San Diego home prices have accelerated at a level not seen since the housing boom days of 2004.
Home prices in the San Diego metro area rose 29.1 percent year-over-year in February, the fourth highest in the nation, according to the S&P Case-Shiller Indices, which was released Tuesday.
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Prices haven’t been up that much in a year since October 2004 during the heyday of booming home prices. The annual record increase remains a 33.37 percent increase in July 2004.
San Diego metro — which includes all of San Diego County — rode a wave of surging prices across the nation in February. Nationwide prices were up 19.8 percent in February, the third-highest reading in the index’s 35-year history.
The markets that exceeded San Diego’s gain were Phoenix, up 32.9 percent; Tampa, up 32.6 percent; and Miami, up 29.7 percent.
Zillow economic data analyst Dan Handy said it is a rough time for potential buyers because of a historically low number of homes for sale and mortgage rates rising. However, it has done little to slow the market yet.
“While these challenging conditions might be expected to drain the pool of buyers,” he wrote in an analysis of Tuesday’s numbers, “and may still do so eventually, there are signs the market remains very competitive.”
The interest rate for a 30-year, fixed-rate mortgage was 3.76 percent in February, said Freddie Mac, up from 2.81 percent the year before. It has risen considerably since then. Mortgage News Daily said the rate was up to 5.28 percent Tuesday morning.
In San Diego County, many local real estate agents said the rising rates became a call to action for buyers to get a home quickly — no matter the obstacles. Many housing analysts predict the market will slow considerably in the coming months because rising rates and prices will limit affordability further.
However, it is also possible buyers will still be motivated to get into homes because of rising prices for just about everything else. Selma Hepp, Corelogic deputy chief economist, said this is evident in high cost markets — San Diego, Seattle, San Francisco and Los Angeles — which have continued to see prices climb despite substantial jumps throughout the pandemic.
“Strength in the higher-priced segments of the market also suggests that buyers are seeing additional value in homes as a hedge against inflation,” she wrote.
The Case-Shiller Indices are different than just looking at the median home price. It takes into consideration repeat sales of identical single-family houses — and are seasonally adjusted — as they turn over through the years. The median price for a resale single-family house in San Diego County in February was $875,000.
Craig J. Lazzara, managing director and global head of index investment strategy at S&P Dow Jones Indices, noted all 20 cities in the index had double-digit price gains. Even the weakest markets had substantial gains: Minneapolis, up 12 percent, and Washington, D.C., up 11.9 percent.
Lazzara was in the camp that thinks home prices may be reaching their peak because of rising mortgage rates and inflation.
“The macroeconomic environment is evolving rapidly and may not support extraordinary home price growth for much longer,” he wrote. “We may soon begin to see the impact of increasing mortgage rates on home prices.”
San Diego County experienced a substantial drop in prices not long after a meteoric rise in 2004. Prices were down nearly 27 percent in a year by October 2008. Housing analysts are mostly not predicting another crash because of stricter credit requirements, strong wage growth and fewer homes for sale. However, there have been some notable cautionary flags risen in the past few weeks.
A recent report from the Federal Reserve Bank of Dallas said the rapid price increase does not in itself signal a bubble. However, when home prices diverge from market fundamentals too sharply, it could eventually lead to a miscalculation of economic resources of buyers and distorted investment patterns, the report said. A widespread belief in guaranteed price increases could be a problem, the report concluded.
“If many buyers share this belief,” the report said, “purchases arising from a ‘fear of missing out’ can drive up prices and heighten expectations of strong house-price gains.”
The bank said exuberance over the housing market is evident considering home price gains have far exceeded rents and incomes. Yet it said household income and stricter borrowing make it unlikely that there will be a correction on the same level as what happened from 2007 to 2009.
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Annual price growth by metro area
Phoenix: 32.9 percent
Tampa: 32.6 percent
Miami: 29.7 percent
San Diego: 29.1 percent
Dallas: 28.8 percent
Las Vegas: 27.5 percent
Seattle: 26.6 percent
Charlotte: 25.5 percent
Atlanta: 24.0 percent
San Francisco: 22.9 percent
Denver: 22.3 percent
Los Angeles: 22.1 percent
Portland: 19.0 percent
Boston: 14.6 percent
Detroit: 14.6 percent
Cleveland: 13.6 percent
Chicago: 13.1 percent
New York: 12.9 percent
Minneapolis: 12.0 percent
Washington: 11.9 percent
NATIONWIDE: 19.8 percent
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