The Great Unlocking: Is the San Diego Housing Market Next?
For four years, the housing market has been in a state of suspended animation. Homeowners with ultra-low mortgage rates have been reluctant to sell, creating a gridlock that has stifled inventory and kept prices stubbornly high. But what if the key to unlocking this frozen market is finally within reach? A recent Realtor.com report suggests that as mortgage rates continue their slow but steady descent, a handful of U.S. cities are poised for a rapid recovery. While San Diego wasn’t on their list, the underlying principles offer a fascinating glimpse into what could be on the horizon for our own market .
The “Rate Gap” and the “Lock-In Effect”
The report identifies a key concept: the “rate gap.” This is the difference between the low mortgage rates homeowners secured during the pandemic (often in the 3-4% range) and today’s rates (hovering around 6%). The wider this gap, the less financial sense it makes for a homeowner to sell and take on a new, more expensive mortgage. This is the “lock-in effect” in action, and it’s a major reason why our housing inventory has been so tight.
The cities identified in the report—Detroit, Cleveland, Memphis, Jacksonville, and Dallas—have a smaller rate gap than the national average. Their homeowners have slightly higher existing mortgage rates (4.1-4.3%), which means a drop in current rates makes a move more palatable. As Realtor.com senior economist Jake Krimmel puts it, “The closer the market mortgage rate moves to the interest rates held on outstanding mortgages, the more a local market will be ‘unlocked,’ so to speak” .
What This Means for San Diego
San Diego is a high-cost market, which means that affordability is a major constraint. Unlike Cleveland, where a small rate drop can significantly expand purchasing power, a similar drop in San Diego doesn’t move the needle as dramatically because our home prices are so much higher. However, the “lock-in effect” is just as powerful here, if not more so. Many San Diego homeowners are sitting on a mountain of equity and a mortgage rate they’ll likely never see again. They are, in a very real sense, locked in.
But as rates continue to fall, we can expect to see a similar “unlocking” phenomenon here. The first wave of sellers will likely be “move-up” buyers—those who have been waiting for the right moment to trade up to a larger home or a more desirable neighborhood. This is where the opportunity lies. Every move-up buyer creates a new opportunity for a first-time buyer, and that’s how a frozen market begins to thaw.
For Buyers: The prospect of more inventory is welcome news. While we don’t expect a flood of new listings overnight, a gradual increase in the number of homes for sale could help to ease the intense competition we’ve seen in recent years. The key is to be patient and prepared. Lower rates will bring more buyers into the market, so it’s more important than ever to have your financing in order and be ready to act when the right property comes along.
For Sellers: If you’ve been thinking about selling but have been hesitant to give up your low mortgage rate, now is the time to start crunching the numbers. As the rate gap narrows, a move may make more financial sense than you think. The pent-up demand from buyers who have been waiting on the sidelines could mean a very favorable selling environment this spring and summer.
The Road Ahead
The housing market is a complex ecosystem, and there are no easy answers. But for the first time in a long time, we are seeing signs of a real shift. The great unlocking may not happen overnight, but it’s coming. And for those who are prepared, it could be the opportunity of a lifetime. If you’re curious about what this means for your specific real estate goals, let’s talk. We’re here to help you navigate the changing market and make the best decision for you and your family.
Based on reporting from Realtor.com, read the full article here: https://www.realtor.com/news/trends/housing-markets-to-benefit-falling-mortgage-rates/