Are San Diego Home Prices Dropping?

The real estate market is a dynamic system, constantly shifting in response to numerous influences. Understanding these movements, particularly in highly sought-after areas like San Diego, is of considerable interest to homeowners, prospective buyers, and investors alike. Real estate represents a significant financial commitment for many, and fluctuations in property values can have substantial financial implications. The intricate nature of real estate markets means that various factors, both broad economic conditions and specific local dynamics, contribute to price changes.

Current Home Price Trends in San Diego

Recent data indicates that the San Diego housing market has shown a degree of stabilization, with some segments experiencing modest price adjustments while others continue to see appreciation. As of May 2025, the median sale price for detached homes rose 0.9% year-over-year to $1,100,000, while attached homes saw a 1.1% increase, reaching $690,000. Other reports from July 2025 show the median home price at $935,000, reflecting a 6.0% decrease compared to the previous year, with the median listing price at $950,000, trending down 4.8% year-over-year. Another source indicates the median home price in June 2025 was $1,025,000, a 2.8% decrease from June 2024.

Analyzing trends across different timeframes reveals a nuanced picture. While some monthly data points reflect slight declines, the overall trajectory over the past year has pointed towards sustained, albeit slower, appreciation or stabilization in property values. The average sales price per square foot has largely held steady, reflecting consistent demand despite higher borrowing costs. This indicates a shift from the rapid growth seen in previous years, moving towards a more sustainable market pace. This suggests that while the market may not be experiencing the aggressive price surges of recent years, it is not broadly characterized by significant declines.

Homes are generally taking longer to sell, with average days on market ranging from 19 days in June 2025 to 32 days in July 2025, an increase from previous periods. This shift indicates a more balanced market, where buyers have more options and negotiating power than in recent years. Inventory levels have also seen a significant increase, with detached home listings up 25.6% and attached inventory up 49.8% year-over-year as of May 2025. This steady rise in available homes, reaching its highest level since 2020, provides buyers with more choices and contributes to the market’s cooling trend. Despite these shifts, significant price crashes are not widely predicted, but rather a period of adjustment and stabilization.

Broader Economic Forces Affecting Home Prices

Interest rates play a substantial role in determining housing affordability and buyer demand across the nation. When the federal funds rate increases, it typically leads to higher mortgage rates, directly impacting the monthly payments for prospective homeowners. This reduction in purchasing power can cool buyer enthusiasm, leading to a slowdown in price appreciation or even modest price declines if demand significantly wanes. Conversely, lower rates can stimulate demand by making homeownership more accessible. Mortgage rates are anticipated to average around 6.4% in the second half of 2025 and potentially drop to 6.1% in 2026.

Inflation also exerts influence on the housing market, affecting both construction costs and consumer spending. Elevated inflation can lead to increased prices for building materials and labor, which in turn drives up the cost of new home construction. This can limit new supply or make new homes more expensive, potentially pushing buyers towards existing homes. Additionally, inflation can erode consumer savings and confidence, impacting their ability or willingness to make large purchases like a home.

The broader employment landscape is intrinsically linked to housing market performance. A strong job market, characterized by low unemployment rates and consistent wage growth, fosters consumer confidence and financial stability. This encourages more individuals to enter the housing market, bolstering demand and supporting home values. Conversely, periods of high unemployment or economic uncertainty can deter potential buyers, leading to reduced demand and downward pressure on prices.

San Diego’s metro area added 16,200 new jobs between May 2024 and May 2025, pushing total employment to nearly 1.6 million, with the regional unemployment rate at 4.6% as of Q2 2025. Overall economic sentiment, including concerns about economic growth or recession, can also influence buyer and seller behavior, affecting market activity and pricing strategies.

Local Factors Shaping San Diego’s Housing Market

San Diego’s housing market is significantly influenced by its unique supply and demand dynamics, which are shaped by its desirable location and geographical limitations. The region consistently faces challenges with housing inventory relative to sustained buyer interest, which inherently supports property values. Although inventory has grown, with active listings up 47% year-over-year, the limited developable land due to its coastal location, mountains, and international borders continues to constrain new supply. This imbalance means that even with shifts in broader economic conditions, the limited availability of homes for sale often creates competitive conditions among buyers. This persistent demand, coupled with limited new construction, creates a unique market environment.

Demand for housing in San Diego is driven by a combination of factors, including steady population growth and a diverse job market. The city’s population is growing at a rate of 0.05% annually, primarily due to immigration. The presence of a large military population, a thriving biotechnology sector, and a robust tourism industry contribute to a continuous influx of residents and employment opportunities. Universities and research institutions also attract professionals who often choose to remain in the area, further increasing housing demand. The desirable climate and lifestyle also attract individuals and families, maintaining consistent pressure on the housing supply.

Local regulations and policies also play a part in shaping the housing landscape. Strict zoning laws and lengthy approval processes for new construction projects can limit the pace at which new housing can be built. While these measures aim to ensure orderly growth, they can inadvertently restrict the market’s ability to respond quickly to demand.

The City of San Diego is working to meet a state-mandated goal of 108,000 new dwelling units by 2029 and has implemented initiatives like the Housing Action Package HAP 2.0 to incentivize development, particularly near transit sites. Recent changes to the California Environmental Quality Act (CEQA) also aim to spur housing production by streamlining approvals for urban infill housing. The inherent competitiveness of the San Diego market is often reflected in metrics such as shorter days on market for properties and a higher prevalence of multiple offer situations, particularly for well-priced homes. The competitiveness of the local market, while showing signs of balancing, is still characterized by strong underlying demand.