For years, the San Diego housing market has been a seller’s market, with prices steadily increasing and supply not being able to catch up with demand. Will that change in 2025? Various market developments suggest that there’s a potential for leverage to shift to the buyers in the near future.
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In this blog, we’ll explore the factors at play in San Diego’s housing market, and whether it’s leaning toward a buyer’s or seller’s market in the future. We’ll also go over the signs that can tell you which direction it’s headed.
Let’s begin.
Key Factors Influencing San Diego’s Housing Market in 2025
Like many places in California, San Diego has been affected by the current trend of cooling demand for housing in the face of high mortgage rates and continued price growth and inflation. Let’s take a closer look at each of the economic forces shaping the San Diego housing market.
Home Price Trends & Market Cooling
As of January 2025, the median listing price for a typical home in the San Diego metropolitan area stands at $952,900, reflecting a 6.4% increase from 2024. San Diego’s recent home price growth has been relatively stable compared to that of other cities in Southern California like Los Angeles, which has been prone to sudden spikes in the past. After a temporary median price spike to above $1,000,000 in June 2024, the median price eventually corrected to around $950,000 in September 2024, and has continued to hover around there.
While market activity has still been high, it has recently started to mellow out. There were 4.6% more homes sold in January 2025 than in January 2024, but the average time on market increased 10 days year over year to 37 days. Experts say that it’s likely that 2025 will be the slowest year for home sales in San Diego, due to a number of factors affecting supply and buyer interest.
Housing Inventory & New Construction
Part of the reason for climbing home values in San Diego is the limited inventory. Although over 50 affordable housing projects are in the works, various issues threaten their completion. One of the major factors being attributed to the delay in construction is the new tariffs being imposed on Canada, a major source of lumber.
Another reason for falling buyer interest is the lack of affordable and moderately priced homes. In 2023, 9,632 housing permits were issued, but 73% of those were in the “above moderate” price category. In January 2025, despite experiencing a 20% year-over-year increase in inventory, home sales actually dropped 23% from December 2024.
San Diego’s population has been relatively stable compared to places like San Francisco, falling only 0.8% between 2020 and 2023 compared to San Francisco’s 7.4% loss over the same period. However, the number of new builds has not kept pace with rising demand, with housing having been a major point of concern during its recent mayoral race.
Mortgage Rates & Buyer Affordability
In spite of predictions late last year, mortgage rates remain just below 7% in most areas of the United States. According to Fannie Mae’s projections, mortgage rates are likely to remain above 6.5% throughout 2025. Many San Diegans are currently unable to afford mortgages, with a new report finding that San Diego has the 6th lowest rate of under-30 homeownership in the country.
The steady decrease in interest for home purchases has driven up rental demand. Median monthly rent in San Diego is tied with Miami at $3,000 on average, making the two cities fourth place behind San Francisco for the highest rent in the US.
While this is not good news for buyers, the rental demand from San Diego’s growing number of job seekers and military families is ideal for investors, particularly those looking to leverage DSCR loans. With home prices not expected to drop significantly this decade, rental demand is likely to stay high for several years, and thus San Diego remains an ideal location for rental investments.
Investor Activity & Rental Market Trends
Investor activity in the San Diego housing market surged in Q2 2024, with private investors purchasing 23.7% of all homes sold. At the time, this put San Diego just behind Miami for the highest investor home purchases in the US.
This move was fueled by rising rental demand, as high mortgage rates pushed homeownership out of reach for more and more prospective buyers. So far, these conditions remain in place, and thus San Diego is likely to stay a hot market for investors looking to strengthen their portfolios with rental properties.
San Diego’s various industries are also driving demand in its commercial real estate market. In February 2025, global life sciences real estate developer Breakthrough Properties successfully purchased the MUSE research campus in Torrey Pines for $159 million. This is one of the largest recent transactions in the region, demonstrating continued investor confidence in San Diego’s tech and life sciences industries.
Job Market & Economic Growth
Although prices and mortgage rates are negatively affecting affordability, San Diego continues to experience healthy job growth thanks to multiple major industries that keep a strong presence in the city, including technology and pharmaceuticals. Between 2018 and 2023, San Diego’s tech talent pool grew by 3.2%.
Its life science sector, however, is poised to have an even bigger impact on its economic growth. Employing over 17,000 professionals in biopharma R&D alone, San Diego’s biotech industry ranks fourth among the top 25 markets for core life science occupations. Wages grew by 7.9% in Q2 2024, which was largely attributed to its prolific biotech industry. With its continued growth as one of the nation’s premier life science hubs, San Diego is headed towards a new biotech boom, potentially creating thousands of more jobs.
Will 2025 Favor Buyers or Sellers?
As of now, San Diego is a seller’s market, but this may change in the near future. Let’s explore the various indicators that will signal which direction the market is leaning in.
Buyer’s Market Indicators:
- Rising Inventory: Increasing housing inventory means more options for buyers, easing competition and prices. The eventual completion of ongoing construction can accomplish this, but at the moment, the industry is constrained by investors buying up properties to rent out.
- Price Reductions: As demand for homes falls, sellers may lower prices to attract buyers, especially if properties stay on the market for longer periods of time. Higher interest rates can contribute to drops in demand.
- Longer Days on Market: Homes remaining unsold for extended periods suggest a shift in negotiating power towards buyers. Recent increases in time on market can be a sign that the market is beginning to shift in buyers’ favor.
Seller’s Market Indicators:
- Low Inventory: A scarcity of homes keeps competition fierce among buyers, often leading to bidding wars. With many construction projects in limbo, this currently describes the state of housing supply in San Diego.
- Strong Economic Conditions: Job growth and economic stability attract more residents, increasing housing demand and, therefore, competition, forcing buyers to increase their bids to secure their preferred property.
- High Demand for Premium Properties: As noted in 2023, 73% of new builds were targeted at above-moderate-income buyers. This reduces the home supply for those in lower income brackets, driving up prices.
Many of the factors affecting San Diego’s real estate market tend to be localized to or more pronounced in certain neighborhoods. Investor sentiment may trend towards catering to moderate-high income families, for example, limiting their effect on supply within medium-priced neighborhoods and single-family homes. Similarly, most ongoing construction put on hold were for affordable housing,
As these factors shift, San Diego may evolve into a mixed market, with areas that have unique amenities or prime locations favoring sellers, while other areas may offer buyers more leverage due to higher inventory levels.
San Diego’s Housing Market Beyond 2025
Looking ahead, experts predict that the San Diego real estate market will maintain its strength, though at a moderated pace. Let’s look at the factors influencing this outlook:
- Interest Rate Trends: Experts like J.P. Morgan senior economist Joe Seydl predict that while mortgage rates may not dip below 6.5% in 2025, there is a greater likelihood of rates reaching 6% in 2026.
- Price Growth Slowdown: Price increases are expected to slow down across California starting this year. Although the median sale price in San Diego has been rising in recent months, signs are pointing to an eventual slowdown, such as the recent trend of progressively slower price growth and rising inventory.
- Inflation: Economic policies aimed at controlling inflation are expected to decrease inflation to around 1.8% by 2027, according to the Congressional Budget Office. This will improve purchasing power as well as investment returns.
- State Housing Policies: Once the initiatives to increase affordable housing and adjust zoning laws, such as California’s Senate Bill 9 (SB-9), gain traction, inventory levels are likely to improve. The City of San Diego has already laid out plans to implement SB-9, with specific guidelines on multi-dwelling unit developments (MDUDs) and urban lot splits (ULS) in single-family zones.
San Diego Housing Market FAQ
Will home prices in San Diego drop in 2025?
While price growth has moderated, a significant drop in home prices is unlikely due to persistent demand and limited supply. However, that may change as ongoing housing projects are completed.
Is San Diego’s housing market still competitive for buyers?
Yes, the market remains competitive, particularly in desirable neighborhoods. Although higher mortgage rates have slightly tempered demand, there remains a lack of affordable homes available on the market.
How do rising mortgage rates affect San Diego home sales?
Increased rates can reduce buyer affordability, potentially leading to longer sales times. As homes stay on the market for longer, sellers may eventually decide to lower their asking price.
Is it a good time to invest in San Diego rental properties?
Yes, strong rental demand and steady appreciation make San Diego an attractive market for long-term investors. However, keep in mind that the cost of entry is still much higher than the national average, and most new inventory is geared towards higher-income buyers, constraining supply for multi-family units and other affordable housing properties.
What impact do new housing policies have on San Diego’s market?
Zoning reforms like SB-9 encourage more housing development, which could gradually ease supply constraints, but widespread affordability improvements will take time.
Key Takeaway
The San Diego housing market is defined by inventory constraints and persistently high mortgage rates. As of now, it is a seller’s market, and it is likely to remain so in 2025 and possibly beyond. Still, there are positive signs on the horizon pointing to an improved outlook in the near future.
Its inventory issues can be partly attributed to its remarkable economic stability, as interest pours in due to promising growth in the tech and life science sectors, among other factors. That said, the heightened investor interest also creates competition for prospective homebuyers.
The proportion of available properties is skewed towards high-income earners and rents are not likely to drop anytime soon. But should tariffs and other economic forces such as inflation ease, construction may pick back up, increasing supply and shifting both rents and prices in buyers’ and renters’ favors.
Looking to buy or invest in San Diego’s housing market or elsewhere in California? Start planning your next move with Defy! Whether you need an interest-only loan for manageable mortgage payments or are a homeowner looking for a cash-out refinance to take cash out of your existing home equity for cash, our competitive rates and seamless platform guarantee a stress-free experience from start to finish.
Contact us today for rates, fees and terms. Whatever your needs are, whether in the San Diego area or elsewhere, we are here to help.
