Is the San Diego housing market a good investment location this year?
The second biggest city in California, the San Diego housing market is home to nearly 1.5 million people. As a growing job market continues to draw more people in, boosting the economy, investors might want to consider owning a rental property in the San Diego real estate market.
Here are 6 current housing market trends in San Diego that you should know before investing here.
1) With Employment Up, We’re Seeing a Stronger Economy
San Diego has got a very strong job market and economy. San Diego County currently provides a total of 1.5 million jobs, which is 1.7 percent higher than last year. The unemployment rate is around 3.4 percent which, relatively speaking, is not too high. While tourism used to be the supporting industry of San Diego’s economy, the IT world has taken over. Actually, the three major industries right now are tourism, technology, and defense. With the city being home to the largest Naval fleet in the world, and several national defense contractors, not only does the economy benefit, but the rental market also gains demand from military personnel.
The median household income for San Diego’s metro area is $72,797. While this median is higher than other parts of the country, it still isn’t high enough for everyone to afford San Diego’s home prices, which brings us to our next trend.
2) San Diego Housing Prices Are Increasing
According to Redfin, San Diego houses for sale sell for about 1 percent below list price with the average sales price coming in at $635,000. This number is 2.4 percent higher than it was this time last year. Because the market is currently neutral (neither a seller’s or a buyer’s market), we aren’t seeing much of a difference between property market value and selling price. The median home value in San Diego is $634,100. Zillow predicts it will rise 0.5 percent within the next year.
When looking for San Diego houses for sale, real estate investors shouldn’t be shocked to find most of them listed between $633,000 and $950,000 as this is the biggest share of the city’s inventory. So while house price trends in the San Diego housing market point to an increase, the percentage of homeowners in the city is decreasing. 54 percent of San Diego’s population rents, while only 45 percent are homeowners.
Related: Report: Property Prices Are Still Rising in These 10 US Cities
3) It’s Currently Balanced, But That Might Change Soon
According to Zillow, the San Diego housing market is currently neutral meaning the supply of housing on the market is meeting current buyer demand. However, with home prices projected to just continue increasing throughout the year, San Diego might end the year as a seller’s market. Home prices in the nation as a whole are projected to go up by 4 percent this year and with real estate experts suggesting an increase in buyer demand in the fall and winter months, housing inventory might not keep up. Redfin gave the San Diego housing market a competitive score of 81, meaning it’s very competitive. So if you’re planning on buying a house in San Diego, do so sooner rather than later, before the market gets hot.
4) California Is Going Green
Your San Diego real estate investments will be good for the environment. As California is planning on implementing some new building code regulations in 2020, all new homes must operate to generate renewable energy. These real estate properties will also be required to generate as much, or more than the energy they use. Saving up on energy costs means fewer expenses and more affordable options. While the state of California already has 5.5 million “green” solar-powered homes, we can expect to see some more environmentally-friendly houses showing up in the San Diego housing market.
Related: Investment in Green Properties Can Pay Off in the Long Term
5) Strict Airbnb Regulations
The San Diego City Council has been working on enforcing strict regulations on short term rentals in the city, as before now, they were operating unregulated. This new set of rules (which took effect in July 2019) makes it nearly impossible for real estate investors to run a vacation rental business in the San Diego housing market. Here’s what you need to know:
- Short term rentals are only allowed in the property owner’s primary residence
- Homeowners can only rent out their property for 6 months a year
- All short term rental operators must apply for a license, paying a $949 fee (one of the most expensive license fees in the country)
- Hosts of whole-home rentals must pay a fee of $3.96, whereas room rentals have a fee of $2.73
- Hosts need to pay a transient occupancy tax of 10.5 percent. (If you’re renting out on Airbnb, the platform will automatically collect this tax for you)
Related: Airbnb vs Traditional: How Much Will My House Rent For in 2019?
6) Rents Are Increasing
Investing in San Diego real estate is seen as a great move by a lot of people, mainly because of this trend. While rental rates in the San Diego housing market are already some of the highest in the nation, they’re still going up. Using the rental strategy with your San Diego investment property can give you some great returns. Renters in the San Diego housing market put about 40 percent of their income aside just for rent. As a rental property owner in San Diego, the level of income you’ll generate will differ based on the type of property you have, type of renters, and the location, but on average here’s how San Diego rentals perform:
- Monthly Traditional Rental Income: $2,760
- Traditional Cash on Cash Return: 1.3%
The above data is provided by Mashvisor’s investment property calculator. Our tools collect and analyze data on rental properties in markets across the nation.
Performance levels can differ depending on the location you’re in, even within the same city. So that’s why we’ve used our calculator to find the best neighborhoods for investing in San Diego real estate.
Where to Invest in the San Diego Housing Market: Top Neighborhoods 2019
Here are the best neighborhoods in San Diego which have the highest rental return rates:
Logan Heights
- Median Property Price: $368,500
- Price per Square Foot: $329
- Monthly Traditional Rental Income: $2,499
- Traditional Cash on Cash Return: 3.6%
Emerald Hills
- Median Property Price: $439,250
- Price per Square Foot: $325
- Monthly Traditional Rental Income: $3,075
- Traditional Cash on Cash Return: 3.5%
Encanto
- Median Property Price: $565,200
- Price per Square Foot: $322
- Monthly Traditional Rental Income: $2,143
- Traditional Cash on Cash Return: 2.5%
Mt. Hope
- Median Property Price: $387,800
- Price per Square Foot: $278
- Monthly Traditional Rental Income: $2,359
- Traditional Cash on Cash Return: 2.7%
If you’d like access to our data on the other neighborhoods in the San Diego housing market, click here to start a free 14-day trial with Mashvisor.