San Diego’s housing market in 2025 is undergoing a noticeable shift after years of red-hot growth. Home prices remain near record highs – around the $1 million mark for a typical home – but the rapid appreciation of the pandemic era has leveled off zillow.com alliedschools.com. Inventory of homes for sale is gradually improving from historic lows, giving buyers a bit more leverage than in recent years alliedschools.com. At the same time, renters face record-high rents around $2,500 per month on average, with rent growth finally cooling due to a wave of new apartments hitting the market obrag.org. Below is a comprehensive breakdown of San Diego’s residential and commercial real estate trends, neighborhood performances, buyer/renter profiles, investment outlook, forecasts, development pipeline, new laws, affordability challenges, and the key economic factors – from interest rates to migration – shaping the market’s future.
Residential Real Estate Trends in 2025
Home Prices: San Diego’s home values have plateaued in 2025 after the meteoric rise of the previous few years. The median sale price in mid-2025 hovers around $950,000 to $1,000,000, roughly 1–3% lower than a year earlier zillow.com alliedschools.com. Zillow’s Home Value Index for San Diego was about $998,000 as of July 2025, down 3.4% year-over-year zillow.com. Similarly, the California Association of Realtors reported the median detached home price in San Diego County at $1.025 million in June 2025, a slight 2–3% dip from June 2024 patch.com. In short, prices have inched down from their peak but remain historically high – nearly 60% higher than five years ago in the early 2020s luxurysocalrealty.com. This flattening of prices marks a cooling from the frenzied pandemic-era boom, reflecting buyer pushback against affordability limits and higher financing costs.
Sales Volume and Inventory: Home sales activity has slowed modestly. Through mid-2025, the number of closed sales is slightly below last year’s levels (San Diego County home sales in June 2025 were about 2% lower than June 2024) sdhousingmarket.com. One major factor is a shortage of listings – though inventory is improving, it’s still lean. In mid-2025 there were roughly 3,500 homes on the market in the San Diego area zillow.com, translating to only about 3.2 months of supply, up from ~2.4 months a year prior alliedschools.com. That 33% jump in supply has given buyers more options than they had during the pandemic frenzy alliedschools.com. However, overall inventory remains well below pre-2020 norms, as many homeowners are “locked in” by ultra-low mortgage rates and unwilling to sell (over 80% of California homeowners have a mortgage rate under 5%, deterring them from trading up to a 7% loan) lao.ca.gov lao.ca.gov. New listings in San Diego were actually down double-digits year-on-year earlier in 2025 calmatters.org, contributing to a market that, while cooler, is still relatively tight by historical standards.
Market Speed and Competition: Homes are taking a bit longer to sell on average, but desirable properties still move fast. The median time on market has crept up to about 24–27 days (around 3–4 weeks) in mid-2025, which is a ~15–17% longer timeline than a year ago sdhousingmarket.com alliedschools.com. Buyers have become more deliberate as rising interest rates pinch budgets, and bidding wars are less frenzied than in 2021–2022. Even so, more than one-third of listings are still selling above asking price zillow.com, and roughly 37% of sales closed over list in early summer zillow.com – a sign that turnkey homes in popular neighborhoods can still spark competition. At the same time, nearly half of all sales are now under the list price zillow.com, reflecting increased buyer negotiating power compared to the hyper-competitive pandemic market. In essence, San Diego’s residential market in 2025 has shifted toward a more balanced state: buyers are gaining breathing room and negotiating leverage as inventory grows and prices flatten, yet sellers still benefit from historically high valuations and a persistent housing shortage.
Interest Rates Impact: Elevated mortgage rates in the 6.5–7% range have been a key factor cooling the market’s pace. After interest rates jumped from ~3% to ~7% between 2021 and 2023, buyer affordability took a hit lao.ca.gov. The result has been fewer qualified buyers at the top end and more cautious bidding. Many would-be move-up buyers are staying put to keep their low-rate mortgages, a phenomenon that limits the supply of homes for sale lao.ca.gov lao.ca.gov. First-time buyers, meanwhile, face monthly mortgage payments nearly 80% higher than just a few years ago – a mid-tier California home now requires a ~$5,900 payment, up 82% since 2020 lao.ca.gov. These high rates have effectively put a ceiling on home prices in 2025, ending the runaway appreciation. Industry forecasts anticipate mortgage rates may moderate slightly later in 2025 (potentially dipping into the mid-6% range) themortgagereports.com, which could unleash some pent-up demand. For now, expensive financing has ushered in a period of price stabilization and reduced turnover in San Diego’s housing market.
Commercial Real Estate Trends
While residential real estate is cooling gently, commercial real estate in San Diego faces more dramatic post-pandemic shifts. Different sectors are performing unevenly:
- Office Space: The office market remains soft as remote and hybrid work patterns persist. Office vacancies have climbed to record highs in 2025. The county’s overall office vacancy hit 14.5% in Q2 2025, up from about 14.2% a year prior cushmanwakefield.com. Many companies have downsized footprints, subleased excess space, or opted for coworking arrangements. Class A offices are especially underutilized (downtown high-rises, for instance, have vacancies well into the teens) avisonyoung.us. Landlords are offering incentives and rent discounts to attract tenants in this tenant-favorable market. The Milken Institute ranked San Diego’s metro economy lower in 2025 partly due to these job and office space trends, noting that short-term job growth was only ~0.5% in 2024 – significantly lagging the nation axios.com. On a positive note, San Diego’s diversified economy (with life sciences, defense, and tech sectors) provides some buffer – but the office outlook hinges on the return-to-office trajectory and whether tech/biotech job growth rebounds.
- Industrial and Logistics: After a booming run, the industrial real estate sector is seeing vacancy rates inch up from historic lows. Countywide industrial vacancy was about 7.7% in mid-2025, up sharply (+2.3 percentage points year-over-year) as new warehouse supply came online and e-commerce growth normalized cushmanwakefield.com. SoCal’s warehouse market is coming off a frenetic expansion, and San Diego is no exception – tenants now have more choices, and rent growth has cooled. Still, industrial vacancy around 7% remains healthy by historic standards, and demand for distribution centers and biotech manufacturing space in core submarkets (Otay Mesa, Miramar, Sorrento Valley, etc.) persists. Lease rates have eased slightly from their peak as landlords compete for fewer active tenants latimes.com. Analysts expect the industrial market to regain equilibrium by 2026 as the regional economy and goods movement adjust to post-pandemic norms jpmorgan.com.
- Life Sciences Labs: San Diego’s life sciences real estate – a subset of office specialized for biotech labs – experienced a construction boom in recent years that has now led to a glut of vacant lab space. The life science vacancy rate soared to 26.3% by mid-2025, up from just 16.5% a year earlier cushmanwakefield.com. Venture capital funding for biotech has cooled from its 2021 highs, and some startups have folded or downsized, leaving newly built lab buildings looking for tenants. Key clusters like Torrey Pines, UTC, and Sorrento Mesa have high lab availability. This oversupply is putting downward pressure on rents in the lab market. However, San Diego remains a top biotech hub nationally, and industry experts anticipate that as new drug and medtech startups form (and big pharma continues to partner locally), this vacant lab space will gradually be absorbed. In the meantime, landlords are offering concessions and build-out incentives to entice life science tenants. The high lab vacancy is a short-term risk for commercial investors but underscores how much new space was delivered to chase biotech demand during the boom.
- Retail and Hospitality: Retail real estate in San Diego is comparatively stable. Retail vacancy is around 5.1% (Q2 2025), only a tick above last year cushmanwakefield.com. Consumers have largely returned to in-person shopping and dining; tourist areas and neighborhood centers alike have benefited from 2025’s robust tourism rebound. San Diego’s hospitality market is recovering strongly – hotel occupancies and room rates have improved with the return of conventions and leisure travel axios.com. This has positive spillover effects for retail and restaurant spaces. While e-commerce growth continues, most well-located retail (especially open-air centers) has held up, and some vacant big-box stores are being repurposed into gyms, entertainment venues, or even residential projects. Multifamily rental properties, often categorized as commercial assets, are performing solidly (low vacancies around 4–5% and only minimal rent growth this year) obrag.org. Overall, San Diego’s commercial real estate in 2025 is a mixed bag: office and specialized lab sectors face headwinds, industrial is normalizing after a hot streak, and retail/hospitality are cautiously optimistic.
Market Performance in Different Neighborhoods
San Diego’s real estate market is highly localized, with significant variation by neighborhood and sub-market. Coastal luxury enclaves, trendy urban neighborhoods, and inland suburbs are all showing different trends in 2025:
- Luxury Coastal Markets: High-end coastal communities (La Jolla, Del Mar, Coronado, Rancho Santa Fe, etc.) have generally held their value or even seen upticks, thanks to scarce inventory and affluent buyers. For example, Del Mar’s median home price was around $3.0 million in early 2025 – a whopping 55% higher than a year prior sofi.com sofi.com. (Such a huge jump likely reflects a few ultra-high-end sales skewing the median, rather than across-the-board appreciation.) Coastal properties remain in demand for their ocean views and lifestyle, and many owners in these areas have the financial means to ride out market fluctuations rather than sell at a discount. That said, even luxe markets have cooled from 2021 bidding wars – in Del Mar, homes were spending ~57 days on market and selling about 4% below asking on average sofi.com sofi.com, indicating that even wealthy buyers are negotiating in this climate.
- Central Urban Neighborhoods: Some of the hip, historically competitive neighborhoods closer to downtown have seen price corrections lately. North Park, for instance – a trendy area for young professionals – experienced a nearly 20% drop in home prices from early 2024 to early 2025 sofi.com. The median price in North Park fell to roughly $900,000 sofi.com as higher interest rates squeezed out some first-time buyers, and the pandemic-era frenzy for single-family homes cooled. Similarly, parts of Downtown San Diego and Hillcrest have seen condo prices flatten or dip, especially for units without unique features. These areas had surged in 2021–2022, so a modest pullback in 2023–2025 represents a market normalization. Still, demand remains for centrally located homes – North Park’s market is considered “very competitive,” with listings often going into contract in just two weeks, sometimes above asking for the most in-demand properties sofi.com sofi.com. Essentially, the cool-down in urban neighborhoods has reintroduced some relative bargains (prices off peak levels), which savvy buyers are snapping up quickly.
- Inland and Suburban Areas: More affordable suburbs and inland communities have become hotspots of activity as buyers seek value for money. Regions like East County and North County Inland are seeing healthy sales volume. In June 2025, the zip codes with the most home sales were largely inland: areas like Fallbrook (92028), Rancho Bernardo (92128), Spring Valley (91977), and San Marcos (92078) led the county in transactions sdhousingmarket.com. These neighborhoods offer larger lots or more space at a comparatively modest price per square foot, which has drawn families and remote workers who don’t need to be near the coast sdhousingmarket.com. For example, Rancho Bernardo (a master-planned community inland) and San Marcos have median home prices significantly below the coastal median, yet still provide quality schools and amenities – making them attractive “value plays.” Realtor analyses note that inland communities give buyers “more house for the dollar” along with decent access to parks, shops, and freeways sdhousingmarket.com. As a result, competition remains stiff in many of these value markets; some homes attract multiple offers and go pending quickly if priced well. Conversely, a few higher-priced North County coastal markets (Encinitas, Del Mar) had slower sales simply due to lack of inventory and ultra-high prices. On the whole, suburban San Diego is performing solidly, with moderate price growth in some pockets and only slight dips in others. The shift is that demand has rotated more toward the exurbs and suburbs as buyers seek relative affordability during this high-rate environment alliedschools.com alliedschools.com.
- South Bay and Border Areas: In the South County (e.g. Chula Vista, National City, Imperial Beach), housing demand has also been robust. Chula Vista in particular has been a leader in new home construction, permitting far more housing per capita than most cities in the county planetizen.com planetizen.com. This building has added inventory and kept price growth in check. A mid-range home in eastern Chula Vista or Otay Ranch is generally cheaper than a comparable home further north, attracting first-time buyers and military families. As of early 2025, National City’s median single-family home price was around the $600,000s, down from a peak in the $700Ks dawnsellssandiego.com, showing some correction at the entry-level segment. South Bay neighborhoods remain comparatively affordable and are central to the region’s efforts to address housing supply shortfalls.
In summary, San Diego’s neighborhood performance is bifurcated: the ultra-high-end coastal markets and certain desirable enclaves are holding strong or even hitting new highs, while many mid-range neighborhoods have seen modest declines from pandemic peaks. Meanwhile, peripheral suburbs with lower price points are experiencing steady demand and better sales volume as affordability-seeking buyers flock there. This mosaic of trends highlights the importance of location – even in a broadly cooling market, micro-markets can behave very differently.
Buyer and Renter Demographics & Behavior
Who’s Buying in 2025: San Diego’s homebuyer pool has narrowed to those with higher incomes, equity, or outside cash, given the steep prices and borrowing costs. Move-up buyers (existing homeowners) and dual-income professional couples form a big share of buyers, often leveraging equity from a previous home sale. The typical buyer in San Diego today tends to be in their 30s or 40s (older millennials and Gen X), frequently employed in industries like tech, biotech, healthcare, or the military. First-time homebuyers have not disappeared, but they face significant hurdles: with a ~$1M median price, a household needs an income around $250,000+ to comfortably purchase the median home offthe56.com. That’s roughly three times the actual median household income in the region, meaning only about 15% of San Diego households can afford a median-priced home at current rates offthe56.com. This reality has pushed many younger families and moderate-income buyers out of the market or into condominiums, fixer-uppers, or peripheral areas. We also continue to see relocation buyers coming into San Diego – some from pricier California markets (like San Francisco or Orange County) looking for relative bargains, and some from out of state drawn by the climate and lifestyle. In fact, San Diego enjoys inbound migration of those seeking a quality-of-life upgrade, even as it simultaneously loses some residents due to high costs definesdre.com. The result is a bit of churn: newcomers with equity or cash often replace locals who cash out and leave for cheaper states.
Who’s Renting: Given the hurdles to homeownership, a large segment of San Diegans remain renters. Only about 49% of households in the San Diego metro area own their home (versus ~65% nationally) kpbs.org. Renters include a broad mix of young professionals, students (with several universities in the area), military personnel, and lower-income workers in the service and tourism sectors. Notably, many middle-class families that would have bought a starter home in past generations are now continuing to rent well into their 30s due to affordability challenges. The renter demographic thus spans from recent college grads in urban apartments to families in suburban townhomes. High-income renters are also a factor – some well-paid individuals choose to rent luxury apartments or single-family homes (paying $3K+ a month) because they are either priced out of buying or prefer flexibility. The median rent in San Diego County hit roughly $2,500 in early 2025 obrag.org, so even renting requires a solid income. Still, renting is significantly more feasible than buying for most: the monthly cost to buy a median home is ~70% higher than to rent an equivalent home, a gap near record levels lao.ca.gov lao.ca.gov. This gap keeps many people in the rental market.
Buyer Behavior: Today’s buyers are acting more cautious and calculated than during the buying frenzy a few years back. With interest rates high and economic uncertainty in the air, some buyers have hit the pause button – many are delaying purchases or being very picky, waiting for the right deal. Surveys indicate inflation and recession worries have made some consumers skittish about major financial moves alliedschools.com. Those who are active in the market often seek seller concessions (like help with closing costs or rate buydowns) and are more willing to walk away if a home doesn’t appraise or inspections reveal issues. We’re also seeing buyers negotiate harder on price; low-ball offers are no longer uncommon in certain segments, especially if a listing has lingered on the market. That said, well-priced homes in great condition can still ignite bidding – serious buyers know turnkey homes in prime neighborhoods remain in demand. All-cash buyers and investors continue to play a role too (roughly 20% of sales in California are all-cash in recent quarters), helping prop up demand at the high end and for distressed or undervalued properties.
Interestingly, migration trends influence who’s buying: San Diego County is experiencing net domestic out-migration (thousands of local residents leaving each year for more affordable regions), but this is offset by international immigration and some inflow from other expensive metros kpbs.org kpbs.org. Between mid-2023 and mid-2024, about 24,000 people left San Diego for elsewhere in the U.S., yet roughly the same number of people moved into San Diego from abroad, resulting in a flat population change kpbs.org. Those leaving are often middle-income families or retirees seeking cheaper housing (housing cost was cited as the #1 reason) kpbs.org. Incoming immigrants and transferees tend to be workers filling jobs in industries like biotech, healthcare, academia, or skilled trades – providing fresh housing demand, often initially as renters. In essence, San Diego’s housing demand is sustained by its job base and lifestyle magnetism, even as high costs shuffle some long-time locals out of the area.
Renter Behavior: On the rental side, tenants have gotten some slight relief in 2025. After years of steep rent hikes, rent growth has stalled to around 0–1% annually obrag.org. Vacancy rates have edged up to about 5% (from record lows near 3% in 2021), due to an influx of new apartment buildings obrag.org obrag.org. As a result, renters are seeing more promotions and concessions – it’s become common for new luxury complexes to offer “one month free” or other deals to attract leases obrag.org. Renters now have a bit more bargaining power, particularly in the high-end apartment segment. Many are leveraging this by renewing leases at smaller increases or negotiating with landlords, knowing that an empty unit is costly for the owner. Despite this, overall rents remain near historic highs, so cost burdens are intense: a large share of renters pay well above the recommended 30% of income on housing. Some renters have doubled up with roommates or extended family to cope. We also see continued demand for Single-Family Home rentals – families unable to buy often seek a house to rent in a good school district, a trend that has kept rents for detached homes quite elevated. Institutional investors have some presence in San Diego’s rental market, though less than in cheaper Sunbelt cities – still, entities that bought single-family homes to rent are holding on to them as rent growth, while slower, is expected to persist given the housing shortage.
In summary, San Diego’s buyer pool in 2025 skews wealthier and more risk-conscious, while the renter population is broad and growing, taking on those who cannot buy. Both groups are influenced by the region’s high cost of living and are adapting – buyers by becoming more selective or moving outward, and renters by seeking deals or sharing housing. The overarching challenge is that housing costs have far outpaced incomes, forcing difficult choices on who can remain in San Diego and in what capacity (owner or renter).
Investment Opportunities and Risks
San Diego’s real estate market continues to attract investors – from mom-and-pop landlords to large firms – but 2025 presents a more nuanced landscape of opportunities and risks for investment:
Opportunities:
- Strong Rental Demand: With homeownership out of reach for many, demand for rentals is robust, fueling investor returns in the rental market alliedschools.com. Rents are at all-time highs (median ~$2,500) and though growth has plateaued, vacancy rates (~5%) remain low by historical norms obrag.org. This makes well-located multifamily properties and single-family rentals attractive for investors seeking income. High rents and low vacancies mean landlords can achieve solid cash flow, especially in neighborhoods popular with young professionals or near job centers. For instance, investing in a duplex or fourplex in areas like North Park or Golden Hill can yield steady occupancy, as many tenants prefer these central areas and have few ownership alternatives. Additionally, short-term rental demand (for vacation rentals) in San Diego’s tourist areas remains strong year-round, although it’s now capped by regulation (discussed below).
- “Affordable” Nodes and Value-Add: Relatively affordable submarkets present growth potential. Markets such as Chula Vista, Escondido, San Marcos, and parts of East County have lower entry prices but are seeing population and job growth. Investors are eyeing these areas where home prices and rents have room to rise toward the county median. According to industry forecasts, surrounding cities with good transport links (like Chula Vista or Escondido) will continue to attract both renters and buyers, offering investors higher yields than prime coastal areas alliedschools.com. There is also opportunity in fixer-uppers or older homes: value-add investors can renovate dated properties to resell or rent at a premium. With much of San Diego’s housing stock aging (plenty of 1960s–1980s homes), updating properties can unlock value. The key is targeting neighborhoods on the upswing – e.g., Vista or Lemon Grove – where improvements meet emerging buyer demand.
- Accessory Dwelling Units (ADUs): California’s pro-housing laws have made it easier to add ADUs (granny flats) on single-family lots, and San Diego County has embraced this as a way to increase housing supply. Investors and homeowners alike are capitalizing by building ADUs for rental income. Adding an ADU can significantly boost an investment property’s yield – a backyard cottage could rent for $1,500–$2,500 depending on location, bolstering cash flow. The city has even created pre-approved ADU plans and incentives. This is a prime opportunity for small-scale investors: buy a home with a large lot in a mid-city neighborhood and add one or two ADUs. Given high rent levels, the payoff can be strong, and demand from tenants for these units (often in desirable residential neighborhoods) is high. ADUs also benefit from favorable regulations (no separate parking required near transit, and streamlined permits) definesdre.com.
- Long-Term Appreciation: Despite short-term fluctuations, San Diego real estate historically appreciates strongly over the long run due to limited land and constant demand. Investors with a long horizon bank on continued equity growth. The region’s desirability – climate, coastline, diversified economy – suggests that property values are likely to trend upward over time, albeit at a more modest pace than the last few years. Current forecasts call for 3–5% annual home price growth in the coming years alliedschools.com, rather than the double digits seen recently. That steady growth, combined with rental income, can make a compelling total return for buy-and-hold investors. Moreover, San Diego’s market is less volatile than some tech-centric areas; it tends to slow rather than crash, giving some safety to long-term holders.
Risks:
- High Entry Costs & Interest Rates: The biggest barrier for investors now is the high cost of acquisition and financing. Home prices near $1M mean hefty down payments and mortgages. With investment property loans often at even higher rates (and without low-rate refinances that homeowners locked in), the math can be challenging. Financing costs around 7%+ significantly erode cash flow – many properties will not pencil out unless purchased with substantial cash down or at a discount. This interest rate risk is critical: if rates rise further or even stay elevated, highly leveraged investors could see slim or negative cash flows. Additionally, high prices raise the specter of a price correction – while a severe crash appears unlikely given supply shortages, it’s conceivable that if a recession hits, values could dip further. Investors must be prepared to hold through any short-term valuation drops.
- Regulatory and Legislative Risks: The regulatory environment is a mixed bag for investors. On one hand, pro-housing laws (ADU rules, SB 9 allowing duplex conversions on single-family lots) can create opportunities. On the other, there are new constraints: San Diego’s short-term rental ordinance took effect in 2023, capping whole-home vacation rentals to about 1% of the city’s housing (roughly 5,400 units) and requiring a lottery-based license truvi.com. This dramatically curtailed Airbnb-type investing – many previously lucrative vacation rentals (especially in Mission Beach and coastal areas) lost their permits, which has impacted property values in those areas for investors who banked on short-term income truvi.com truvi.com. Furthermore, California’s tenant-friendly laws (just-cause eviction rules, rent increase caps of ~10% per year under AB 1482) limit aggressive rent hikes. While the statewide rent cap (5% plus CPI, max ~10%) hasn’t been too restrictive in a 0.8% rent growth environment obrag.org, it could pinch returns if inflation spikes or an investor is trying to raise an under-market rent to market rate. Future legislation is also a risk – there are constant discussions in California about stricter rent control, vacancy taxes on empty units, or new housing taxes. Investors have to stay vigilant about policy changes that could affect profitability.
- Economic and Market Cycles: San Diego’s economy is diverse, but not recession-proof. A broader economic downturn – especially if it hits tourism, defense spending, or the tech/biotech sectors – could increase unemployment and reduce housing demand. Already, job growth has slowed (only +0.5% in 2024, per EDC data) axios.com, and some high-paying industries locally (like life sciences and manufacturing) saw job losses in late 2024 axios.com. If a recession in 2025–2026 occurs, rents could soften further and vacancies rise as some tenants double up or leave the region. Commercial property owners, particularly in office and retail, face the risk of longer vacancies and pressure on rents if businesses continue downsizing. Real estate investors must account for these cyclical risks and not assume uninterrupted growth. For instance, the life science office glut mentioned earlier is a cautionary tale: developers overbuilt expecting endless biotech growth, and now vacancies are high. An investor in a lab building or office condo right now could struggle to find tenants and service debt. Caution in those segments is warranted until the market rebalances.
- Climate and Environmental Risks: A subtler long-term risk is climate change and environmental regulation. San Diego’s coastal and canyon areas carry risks from wildfires, flooding (especially with sea level rise), and seismic activity. Properties in wildfire-prone inland zones might see insurance costs spike or coverage availability shrink – California insurers have grown wary after recent wildfire losses. Coastal properties could face erosion or stricter building codes. While these risks haven’t materially dented values yet, they are something investors should factor into due diligence (e.g., checking fire zones, obtaining proper insurance, and considering future disclosure requirements).
In essence, San Diego remains an “investor’s market” in many respects, with solid rental fundamentals and long-term growth drivers. But unlike the free-for-all of the early 2020s, 2025’s market calls for more scrutiny and selectivity. Investors need to ensure deals pencil out under higher interest rates, stay apprised of new rules (like the short-term rental cap), and be prepared for moderate short-term price volatility. Those who buy smart – focusing on in-demand locations or adding value through development (ADUs, renovations) – can still find strong opportunities in San Diego. The region’s perennial appeal and constrained supply mean well-chosen real estate investments are likely to pay off over the long run, provided one navigates the current risks wisely.
Forecasts for Pricing and Inventory
Looking ahead, most analysts predict that San Diego’s housing market will remain stable to growing in the coming years, barring any major economic shocks. Here are the key forecasts and expectations for prices, inventory, and overall market conditions:
- Home Price Outlook: Rather than the rollercoaster of the past few years, San Diego home prices are projected to see modest, steady growth. Realtor and economist consensus forecasts call for annual appreciation on the order of 3% to 5% through 2025 and 2026 alliedschools.com. This reflects the market finding a new equilibrium – supply improvements and high mortgage rates keep a lid on prices, but persistent demand and inadequate long-term construction prevent any major decline. Zillow’s models, for instance, anticipate San Diego will be among the nation’s more “competitive” markets in 2025, likely outperforming the U.S. average in price growth axios.com. However, the era of double-digit yearly gains is likely over for now. If interest rates gradually ease by late 2025 and 2026 (many expect 30-year mortgage rates to drift down into the 5-6% range by 2026), that could actually reignite some price growth as buying power improves. Conversely, if rates stay higher for longer, price growth might come in at the low end of forecasts or flatline temporarily. Notably, no credible forecasters are calling for a price crash in San Diego – the severe housing undersupply acts as a floor under prices. Even if economic conditions worsened, any price declines are expected to be moderate (a few percent) and short-lived, given California’s ongoing housing shortage.
- Inventory and New Construction: Inventory is expected to gradually expand over the next couple of years, though it will likely remain below ideal levels. San Diego started ramping up homebuilding in 2022–2024 and that momentum carries into 2025: the City of San Diego permitted ~8,500 new homes in 2024, on top of nearly 10,000 in 2023 insidesandiego.org – some of the highest numbers in decades. There are an estimated 3,500 housing units in the pipeline under special expedited programs, per the Mayor’s Office insidesandiego.org. Additionally, around 4,000 new apartments are set to open across the county in 2025 (similar to 2024’s additions) obrag.org. This consistent addition of supply – especially multifamily – should help contain extreme price and rent increases. However, reaching a truly balanced market will take time. Analysts don’t expect inventory to reach pre-pandemic (2018-2019) levels until late 2026 at the earliest alliedschools.com. By then, some larger development projects (potential redevelopment of the Sports Arena/Midway District, the SDSU Mission Valley campus housing, etc.) might be contributing new units as well. The construction pipeline in San Diego remains full, but challenges like labor shortages, high material costs, and NIMBY opposition mean not all planned projects will finish on schedule. On balance, expect inventory to inch upward, easing some pressure, but not to the point of a glut.
- Sales Volume and Market Balance: Home sales volumes are forecast to increase slightly in the latter half of 2025 into 2026 as the market adjusts. The California Association of Realtors noted improved housing sentiment by mid-2025 and suggested sales could rebound in the second half of the year patch.com. Many would-be buyers have sat out the past year; if interest rates dip or even psychologically stabilize, some of that demand will re-enter. Likewise, some homeowners who delayed selling may finally list their homes, especially if they see prices holding firm. This points to a gradual uptick in transaction activity. We are likely moving toward a more balanced market: neither a fierce seller’s market nor a buyer’s market, but something in between. In practical terms, that means 2025 and 2026 may be characterized by longer listing times (months, not weeks, for higher-end homes), more price cuts on stale listings, yet continued quick sales for well-priced homes in coveted areas. Realtors describe this as a healthy normalization – after the frenzy, the market is behaving in a more typical seasonal and cyclical way. Buyers will have more choices, and sellers will need to be realistic on pricing. The Market Action Index for San Diego as of August 2025 was around 42 (per local data) youtube.com redfin.com, which indicates a mildly seller-favored market (a neutral index is often ~30). We anticipate this index to hover in the 40±5 range going forward, reflecting that mild seller advantage due to low supply, but much less extreme than the 2021 score (which was above 80 in some months).
- Rents and Rental Market: The rent outlook is cautiously optimistic for tenants. With thousands of new apartments coming online and vacancy up slightly, rent increases have stalled out. CoStar projects San Diego rents will resume moderate rises by 2026, roughly in line with historical norms (~3-4% annually) obrag.org. In 2024–2025, rent growth may stay very low (0-2%) as the market digests new supply. Notably, developers have pulled back on starting new multifamily projects in 2025 due to higher financing costs and the current rent slowdown obrag.org obrag.org. This suggests that after 2025’s deliveries, there could be a lull in new inventory by 2027, potentially tightening the market again. Thus, renters enjoy a window of more negotiating power now, but the long-term rent trend in high-demand San Diego is still upward. For landlords/investors, the near-term risk is offering concessions and facing flat rents, but the longer-term prognosis is continued strong rental demand and growth once the current batch of new units is absorbed.
- Economic Wildcards: All forecasts assume no major shocks. One wildcard is the broader economy – if the U.S. enters a recession in late 2025, housing demand could weaken temporarily. San Diego’s unemployment rate ticked up to about 4.9% mid-2025 kpbs.org, and further job losses (especially in high-wage sectors) would reduce purchasing power and consumer confidence. Another wildcard is interest rate policy: if inflation resurges and mortgage rates push past 7.5% for long, that could suppress demand more than expected and put slight downward pressure on prices. On the flip side, if the Federal Reserve cuts rates faster than anticipated in 2024–25, mortgage rates could fall, potentially re-energizing buyers en masse and causing another surge in prices. Most likely, we’ll see a middle path: gradually improving affordability as incomes rise and rates drift lower, leading to a sustainable level of sales and price growth.
In summary, expect San Diego’s real estate market in the coming years to be characterized by stability and gradual adjustment: moderate price appreciation (rather than booms or busts), slowly increasing supply and choices, and a rental market that stays expensive but not spiraling out of control. The fundamental mismatch – lots of people wanting to live in San Diego versus limited housing – will continue to put a floor under the market. As one housing forecast put it, San Diego’s high desirability and constrained land mean it will likely outperform many markets, even if growth is no longer sky-high axios.com axios.com. Barring an unforeseen crisis, the “new normal” is a cooler, more balanced market that still favors those already in it (homeowners) while gradually trying to welcome more newcomers with added inventory.
Construction and Development Pipeline
Building Boom (to an extent): In response to the housing crisis, San Diego has been accelerating its construction of new housing – especially apartments and townhomes. Over 2018–2024, the region added a significant number of units, and that trend continues into 2025. The City of San Diego led with the largest absolute number of new homes permitted in the county planetizen.com, thanks in part to policy changes encouraging development (discussed in the next section). Impressively, Chula Vista has been a star player in new construction, permitting about 38 new housing units per 1,000 residents from 2018 to 2024 – the most per capita in the county planetizen.com planetizen.com. This contrasts with some smaller cities like El Cajon, which only permitted ~10 units per 1,000 residents and are lagging behind planetizen.com planetizen.com. The upshot is that construction is heavily concentrated in certain growth-friendly jurisdictions (Chula Vista, San Diego city, parts of North County) while others contribute little.
Types of Housing: The majority of new housing being built is multifamily. Roughly 60% of all new homes built in the county in recent years were apartments or condos voiceofsandiego.org. For example, in Chula Vista’s tally, 56% of their new units were in complexes of 5+ units (apartments/condos), ~9% were ADUs, and ~24% single-family homes planetizen.com. This tilt towards multi-unit construction is deliberate – it’s the most efficient way to add units in a land-constrained region. High-profile projects completing in 2025 include the Alexan Camellia (531-unit complex in Kearny Mesa’s Convoy District) obrag.org, as well as various mid-rise residential buildings in downtown, Mission Valley, and along transit corridors. By the end of 2025, around 3,500–4,000 new apartments are expected to open across San Diego County obrag.org obrag.org, on par with the annual totals of 2022–2024. There’s also notable military housing expansion near bases, student housing projects near UCSD and SDSU, and some master-planned communities adding homes in Otay Ranch, San Marcos, and other edges.
Affordable vs Market-Rate: A persistent issue is that most new development is priced at market-rate or luxury levels, not truly “affordable” to middle or low-income residents. An analysis found about 78% of all new homes built recently in San Diego County were targeted at above-moderate income buyers/renters planetizen.com. Only a small fraction are deed-restricted affordable units. For instance, of ~1,894 new homes built in downtown San Diego in 2024, only 174 (9%) were affordable units for low-income households 10news.com. High construction costs (labor, materials, land) and fees mean developers typically need to charge high rents/prices for projects to pencil out. Consequently, new luxury apartments often open with rents exceeding $3,000 for a one-bedroom, which, as observers note, “is not helping the affordable housing crisis” directly obrag.org. To address this, the city and county have programs to subsidize affordable developments – e.g., the “Bridge to Home” program invested $90 million to create nearly 2,000 affordable units via partnerships insidesandiego.org. Several 100% affordable projects (often by nonprofits or the San Diego Housing Commission) are in the pipeline, but those tend to be smaller scale (dozens, not hundreds, of units at a time).
Major Developments and Infrastructure: Beyond housing, there are significant development projects that will shape San Diego’s real estate landscape:
- The Naval Information Warfare (NAVWAR) Revitalization near Old Town is a large project that may include thousands of new mixed-use units (pending federal approval).
- The Sports Arena/Midway District redevelopment is in planning stages, after voters removed the 30-foot height limit for the area. Competing proposals envision a new arena plus up to 4,000 housing units, retail, and parks. If entitled in 2025, this could break ground by 2026–27.
- SDSU Mission Valley: San Diego State University’s expansion on the Mission Valley stadium site is under construction – including a river park, campus buildings, and 4,600 housing units (mix of student, affordable, market-rate) to be delivered in phases through the late 2020s. This will create a new urban village and ease student housing pressure.
- University City/UTC Revamp: With the extension of the trolley (Mid-Coast line) to UTC, there are multiple projects near the stations – high-rise apartments, new lab buildings – effectively creating a dense “second downtown” in the UTC area. Community plan updates in 2024 for University City increased allowable density significantly insidesandiego.org.
- Cross-Border Infrastructure: The long-envisioned cross-border Tijuana airport terminal (CBX) has spurred nearby hotel and parking development. Also, Otay Mesa’s second border crossing is under construction, which could boost the industrial and logistics real estate once completed (and potentially allow more workforce housing in that area for cross-border commuters).
The Construction Outlook: Builders in San Diego are cautiously optimistic but also face headwinds. Rising interest rates make construction loans pricier and can delay projects. Materials costs remain high (and tariffs on steel/lumber have added expense) obrag.org obrag.org. Labor shortages in the trades are also a constraint – there’s more work than workers, which can slow timelines. Still, developers know there is pent-up demand. Some are land-banking projects until economics improve, but many are proceeding thanks to public pressure for housing and incentives (like California’s density bonus law, which allows extra units if some are affordable). Notably, the region’s housing goal (from state mandates) for 2021-2029 is aggressive, and by some reports San Diego County is actually on track to exceed its state housing target by ~4,500 homes by 2029 if current permitting rates continue timesofsandiego.com. That would be a positive milestone, though the goal itself may still be insufficient relative to demand.
In summary, San Diego’s development pipeline is robust, especially for multifamily housing. New housing is coming online at the fastest clip in years, which is gradually easing the crunch. However, most new units are market-rate and not cheap, so the affordability crisis isn’t solved by supply alone. Continued efforts – from policy reforms to public-private partnerships – aim to boost construction further, including more affordable and “missing middle” housing (like townhomes, ADUs, and duplexes). If these efforts persist, San Diego could gradually close the gap between housing supply and demand, a critical factor for long-term market stability.
Policy and Regulatory Changes Impacting Real Estate
In the past few years, legislative and regulatory changes at both the state and local level have significantly affected San Diego’s real estate landscape. Policymakers are attempting to address the housing crisis, encourage development, protect tenants, and balance community concerns. Here are the key changes and their impacts:
- Housing Density and Zoning Reforms: California has enacted several laws to override exclusionary zoning and spur housing construction. SB 9, effective 2022, allows most single-family lots to be split or developed with up to 4 units (duplexes/triplexes) by-right. This effectively upzones neighborhoods previously limited to one home per lot. San Diego has embraced SB 9 – the city even waived certain fees to encourage take-up – though its impact so far is modest (a few hundred SB 9 projects). Similarly, Accessory Dwelling Unit (ADU) laws were strengthened (AB 68 and others), requiring cities to approve backyard flats and garage conversions with minimal red tape. San Diego updated local ordinances to comply, and as noted, ADU permitting has soared (ADUs comprised ~9% of new homes in recent years) planetizen.com. The city also launched innovative programs like “Complete Communities” and “Housing Action Package 2.0” insidesandiego.org, which provide density bonuses and streamlined permits for projects near transit or with affordable units. For example, Complete Communities allows developers to build more units than normally allowed if they include some low-income housing and contribute to neighborhood amenities insidesandiego.org. These zoning reforms are starting to bear fruit in the form of more small-scale infill developments and apartment proposals in transit-served areas. A tangible case: Encinitas (north of San Diego) was forced by the state to loosen zoning after long resisting; it has since approved higher-density projects to meet state housing mandates planetizen.com.
- Permitting Streamlining: San Diego’s city government, under Mayor Todd Gloria, has made streamlining housing approvals a priority. The Affordable Housing Expedite Program and initiatives like “Permit Now” have sped up processing for qualifying projects insidesandiego.org. The city even set up a program to review any housing project near transit within 30 days (“Complete Communities Now”) insidesandiego.org. Additionally, the city offers rapid review and even self-certification for some building plans insidesandiego.org. These moves cut down the notorious delays in getting housing out of the ground. The state has also pitched in: CEQA (California Environmental Quality Act) exemptions have been expanded for urban housing, and AB 2011 (taking effect 2023) allows ministerial approval of housing on commercially zoned land. We may soon see old strip malls or office parks in San Diego getting redeveloped into housing under AB 2011’s provisions, which bypass some local control in favor of by-right building with labor standards. Collectively, these regulatory shifts are trying to tilt the balance from NIMBY obstruction to a pro-housing stance.
- Short-Term Rental Regulations: As touched on earlier, a major local regulatory change was San Diego’s crackdown on short-term vacation rentals. Effective May 2023, the Short-Term Residential Occupancy (STRO) ordinance requires anyone renting out a whole home short-term (under 30 days) to have a city license. Crucially, the city capped those licenses to 1% of the housing stock (around 5,400 units) for most of the city, plus a bit extra (~0.75% of housing) specifically in Mission Beach truvi.com. This immediately shrunk the short-term rental market – by late 2023 the city had culled over 7,000 illegal vacation rentals that didn’t have licenses lajolla.ca nbcsandiego.com. The impact: some investors who were doing Airbnb have switched to long-term renting or sold their properties. Mission Beach, which had been heavily vacation rentals, saw property values and sales activity adjust as many former rentals hit the market. The non-transferability of licenses (a new owner can’t inherit the STR license from a seller) has also made STR-heavy properties less attractive to buy truvi.com. This ordinance was in response to community complaints about party houses and the sense that Airbnbs reduce housing supply. For the broader market, it likely freed up a chunk of condos and houses that returned to the long-term rental pool or ownership pool, a minor relief for housing availability. Investors now know San Diego’s stance: short-term renting is allowed but tightly limited – a consideration that steers new investment more toward traditional renting.
- Tenant Protections and Rent Caps: California implemented AB 1482 statewide in 2020, which caps rent increases for most older (15+ years) multifamily properties to 5% plus CPI (around 8–10% in recent high-inflation years) and requires just-cause for evictions. San Diego complies with this; although San Diego itself doesn’t have stricter local rent control, the state law has effectively put a ceiling on how much landlords can raise rents annually on covered units. Given that market rents only rose ~0–3% in 2023–2025, this cap hasn’t been binding lately obrag.org. But it provides security to tenants against extreme hikes. In 2022–2023, during the sharp rent increases, many San Diego tenants were indeed shielded by this law from increases beyond ~10%. Additionally, eviction protections were beefed up during COVID and some have been extended – for example, no-fault evictions require relocation assistance. The city and county have discussed even stronger tenant protection ordinances (like right-to-counsel or stricter just-cause rules), though none beyond state law are enacted at the moment. Investors and property managers have had to adjust to these rules, which introduce more compliance and limit aggressive rent strategies.
- Development Fees and Incentives: San Diego has tried to balance impact fees to fund infrastructure with not disincentivizing construction. The city updated its inclusionary housing requirements in 2020, requiring most new residential projects to either include 10%+ affordable units or pay an in-lieu fee. Some developers opt to include units to get density bonuses. There are also impact fee reductions for ADUs and certain small projects. In the Housing Action Package 2.0, the city looked at reducing parking requirements and easing height limits near transit, which lowers construction cost per unit insidesandiego.org. The state’s builder’s remedy (for cities without compliant housing plans) hasn’t been tested in San Diego City because the city has stayed on top of its housing element obligations (unlike some LA cities, for example). However, a few smaller cities in SD County that lag on planning for housing could face builder’s remedy projects (allowing developers to bypass local zoning if affordability criteria are met). This threat nudges cities to comply with zoning for more housing.
- Property Tax Transfers: Proposition 19 (2021) in California allowed older homeowners (55+) to transfer their low property tax basis to a new home anywhere in the state up to 3 times. This has helped some empty-nesters in San Diego downsize without a huge tax hit, and potentially freed up some inventory of larger homes for younger families. It’s hard to quantify, but Prop 19 likely contributed to some increase in listings in 2022–2025 from seniors who otherwise felt “locked in” by Prop 13 taxes on a new home. It’s a small but positive factor for mobility.
- Infrastructure and Transit Investments: Policy doesn’t only mean housing laws – infrastructure decisions affect real estate too. San Diego’s ongoing push for transit-oriented development is supported by the Mid-Coast Trolley extension (opened 2021), and SANDAG’s 2021 regional transportation plan which envisions more transit lines (though funding is contentious). The city has also been investing in things like the Pure Water project (improving water infrastructure) universitycitynews.org and park improvements. Better transit and amenities can make certain neighborhoods more attractive for development (e.g., new apartments sprouting along the new trolley line stations from Old Town to UTC).
To sum up, policy changes in San Diego are generally pro-housing and pro-density now, a shift from the historically slow-growth stance. State laws have set the tone by overriding some local restrictions, and the city has responded by innovating with its own packages to encourage building. This is starting to pay off in more units being built and a slight easing of the crisis. On the flip side, regulations like the short-term rental cap and rent control were implemented to protect housing availability and tenants, and they somewhat limit certain profit avenues for owners. The balance policymakers are attempting is to spur enough new supply and protect residents, without driving developers or landlords away. San Diego in mid-2025 was even praised by state leaders for its efforts to streamline housing, held up as a model in California insidesandiego.org. If these legislative trends continue (and they likely will, given the severity of the housing shortage), we can expect further measures such as upzoning along new transit lines, more incentives for affordable housing, and perhaps new tenant aids. Real estate stakeholders in San Diego must stay agile and informed as the regulatory environment evolves – it’s become as crucial as market forces in shaping outcomes.
Affordability and Housing Supply Challenges
Despite some recent cooling and policy interventions, housing affordability remains San Diego’s most pressing real estate challenge. The region consistently ranks as one of the least affordable housing markets in the United States. Key aspects of this challenge include:
Sky-High Cost of Housing: By mid-2025, the median home price (~$1 million) requires an annual income of around $200,000–$250,000 to purchase comfortably offthe56.com lao.ca.gov. Yet the median household income in San Diego is only on the order of $90,000. This gap means only about 15% of households can afford that median-priced home offthe56.com. This affordability index (15%) is extremely low – for context, nationally ~50% of households can afford the national median home. Even compared to California’s overall poor affordability (17% of households statewide could afford the median home in early 2025) homes.com, San Diego is in a crunch. High housing costs also drag down the region’s rankings in economic competitiveness; housing was a factor in San Diego dropping in Milken’s Best-Performing Cities report axios.com axios.com.
On the rental side, median rents around $2,500 also strain budgets. A household needs roughly $100,000 income (at 30% of income on rent) to afford that – far above what many renters earn. Nearly half of San Diego’s renter households are considered “cost-burdened” (paying more than 30% of income on rent). The homeownership rate stuck around 55% in the city (and ~60% in the county) reflects how difficult it is to make the leap from renting to owning kpbs.org. Many middle-income professions – teachers, nurses, civil servants, hospitality managers – find it practically impossible to buy a home in the community they serve. This affordability crisis isn’t just about statistics; it’s reshaping the social fabric, as discussed below.
Insufficient Housing Supply: The root cause of poor affordability is a classic supply-demand mismatch. For decades, San Diego (like most of coastal California) did not build enough housing for its growing population and job base. Restrictive zoning (vast areas limited to single-family homes), community opposition to density (NIMBYism), high fees, and lengthy permit processes all kept housing production low. As one report put it, “decades of sluggish homebuilding has put San Diego in a severe housing shortage” axios.com. When the 2020s tech and pandemic housing boom hit, this limited supply led to bidding wars and skyrocketing prices.
To catch up, the region needs tens of thousands of new units. The state set a Regional Housing Needs Allocation (RHNA) of ~171,000 new homes for San Diego County for 2021–2029. Midway through, the county is not quite on track across all income levels (though may exceed the total target if current trends hold) timesofsandiego.com. The shortfall is especially acute in affordable housing: ~41,000 low-income units were allocated, but only a few thousand are in the pipeline planetizen.com. Thus, even as overall building picks up, supply for moderate and low-income folks lags dramatically. Until supply meaningfully exceeds demand, affordability will remain out of reach.
Impact on People and Economy: The human impact of unaffordable housing is significant. Young adults are living with parents longer or doubling up with roommates. Families are delaying or foregoing homeownership; some even postpone having children due to housing costs. Key workers are leaving – there have been stories of teachers, nurses, police officers, and others relocating to places like Arizona or Texas because they can’t afford to stay in San Diego. In fact, the region’s modest population growth is now entirely from immigration; more people move out domestically than move in, and housing cost is cited as the #1 reason for those exits kpbs.org. This “brain drain” and worker loss can hurt local businesses and public services over time.
Additionally, high housing costs mean more commuting from outlying areas (Riverside County’s Temecula/Murrieta, for example, has seen people drive 60+ miles each way to jobs in San Diego to afford a home). This adds to traffic congestion and pollution and reduces quality of life. When only the affluent can buy into many neighborhoods, it leads to economic segregation. San Diego risks becoming a place where only the very wealthy or those who bought years ago can have stable housing, while younger and less affluent residents face instability and displacement. Community activists point out this undermines diversity and the character of the city.
Homelessness and Housing Insecurity: The extreme end of the affordability crisis is visible in San Diego’s homeless population, which has grown in recent years. Many working poor who face a rent hike or eviction have nowhere to go in such an expensive market and end up living in cars or shelters. The lack of low-cost housing exacerbates homelessness – even as the city opens new shelters or safe camping sites, people fall into homelessness faster than they can be rehoused. San Diego’s climate attracts homeless individuals from elsewhere too. It’s estimated that thousands of San Diegans experience homelessness on any given night, a situation directly tied to the high cost and shortage of housing (along with mental health and substance factors). The city and county have acknowledged that without vastly more affordable/subsidized housing, it will be impossible to significantly reduce homelessness.
Steps Being Taken: We’ve outlined many of the policy steps (density bonuses, streamlined approvals, etc.) aimed at boosting supply. San Diego’s Housing Commission and non-profits are also actively trying to create affordable units via acquisitions and new construction (e.g., converting motels to apartments for homeless individuals, using state HomeKey funds). There’s a push for “missing middle” housing – duplexes, townhomes, courtyard apartments – that can be more affordable by design. The region is also exploring innovative ideas like community land trusts (to keep housing permanently affordable) and expanding public housing vouchers, but these are still small scale relative to the need.
Notably, the public attitude is slowly shifting. While NIMBY resistance to development is still present, there’s growing awareness that some increased density is necessary to improve affordability. Younger residents and advocacy groups are voicing YIMBY (“Yes In My Backyard”) sentiments. Even some long-time homeowners realize their own children won’t be able to live in San Diego without changes. This has helped initiatives like upzoning in Hillcrest and University City to pass insidesandiego.org. It remains a challenge, though – every project can become a battle at the neighborhood level.
Affordability in the Forecast: In the near term, affordability may improve slightly just because prices have stabilized and incomes are slowly rising. For example, CAR’s housing affordability index for San Diego County might tick up a couple points from its rock-bottom as of late 2024. But fundamentally, housing will still be very expensive relative to incomes. The Legislative Analyst’s Office noted that as of mid-2025, the income needed to afford a typical California home (~$237K) was more than double the median income lao.ca.gov – a situation that has no quick fix. Only a combination of significantly more housing construction (especially at lower price points) and/or higher income growth can bridge that gap. San Diego is working on the former, but it will take years to move the needle in a big way.
Bottom Line: The affordability and housing supply challenge in San Diego is a long-term issue born of undersupply and high demand. It manifests in the everyday struggle of families to pay rent, in the inability of essential workers to live in the communities they serve, and in the tough choices individuals make to leave the region. While 2025’s cooler market conditions and policy measures have slightly eased the pressure (with more units coming online and price inflation paused), housing in San Diego remains unaffordable for the majority of residents offthe56.com. This is perhaps the single biggest threat to the region’s future prosperity and inclusiveness. Addressing it will require sustained effort: continuing to add supply at all levels, preserving and creating affordable housing, and finding creative solutions to lower building costs. San Diego’s ability to remain a vibrant, diverse metro area hinges on making progress on this front.
Impact of Interest Rates, Migration, and Macroeconomic Factors
Finally, we consider the broader macroeconomic factors influencing San Diego’s real estate: chiefly interest rates, migration patterns, and the overall economic climate. These big-picture forces often dictate the ebbs and flows of the housing market.
Rising Interest Rates: The rapid rise in mortgage interest rates since 2022 has arguably been the single largest factor cooling San Diego’s housing market in 2024–2025. As mentioned, the typical 30-year fixed mortgage rate jumped from ~3% in late 2021 to over 7% by 2023, dramatically increasing borrowing costs lao.ca.gov. In practical terms, the monthly payment on a median home is roughly 80% higher now than it would have been at 2020’s rates lao.ca.gov. This rate shock priced out many marginal buyers and forced others to lower their budget, thereby dampening demand and flattening prices. It also created the “golden handcuffs” effect for sellers – with 80% of California homeowners holding loans under 5%, they’re hesitant to sell and lose that low rate lao.ca.gov. San Diego’s inventory crunch is partly a result of this lock-in, as noted above.
Moving forward, the path of interest rates will heavily influence market activity. As of mid-2025, rates have shown signs of stabilizing in the mid-6% range, even dipping to around 6.5% by August 2025 – the lowest in about 10 months kyma.com money.com. Mortgage analysts predict rates will gradually decline into 2025; Fannie Mae and MBA forecasts put the 30-year rate averaging about 6.4% in 2025 and potentially below 6% by 2026 themortgagereports.com fortune.com. If these forecasts hold, San Diego could see a resurgence of buyer activity as financing becomes a bit more affordable. Even a one percentage point drop in mortgage rates significantly boosts purchasing power (or alternatively, allows more homeowners to refinance or move without payment shock). Therefore, interest rate relief is a key upside factor for the housing market. Conversely, if inflation surprises to the upside or other economic factors force rates up again, the market could stall further. At this point, most expect we’ve seen the peak in rates, and the trend will be flat-to-down – a positive sign for real estate.
Migration and Population Shifts: San Diego’s population dynamics are complex. On one hand, as a high-cost area, it has been experiencing net domestic out-migration – i.e., more U.S. residents move out of San Diego to other states or counties than the reverse. This trend accelerated in the late 2010s and early 2020s as remote work enabled some to relocate and as housing costs pushed others away. Popular destinations for former San Diegans include cheaper inland areas (Riverside County, for example) or out of state (Nevada, Arizona, Texas, etc.). As noted earlier, nearly 24,000 domestic net leavers were recorded in the 2023-2024 period kpbs.org. This flow does relieve some housing demand pressure, especially in the entry-level segment.
However, San Diego overall has managed to roughly maintain a stable population (about 3.3 million in the county) because of natural increase (births minus deaths) and international immigration. In fact, from 2023 to 2024, the county’s slight population gain was entirely due to an influx of about 24,000 international immigrants balancing out the people leaving kpbs.org. Many of these immigrants are coming for jobs (think H1-B visa workers in tech/biotech, or military allies, or cross-border migration given Tijuana’s proximity). They add to housing demand, often renting at first. So the net effect is San Diego’s housing market still contends with a growing (or at least not shrinking) population, even though U.S. migration trends alone would imply a decline.
Another factor is internal migration within Southern California: for instance, Zillow identified Riverside County as a “release valve” for San Diego’s affordability crisis axios.com. Some San Diegans, priced out locally, buy in Southwest Riverside (Temecula/Murrieta) and endure long commutes. Conversely, a trickle of higher-income people from Los Angeles or Orange County move to San Diego for its relatively lower home prices (compared to LA’s Westside or Orange County’s coast) or for lifestyle reasons. Additionally, San Diego’s large military presence means thousands of military families rotate in and out each year, influencing rental and homebuying patterns especially around Camp Pendleton, MCAS Miramar, and Naval Base San Diego.
Looking ahead, the macro-migration outlook is that California overall has slowed its population loss and might stabilize (statewide pop actually ticked up in 2024) gov.ca.gov. San Diego is projected by SANDAG to grow modestly (by ~113,000 people from 2022 to 2050, about +3.5%) sandag.org – slower growth than historically, reflecting these headwinds. For housing, if out-migration continues at current levels, it acts as a release valve preventing extreme tightness. But if San Diego were to somehow stem the outflow (through better affordability or more jobs), demand would increase. Conversely, if more people leave than expected (say, if remote work stays prevalent and more decide to cash out and move), that could soften housing demand. So far, the net effect has been small – enough immigration and births to keep a slight positive pressure on housing.
Macroeconomic Environment: San Diego’s real estate can’t escape broader economic trends:
- Job Market: San Diego’s economy in 2025 is relatively strong but with some weak spots. Unemployment in the county is in the 4–5% range kpbs.org, better than California’s 5.4%. However, as Axios reported, job growth slowed to ~0.5% in 2024 axios.com. Sectors like tech and life sciences saw layoffs or hiring freezes (part of a global tech downturn), which cooled demand for high-end housing a bit. The good news is tourism and hospitality rebounded fully post-COVID axios.com, which helps the rental market and lower-end housing (service workers finding jobs). Also, defense spending remains a backbone – military employment and contracting in San Diego provides stability (and often veteran homebuyers with VA loans). If the national tech industry rebounds in late 2025 as some predict axios.com, San Diego’s sizable tech sector (Qualcomm, biotech startups, etc.) could start adding jobs again, translating to more renter and buyer demand, especially in the mid to upper price tiers.
- Inflation and Income: The high inflation of 2021-2023 eroded real incomes and pushed interest rates up. By mid-2025, inflation had come down significantly, but prices (including for construction materials and land) remain elevated. Wages in San Diego have been rising (average hourly wages up ~23% since 2020) lao.ca.gov, but not nearly as fast as housing costs (home payments up 82%) lao.ca.gov. If inflation stays moderate and wage growth continues, over time that will improve affordability slightly. If a recession hits and unemployment rises, some households may double up or leave, reducing demand short-term. However, that scenario often prompts interest rate cuts, which could actually stimulate housing. So there are countervailing forces.
- Investor Climate: Globally and nationally, investors have become more cautious in real estate due to rising financing costs. In San Diego, we’ve seen fewer bidding wars from institutional investors on single-family homes compared to 2021. If the stock market is strong (as it has been in 2023–25), higher-end buyers have more down payment resources. If it falters, luxury markets might see a dip. San Diego doesn’t have as many second-home market dynamics as, say, a purely vacation area, but some affluent buyers from out of region do buy here; their appetite is influenced by broader economic confidence.
- Geopolitical Factors: Being a border city, San Diego’s real estate is even influenced by conditions in neighboring Tijuana and Baja California. Cross-border families and investors play a role (some Mexican citizens buy property in San Diego as a stable investment, and some Americans live in Tijuana for cheaper rent and commute). Changes in border policy or security can have minor ripples in the housing scene. Additionally, any large deployments or changes in military strategy can temporarily affect housing near bases (for example, when a Navy ship is in port vs. deployed, the rental occupancy around the base fluctuates).
In summary, interest rates, migration, and macroeconomics are the background score to which San Diego’s housing market dances. The interest rate surge slowed the tempo of the market significantly; now all eyes are on when the Fed eases up, as that will likely re-energize housing demand. Migration provides a gentle push-pull – as long as San Diego remains a highly desired place, people will come, but if it remains extremely costly, some will go. The macroeconomy, meanwhile, will influence jobs and income – key determinants of how many can participate in the housing market. At the moment (mid-2025), the indicators suggest cautious optimism: inflation down, rates leveling off, employment steady, and consumer sentiment improving. If these trends hold, San Diego real estate could be entering a period of sustainable activity – neither overheated nor collapsing, but growing in line with the broader economy. Keeping an eye on the Federal Reserve, migration stats, and local job reports will provide the clues to where the market is headed next in this dynamic Southern California city.
Sources:
- Zillow Research, San Diego Housing Market Overview (July 2025) zillow.com zillow.com
- Allied Schools Real Estate Journal, San Diego Housing Market Trends & Forecast 2025 (July 17, 2025) alliedschools.com alliedschools.com
- Patch (San Diego), Home Sales Decline In San Diego County (City News Service, July 22, 2025) patch.com patch.com
- Redfin Data Center, San Diego Housing Market Update – June 2025 (Portia Green, Compass) sdhousingmarket.com sdhousingmarket.com
- SoFi Learn, San Diego Housing Market: Trends & Prices (2025) sofi.com sofi.com
- OB Rag, 4,000 Apartments Coming to San Diego County in 2025 (April 3, 2025) obrag.org obrag.org
- Axios San Diego, San Diego expected to be one of 2025’s hottest markets (Jan 14, 2025) axios.com axios.com
- KPBS, San Diego County’s population goes up slightly, but only because of immigration (Mar 17, 2025) kpbs.org kpbs.org
- Off the 56 Blog, San Diego’s Housing Crisis: Can We Afford to Stay? (Bern McGovern, 2023) offthe56.com offthe56.com
- Planetizen/Voice of San Diego, Which San Diego County Cities Are Building New Housing? (July 29, 2025) planetizen.com planetizen.com
- Legislative Analyst’s Office, CA Housing Affordability Tracker (Q2 2025) lao.ca.gov lao.ca.gov
- Axios San Diego, Slowed job growth drags down San Diego’s economic ranking (Jan 29, 2025) axios.com axios.com
- Truvi Blog, San Diego Short-Term Rentals Law – Impact of the ’23 Regulations’ (May 23, 2024) truvi.com truvi.com
