Top Changes You Need to Know in San Diego Real Estate for 2025
The San Diego real estate market is experiencing its most significant shifts in years, and 2025 is proving to be a pivotal year for both buyers and sellers. Whether you're planning to buy, sell, or invest in America's Finest City, understanding these key changes will help you make smarter decisions and capitalize on emerging opportunities.
After years of explosive growth and seller-dominated markets, we're seeing fundamental shifts that are reshaping how real estate transactions happen in San Diego. Let me break down the most important changes you need to know about.
1. The Great Inventory Surge: More Choices for Buyers
The Change: San Diego's housing inventory has increased dramatically, with some areas seeing a 44.54% year-over-year increase in active listings as of early 2025.
What This Means:
- For Buyers: You finally have more options and negotiating power
- For Sellers: Competition is increasing, making pricing and presentation more critical than ever
Southern California is experiencing a wave of new inventory, and San Diego is no exception. In January, active listings increased by 44.54% year-over-year, offering buyers a wider selection of homes.
This inventory surge represents the most significant shift from the ultra-tight supply conditions we've experienced since the pandemic. Inventory has improved modestly, with an average of 1,991 active listings on the market as of Q1 2025. This represents a 9.5% increase year-over-year, giving buyers a slightly broader selection of homes across different price brackets.
Key Insight: While inventory is rising, we're still well below historical norms. The 2007-2008 peak saw around 30,000 homes for sale in San Diego—we're currently at about 4,000 total units.
2. The Days-on-Market Reality: Homes Are Taking Longer to Sell
The Change: The lightning-fast sales pace is moderating. Homes averaged 21 days on the market in April 2025, up six days year-over-year, Redfin's figures show.
What's Happening:
- Average time on market has increased from 14 days to 20-21 days
- Less crowded open houses, fewer private showing requests, longer days on market, and fewer offers on new listings are becoming more common
- The frenzied multiple-offer situations are becoming less universal
Strategy Shift for Sellers: Gone are the days when you could list at any price and expect immediate offers. Proper pricing, staging, and marketing are now essential for a quick sale.
Opportunity for Buyers: You have more time to make informed decisions and may not need to waive contingencies as frequently.
3. Pricing Power Shifts: The End of Automatic Appreciation
The Change: We're seeing the first signs of price moderation after years of aggressive appreciation.
Current Market Dynamics:
- As of March 2025, 49.0% of homes in San Diego sold below their original list price, indicating a shift toward a more balanced market
- In May 2025, San Diego home prices were up 2.4% compared to last year, selling for a median price of $1,000K
- The median listing home price in San Diego currently stands at $949,000, reflecting a 2.1% year-over-year decrease
What This Means: Price growth is slowing dramatically compared to the 10-20% annual increases we saw in recent years. Some areas are even seeing slight price corrections.
For Sellers: You can't rely on appreciation to compensate for overpricing. Accurate pricing from day one is crucial.
For Buyers: Your negotiating power is returning, especially for properties that sit on the market longer or are priced aggressively.
4. The Interest Rate Reality: Financing Challenges Continue
The Change: Mortgage rates are stabilizing in the 6.5-7% range, fundamentally altering buying power and market dynamics.
Current Situation:
- As of mid-May 2025, the average 30-year fixed mortgage rate is around 6.76%, and the 15-year fixed-rate mortgage is about 5.89%
- Rates are expected to remain above 6.5% throughout 2025
- 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
Impact on Buyers:
- A $1 million home now requires about $6,500+ monthly payment (vs. $4,200 at 3% rates)
- Many potential buyers are priced out or waiting for rate improvements
- San Diego has the 6th lowest rate of under-30 homeownership in the country
Market Response: Higher rates are driving rental demand and keeping many potential sellers in their current homes (the "rate lock" effect).
5. The Geographic Value Shift: Not All Areas Are Equal
The Change: Different San Diego neighborhoods are experiencing vastly different market conditions.
High-Performing Areas:
- $1.25-2 million range: Still seeing strongest pending sales activity
- 4,000-6,000 square foot homes: High demand continues
- Coastal and central locations: Maintaining premium pricing power
Cooling Areas:
- Inland communities: More inventory and price flexibility
- Entry-level segments: Facing affordability pressures
- Luxury over $2 million: Taking longer to sell
Strategic Implication: Location strategy is more important than ever. Some micro-markets are still experiencing seller's market conditions while others are shifting toward buyers.
6. The New Commission Reality: Post-NAR Settlement Impact
The Change: The August 2024 NAR settlement changes are now fully implemented, affecting how agents are compensated.
Key Changes:
- Buyer representation agreements are mandatory before showing homes
- Compensation offers are no longer displayed on MLS
- More negotiation around agent fees
Market Impact:
- Some buyers are shopping for discount services
- Agent services are becoming more differentiated
- Transaction costs are becoming more transparent
For Buyers: You have more control over representation costs but need to budget for potential agent fees.
For Sellers: You have more flexibility in compensation decisions but may need to consider buyer market dynamics.
7. The Zillow "Hot Market" Designation: National Recognition
The Change: San Diego came in as the 19th hottest market for 2025, up 10 spots from a year earlier on Zillow's annual ranking.
What This Signals:
- San Diego remains fundamentally supply-constrained
- National attention continues to drive buyer interest
- Investment activity remains strong despite current challenges
Implications: While we're experiencing market moderation, San Diego's long-term appeal and supply constraints keep it among the nation's most competitive markets.
8. The Rental Market Surge: Alternative Housing Demand
The Change: High mortgage rates and home prices are driving unprecedented rental demand.
Current Dynamics:
- High Mortgage Rates: Interest rates above 6.5% are discouraging first-time buyers, keeping them in the rental pool longer
- Rental vacancy rates remain extremely low
- Rental price growth is outpacing home price growth in many areas
Investment Opportunity: Rental properties are seeing strong cash flow potential, especially with ADU (Accessory Dwelling Unit) opportunities.
9. The Affordability Crisis Deepens: Who Can Still Buy?
The Change: The gap between median income and home affordability is reaching critical levels.
Current Reality:
- Median home price: ~$1 million
- Income needed for comfortable purchase: $200,000+ annually
- 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
Market Segmentation:
- Cash buyers: Still competing aggressively
- High-income professionals: Primary remaining buyer pool
- First-time buyers: Increasingly priced out
- Move-up buyers: Rate-locked in current homes
10. Future Construction Challenges: Supply Constraints Continue
The Change: New construction faces mounting obstacles that will keep supply limited.
Key Issues:
- New tariffs being imposed on Canada, a major source of lumber, increasing construction costs
- In 2023, 9,632 housing permits were issued, but 73% of those were in the "above moderate" price category
- Geographic and regulatory constraints limit buildable land
Long-term Impact: Supply constraints will continue supporting price stability even as demand moderates.
What This Means for Your 2025 Strategy
If You're Buying:
- Take Your Time: You no longer need to make split-second decisions
- Negotiate: Especially on properties that have been listed longer
- Consider Timing: Spring and summer may offer more inventory
- Explore All Areas: Some neighborhoods offer better value than others
- Get Pre-Approved Early: Financing requirements remain strict
If You're Selling:
- Price Accurately: Overpricing will result in longer market times
- Prepare Your Home: Competition means presentation matters more
- Consider Timing: Q1 showed strong buyer activity
- Be Flexible: Negotiation is becoming more common
- Market Strategically: Professional marketing is more important than ever
If You're Investing:
- Focus on Rentals: Strong rental demand creates cash flow opportunities
- Consider ADUs: Accessory dwelling units offer additional income potential
- Target Value Areas: Some neighborhoods offer better appreciation potential
- Plan for Long-term: Market cycles are normalizing after pandemic disruption
The Bottom Line: A Market in Transition
San Diego's real estate market in 2025 represents a transition from the extreme seller's market of recent years to a more balanced environment. While we're not seeing a crash or dramatic price declines, the market is definitely moderating.
Key Takeaways:
- Inventory is rising, giving buyers more options
- Sales are slowing, with homes taking longer to sell
- Price growth is moderating, but not declining dramatically
- Interest rates remain elevated, affecting affordability
- Geographic differences are amplifying, making location strategy crucial
This transition creates both challenges and opportunities. Buyers have more negotiating power but still face affordability hurdles. Sellers can still achieve good prices but need to be more strategic about pricing and presentation.
The most successful real estate decisions in 2025 will come from understanding these market shifts and adapting strategies accordingly. Whether you're buying your first home, selling to move up, or investing for the future, staying informed about these changes will help you make the right moves at the right time.
Ready to navigate San Diego's changing real estate market? I'm here to help you understand how these trends affect your specific situation and develop a winning strategy for 2025. Contact Sean Zanganeh today to discuss your real estate goals.
Learn more: mysddreamhome.com
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