This has been an interesting year for property owners in San Diego. Whether you’ve been selling, buying, renting, or investing, the market has hardly been dull. We’ve seen some dramatic rises in sales prices, rental rates, and housing needs. Both the sales and the rental markets remain strong in San Diego, and we’re expecting things to shift a little bit in 2023.
Let’s talk about the San Diego market and what we’re expecting as real estate experts and property management professionals.
San Diego Sales: Home Prices are Peaking
Home prices have been high over the last year or two, in San Diego and all across the country. In some markets, those prices are peaking and even starting to drop.
San Diego’s real estate market is almost always strong. It’s competitive. It moves quickly. We expect it to be a strong market in 2023 as well. However, it’s unlikely that you’ll be able to continue increasing asking prices on the homes you may be selling. Prices may drop early in the year, and that’s because buyers are dealing with inflation and rising interest rates. Home buying has become more expensive and in order to continue selling homes, it’s important to make prices more competitive.
The market fluctuates. You don’t have to be a real estate expert to know that. Even if prices come down initially in 2023, we can expect that values will continue to rise again in a year or two, once inflation has leveled out and interest rates have stabilized.
San Diego Rentals: Higher Prices
In the rental market, however, prices will remain high. Rental values can continue rising because there’s such a high demand for well-maintained rental homes in desirable neighborhoods. The rising interest rates and high home prices have kept more people in the rental market than expected. There are also new people moving into San Diego all the time, thanks to the military and the number of people who chose to retire here. This creates a huge demand for rental property.
Mortgage Rates are Expensive
It’s not going to get any easier to borrow money in 2023. Interest rates are high, but it’s more than that. The cost for services that are associated with buying a home are also higher. Inspections will cost more, brokers will charge more, and there are likely to be higher fees and charges in what home buyers will pay while they look for a home, negotiate a deal, and close on that home.
Mortgage rates going up means that cash buyers have a unique opportunity. If you’re an investor who is thinking about buying in cash, sellers will be more than willing to entertain your offers.
Expect San Diego Homes to Appreciate
Homes in San Diego can always be counted on to appreciate in value.
In fact, homes in this market are among the top 20 percent when it comes to appreciation. We expect that in 2023, even as the market cools, home values will remain strong. It’s a good time to make cost-effective improvements so that your property can continue to increase in value. Inventory is still limited enough on the San Diego sales market that the properties you do own are extremely valuable.
What Should You Do in a Market Like This?
If you’re thinking about your investment moves for 2023, the best decisions you can make will depend on your unique situation and your independent investment goals. There are a few generalizations we can make, however, that we believe will help any investor. Here’s what to do as we settle into a new year:
Hold onto your rental properties. While we saw a lot of property owners sell what they were renting out at the height of the market surge, this is not the time to list your rental home for sale. Hold onto the asset because its value will continue to increase. And, you’ll be able to charge higher rents, place qualified tenants, and enjoy a positive and profitable rental experience.
Consider paying in cash if you want to buy. Typically, we advise investors to leverage what they can when they’re investing in property. An acquisition today, however, can be more profitable for you when you pay in cash. If this is possible for you, you’ll escape the high mortgage costs that are moving so many potential buyers out of the market. San Diego property is expensive. Raising that kind of cash won’t necessarily be easy. But, if you can do it, you’re in a strong position for negotiation.
Improve the rental properties in your current portfolio. When we talk about growing a real estate portfolio, many people think that means acquisitions. That’s one way to grow. Another way to grow is to increase what you earn on existing properties. You can do that with some strategic improvements and upgrades. Take a look at the market and determine what competing properties are offering. Maybe it’s time for stainless appliances in the kitchen. Pull out the carpet and install hard surface flooring. When you can earn more on your existing assets, you’re increasing your monthly income in the short term and setting yourself up for better ROI in the long term.
Leverage the 1031 exchange. We recommend holding onto your assets. However, if you have a rental home that isn’t performing the way you need it to, exchange it for another property. The 1031 exchange offers a number of benefits, including the ability to defer taxes when you sell and reinvest the proceeds into a new property (or properties).
Surrounding yourself with experts is probably the smartest thing you can do right now. Whether you’re preparing to sell, looking to buy, or making some changes to your real estate portfolio, a San Diego property manager can help you navigate the process and earn as much money as possible. Leverage our relationships, our experience, and our network of brokerage, maintenance, insurance, and accounting professionals.
We can talk more about what to expect in 2023, especially as the market pertains to your investment goals and real estate plans in particular. When you’re ready to think about your strategy for the coming year, contact us at North County Property Group.