San Diego’s luxury real estate market was on fire this summer. Not anymore

The luxury real estate market in San Diego, which had been a strong driver for the overall housing market earlier this year, is now beginning to show signs of decline. According to Reports on Housing, there were 120 pending sales in October for homes priced above $2 million in San Diego County, a significant drop of nearly 50% since May, when the firm recorded a peak of 232 pending sales, the highest number ever documented.

In addition to fewer sales, luxury homes are taking longer to sell. This summer, many high-end properties were moving off the market at a pace quicker than some of the least expensive homes in the area, but that trend has reversed. Steven Thomas, a representative from Reports on Housing, pointed out that while affluent buyers might not be feeling the same financial strain from rising gas prices and inflation as average residents, their wealth is largely tied to the stock market, which has experienced volatility in recent months, particularly affecting tech stocks in the Nasdaq index.

"The stock market is currently getting hammered," Thomas noted, adding that wealthy buyers are concerned about the potential for an artificial intelligence bubble and the implications of rising interest rates beyond just 30-year mortgage costs.

Higher interest rates are making it more expensive to borrow, leading some business owners to rethink their expansion plans or delay investments. Thomas indicated that many of these individuals are also potential buyers in the luxury housing market. Currently, there are 844 homes listed for sale in San Diego County at prices of $2 million and above, accounting for 14% of all listings, according to data from Reports on Housing.

Thomas also mentioned that elections typically have little effect on the housing market, complicating any direct correlation between California ballot measures, such as Proposition 3 and Proposition 40, which focus on taxing high-income earners. Some tech billionaires have expressed intentions to leave the state if these propositions pass, which could further impact the luxury market.

In October, homes priced between $2 million and $4 million were taking an average of 172 days to sell, a noticeable increase from the 87 days recorded in May. Similarly, homes valued between $4 million and $6 million averaged 321 days on the market, up from 178 days in May, while those priced over $6 million had an average of 358 days, a slight improvement from 379 days previously.

However, the upper echelon of the luxury market appears to be less affected. Reports on Housing noted that 14 homes priced at $6 million and above were in escrow in the last 30 days, maintaining the same level as the previous year. The inventory for such high-end properties also remained stable, with 167 homes listed compared to 162 last year.

Reports on Housing assesses market sales timing by examining how quickly homes are selling within a 30-day window based on current listings, differing from traditional metrics that average the time homes take to sell without accounting for the number of available properties. This approach provides a clearer picture of how quickly homes are moving in the current market.

Chris Thornberg, an economist and founding partner at Beacon Economics, echoed the sentiment that both borrowing costs and fluctuations in the stock market are influencing high-end sales across California. He suggested that in San Diego County specifically, the decline in venture capital investment in the tech sector could also be a contributing factor. This year, venture capitalists have been heavily investing in AI companies, primarily in the San Francisco Bay Area, while funding for biotech—an important industry in San Diego—has significantly decreased. The county recorded its third-lowest quarter for venture capital investment in a decade during the second quarter, with $804 million raised, compared to a peak of $3.16 billion during the pandemic in early 2021, according to PitchBook.