If you have been looking at buying or selling a single family home, you may have noticed some properties are still selling well over asking price. In particular, smaller & lower priced properties may still be receiving 20-30 offers despite mortgage rates being over 7% and heading towards 8%. There are so few properties for sale due to the lock-in effect for homeowners. Additional inventory that would have come up for sale have been converted to rentals, whether short, medium or long term due to owners having sub 3% rates & lower Prop 13 basis.
As of this writing, there are only 1,664 Detached homes for Sale or Coming Soon that are not age 55+ in the entire County. Active Listings are property on market for sale or Coming Soon (can’t be shown until a future date), and Inventory is a reflection of both supply & demand, reflected in Months of Inventory.
At the same time you may be reading national housing news about a lot of new housing starts and wondering what that means for San Diego.
In San Diego, those housing starts are in multi-family: apartments, condos, affordable projects
If you read this post about infill development opportunities, Howard Blackson shared that there are no new greenfield large tract SFR (single family residential) developments in the works
Remember the SFR communities being built prior to the GFC (Great Financial Crisis) - Eastlake, Pacific Highlands Ranch in Carmel Valley, 4S Ranch in Rancho Bernardo, multiple new developments in North Carlsbad, San Elio in San Marcos? Some San Diegans even moved to Temecula or Murrieta for the abundant cheap new homes. We don’t have those projects being built today
Without new SFR inventory being built, SFR inventory won’t increase until more reasons exist to sell in addition to the normal turnover that exists (death, job relocation, divorce, distress): mass exodus from San Diego, widespread distress with more forced Sellers, or interest rates fall to get people moving up/down again. If long term interest rates fall, this means investors are buying bonds to push yields down, a flight to safety move or the Fed is doing QE again which means all is not well with the economy
Why are Buyers willing to pay premiums for Detached homes?
Lifestyle: having your own yard, not sharing walls, ability to expand out/up, room for parking a RV
ADU: accessory dwelling units are a huge positive for many Buyers wanting an income unit, multi-generational living, separate office /meeting space for business. Homes with Detached garages are very desired + large backyards that are ideal for the ability to setup private outdoor spaces for both the main home & the ADU
Scarcity & unique properties: some homes have no exact replacement. They may be historical with Mills Act, architecturally unique, in premium locations: location location location
Single story homes- many of these homes are smaller but first time homebuyers are competing with older demographics downsizing from larger 2-3 story homes looking for better accessibility, walkable neighborhoods, less maintenance, proximity to the airport and often times their kids/grandkids
Cost & Control: not having to get approval to put in hardwood flooring in your home, ability to control or manage costs directly vs being apart of HOA
Pets is a huge factor: ability to have unlimited pets + large dogs and not having to pay monthly pet rent
Multi-family development, alternatives
If you’re looking at condos vs single family for sale +rental options, its not surprising to SFR is selling at a premium when they are truly inventory constrained in both For Sale & rentals. While there are also not a lot of condos for sale, there are abundant rental options in some areas
If you are a Seller of a condo, have you looked at available rentals recently for your area? If the monthly payment to buy a condo is many multiples of rent, without an increase in lifestyle benefit vs renting, be mindful of the Buyer optics. There is also a rate premium on condos unless the Buyer puts 25% down which is especially painful for Buyers in this interest rate environment. This is where a rate buy down might be a welcome marketing strategy.
If you are wanting to buy income property and are looking at condos, the current math is very unfavorable to cash flow even with significant down payments. The inability to control issues & rising costs is another consideration + limitations on how the property can be used
Multi-family properties- more complex discussion. With 2-4 units, you are competing against primary home house hackers/income property seekers and this qualifies for residential lending with lower down payments required. 5+ units is portfolio or commercial lending and most properties are not able to obtaining financing without significant equity to meet the lenders DSCR requirements. A lot of discussion around 5+ unit multi family distress due to loans maturing, fixed rates going adjustable, and the inability to refinance
New Construction: I took a look at new multi-family developments in a few central pockets of San Diego recently. Here’s a summary of recent projects completed or in progress (not a complete list, but representative to give an ideal of volume):
Mission Valley- Grantville - Allied Gardens - Del Cerro
Hines Riverwalk Golf Course - 930 initial units out of a total targeted 4,300 total units in mixed use project
Avalon Bay SDSU Mission Valley - 600 units in a mixed use project
Chelsea Investment SDSU Mission Valley - 182 affordable units Phase 1 + 102 Phase 2
Greystar Union Granvtville -250 units
Affirmed Housing -124 affordable studio units
Grantville Trolley Stop area- 23 acres for a potential 992 units
Fairfield Housing - Rivair 325 units
Greystar Vora Mission Valley- 750 units
Greystar The Verge - 444 units
Greystar Gravity - 325 units
Affirmed Housing Bluewater - 80 affordable units
Affirmed Housing Zephyr- 85 studios for formerly homeless veterans
Tapestry Del Cerro House - 114 units
Bay Park - Clairemont
Chelsea Investments - 3 affordable projects
Messina Senior Apartments – 79 Units
Taormina Family Apartments – 136 Units
Modica Family Apartments – 94 Units+
Clairemont Village - 224 units
Zephyr Bayview- TBD
North Park - University Heights
Carl Gehrman shared this on Twitter for 10+ unit development by pulling data from permits on the City website Accela:
County wide overview of multi family construction as of Q4 2022 from Berkadia