San Diego among housing markets expected to cool the most in 2023, report says

Home and keys

Redfin’s prediction report says West Coast markets will feel the brunt of a downturn in home prices.


The San Diego area is among the home markets expected to cool the most in 2023, according to a new nationwide report.

Housing website Redfin’s lengthy analysis of the coming year says West Coast markets and metropolitan areas that experienced the biggest gains during the COVID-19 pandemic will slow the most. It selected the markets by looking at data from February to November that showed price declines, inventory drops, number of homes for sale and other factors.

The San Diego metropolitan area was No. 9 on the list of markets expected to cool the most. It said the areas that will drop the most are Seattle, San Jose, Las Vegas and Salt Lake City. Those less likely to experience declines are Lake County, Ill., Chicago, Milwaukee and Albany, N.Y.

Redfin stopped short of projecting how much prices might decline in metro areas, instead relying on recent trends to forecast what markets might cool the most. As of October, San Diego County home prices had dropped for five months in a row. Redfin did say nationwide prices should fall about 3 percent by the end of next year.

Here are Redfin’s national predictions and how they might relate to San Diego County:

Home sales will fall

Redfin expects 16 percent fewer home sales in 2023 than the previous year. There are two reasons: would-be buyers priced out by rising mortgage rates and potential sellers not wanting to have to look for a new home while interest rates are likely higher than the one on their current mortgage.

“People will only move if they need to,” wrote Taylor Marr, Redfin’s deputy chief economist.

San Diego County home sales recently hit their lowest point in years. There were 2,354 sales in October, according to CoreLogic, the lowest monthly figure since May 2020, when the initial shock of the pandemic had halted the market, only to lead to an increase in prices and sales starting the next month.

Redfin said its forecast is based on various factors, including inflation and interest rates eating into affordability. Yet it said it is possible inflation will continue to decline and the Federal Reserve will feel less pressure to continue to increase the rates that drive borrowing costs.

Redfin expects that mortgage rates will gradually decline by the end of 2023, to around 5.8 percent. The interest rate for a 30-year fixed-rate mortgage is 6.28 percent on Wednesday, Dec. 21, according to Mortgage News Daily.

Hottest-priced markets will cool

Redfin said relatively affordable Midwest and East Coast metros — which didn’t see explosive home price growth like San Diego — are expected to hold up the best in the next year.

Marr wrote that markets that didn’t get caught up in the pandemic homebuying frenzy should be more insulated from pricing corrections.

He said pandemic boom towns — Austin, Texas; Boise, Idaho; and Phoenix — may be in for a big drop.

San Diego metro was regularly in the three fastest-appreciating markets in the closely watched S&P Case-Shiller Indices throughout the pandemic. The 20-city index reported a 30 percent annual price increase for the San Diego area in March but it was down to a 9.5 percent increase in September.

Rents will drop

Redfin said rents will drop, based on vacancy rates increasing in recent months and a bigger supply of rentals than normal.

Multifamily construction was at a 50-year high as of September, meaning there are plenty of new buildings competing for renters. Also, owners who had planned to sell single-family homes are now more likely to put them on the rental market instead.

Real estate tracker CoStar said earlier this month that the apartment vacancy rate in San Diego County was 3.4 percent, up from 2.3 percent around the same time last year. The average asking rent was $2,321 per month, down from $2,352 in the third quarter this year.

Redfin said rents would have fallen more but millennials and Generation Z are becoming less likely to become first-time homebuyers and are more likely to rent indefinitely. It said higher mortgage rates and few homes for sale make renting the most likely long-term scenario for many.

Migration to costly metro areas will slow

San Diego employers, desperately seeking workers, may be frustrated to learn that most migration projections say people will prioritize less-expensive metro areas.

Redfin said members of Generation Z in particular will have more flexibility to move wherever they want with the growth of remote work. That means they may seek out more affordable places that are paying people to move there.

Tucson, Ariz., has a program that pays remote workers’ moving expenses and provides free internet and other benefits up to $7,500; northwest Arkansas has a program that pays $10,000 and gives a mountain or road bike; Savannah, Ga., pays tech workers up to $2,000 in moving expenses; and Topeka, Kan., will give up to $15,000 after renting or purchasing a home.

San Diego has promotions and an advertising campaign to try to get workers to move here, but it doesn’t offer direct economic payments. The San Diego Economic Development Corp. has a “just say no to winter” ad campaign and a recruiting toolkit that emphasizes tech jobs, craft breweries and the weather. ◆