Zillow forecasts San Diego home values to drop for the first time in years
Zillow has broken from the pack to say San Diego County home values could decrease over the next year.
Home values in San Diego County will drop 1.1% by March 2026, Zillow said in its latest Home Value Index. While the decrease is small, it's notable because no other major forecasters have said home prices, or values, would drop, and it's been two years since the Seattle-based housing website's forecast turned negative.
Zillow forecasts national home values will drop by 1.7% in a year. San Diego's dip was on the lower end of decreases for big metropolitan areas. San Francisco Bay Area home values were forecast to drop 5.2%; Minneapolis, down 4.2%; Denver, down 4.1%; and Houston, down 3.1%.
The forecast is a bit different than a straight home price prediction. Zillow goes beyond median sale prices to calculate the value of a typical home in a given region, using the average middle third of home values (eliminating statistical anomalies at the high and low end). It said the average home value in San Diego County in late March, across all housing types, was $953,831, up 2.3% in a year.
As of last month's report, Zillow was still predicting home values would increase nationwide, 0.8%, and 1.7% in San Diego County. So, what happened from February to March? Zillow says the number of homes greatly increased, which reduces competition and avoids bidding wars, and affordability metrics tumbled.
"Home price growth paused and inventory swelled during what is typically one of the most competitive home shopping months of the year," wrote Skylar Olsen, Zillow chief economist, in the March report.
There were 5,276 homes for sale in San Diego County over the past four weeks, according to Multiple Listing Service data analyzed by the Redfin Data Center. That's up 26% from the same time last year, and near the high point of the past four years of nearly 6,000 in summer 2022.
Part of the reason for increased inventory is homes are sitting longer on the market: The median days to close was 25 days at the end of April, down from 22.5 in February.
Olsen noted lower mortgage rates in March, and significantly more homes for sale, did not increase sales - a sign that affordability was a significant issue. Average mortgage rates in March, Zillow said, were 6.65% compared to 6.82% a year before. Similar to San Diego County, inventory was up 19% nationwide.
"Affordability is still challenging buyers," she wrote. "A mortgage payment on a typical home in March required about 35.3% of median household income nationwide when using a 20% down payment. That's a slight improvement over last year, but is still unaffordable."
Most home price forecasts are not as current. JP Morgan Research said in February it predicted house prices will rise 3% this year, and 13 out of 14 members of The San Diego Union-Tribune's Econometer panel in December (made up of business leaders and economists) forecasted rising prices for 2025.
The most recent forecast besides Zillow came from Fannie Mae in March, where it predicted nationwide home prices to rise 4.1% in 2025 and 2% in 2026. Its forecast was largely based on its belief mortgage rates would end the year at 6.2% and prompt more buyers to test out the market.
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