Why the San Diego Real Estate Market Won’t Crash (Even With 7% Interest Rates)

Despite 7% interest rates and lower overall transaction volume, the San Diego housing market remains remarkably stable. While some are waiting for a crash, local market conditions—what can be called the "San Diego Moat"—are preventing prices from collapsing.

Here is a breakdown of the latest local statistics, why the market remains so resilient, and tactical advice for buyers and sellers entering the next season.

Recent San Diego Market Trends

Looking at the activity over the last 30 days, the market continues to chug along with consistent, albeit sluggish, volume:

• New Listings: Just over 1,530 homes came on the market, maintaining a steady level seen throughout the year.
• Pending & Expired: 955 homes went into escrow, while over 500 listings expired or were pulled after failing to sell.
• Closed Escrows: 1,264 homes officially closed.

While overall sales volume remains low, home values are holding relatively steady.

The "San Diego Moat": 3 Reasons the Market Won't Crash

Why is San Diego protected from a major crash when interest rates are sitting around 7%? Three key factors shield the local economy:

1. High Percentage of Equity-Rich Homeowners

Approximately 58% of San Diego homeowners are considered "equity rich," meaning their outstanding mortgage balance is less than 50% of their property's current value. This massive cushion prevents forced sales and distress. Instead of defaulting, homeowners in financial need can refinance or tap into equity lines of credit.

2. Strong Local Economy and High Earners

San Diego boasts a low unemployment rate of 4.7%, outperforming much of California. The local job market is heavily supported by robust, high-paying sectors like biotechnology, defense, and engineering. High-income earners provide ongoing stability to home values.

3. A Fundamental Lack of Developable Land

Unlike markets such as Austin, Phoenix, or Las Vegas—which can expand outward into vast suburbs—San Diego has virtually no remaining land for large-scale developments. Construction is limited primarily to small infill projects, keeping overall supply tightly constrained.

Together, high equity, solid employment, and restricted supply result in extremely low foreclosure and delinquency rates.

What’s Ahead: The Supply Lock-In Effect

Looking forward, inventory constraints will continue to be the primary driver of market dynamics. Inventory is expected to remain tight because current homeowners are effectively "locked in" by three major barriers:

• Low Interest Rates: Most homeowners hold existing mortgages at 3% to 4% and are unwilling to trade them for 7% rates.
• Prop 13 Protection: Property tax increases are capped at 2% per year. Long-time owners face massive tax increases if they sell and buy another local property at current assessments.
• Capital Gains Taxes: High equity means significant tax hits upon selling.

When interest rates eventually decrease, the lingering inventory shortage is expected to push home values upward once again.

Actionable Advice for Buyers and Sellers

For Sellers:

• Price accurately from day one: Avoid "testing" the market with a inflated price.
• Avoid price reductions after sitting: Even after price cuts, properties that spend excessive time on the market (e.g., 100+ days) suffer from a stigma where buyers assume something is wrong with the home.

For Buyers:

• Explore the condo market: The condominium sector has faced challenges recently, creating potential value opportunities for buyers.
• Target aged listings: Look at properties that have been on the market for more than 30 days, as these sellers are often much more open to negotiating deals.

Contact Joseph Arendsen or anyone on the True Local Realty Group team today to map out your next move!