required.
A common homebuying rule dictates that your monthly housing payments should not exceed 28% of your gross take-home pay.
Despite the current frosty conditions, real estate realities keep the market moving.
People get married, divorced, transferred and die. The high interest rates do not impact cash buyers or buyers with substantial cash-downs as much as VA, FHA or low down conventional buyers.
If interest rates hit 6% or lower, expect a real estate boom.
Many millennials are getting help from their Gen X/Baby Boomer parents and grandparents. The more equity you have in the home you’re selling, the more affordable your next house will be.
Beautiful, turnkey homes in desirable areas still fetch premium prices and often enjoy multiple offers bidding up the price. Fixers priced like fixers get snapped up quickly.
With the devastating fires in Los Angeles shining a spotlight on California’s stifling homebuilding regulations, the political movement to ease regulations is gaining steam.
Drastic changes are needed to stop the exodus of people fleeing California’s high prices to more affordable states.
Young people deserve to enjoy what every generation before them has enjoyed: the American Dream of home ownership.
– Reach eXp Realtor and La Mesa Councilwoman Laura Lothian at: [email protected].
