The San Diego Housing Market and the Rent vs. Buy Decision

The slowdown in residential real estate is being felt both nationally and here in San Diego County. In 2025, existing-home sales fell to just 4.06 million nationally, a nearly 30-year low and well below the long-term average of roughly 5.2 million homes per year.¹

This slowdown matters because residential real estate is a major part of the U.S. economy. The sector contributes roughly 15% to 18% of total Gross Domestic Product (GDP)² and has ripple effects that extend well beyond home prices. Real estate transactions influence mortgage lending, construction, insurance, furniture, appliances, moving services, renovations, and local tax revenue. When sales slow, the impact usually spreads across the greater economy. Surprisingly, the broader economy has continued to hold up. In 2025, despite the slowdown, GDP still grew by 2.1%³. In other words, the housing market has been a headwind but not one strong enough to knock the broader economy off track.

The economy’s resilience may be why the slowdown in the residential real estate market hasn’t received as much attention as one would expect. If the broader economy were weaker, a nearly 30-year low in existing-home sales would likely be a larger economic concern.

In this white paper, we take a closer look at what is happening in the residential real estate market, what is causing the headwinds, proposed solutions, and what may make the most financial sense for a potential buyer in the current environment.

The current state of San Diego housing

Inventory has loosened and homes are sitting longer, but average prices have remained remarkably stable in San Diego County.

Let’s take a look at a few charts to understand the current state of the housing market here in San Diego County.

Historical Inventory of Homes for Sale by Month

The Historical Inventory of Homes for Sale chart shows that inventory has increased significantly from the extremely tight levels of the low-rate COVID era, but it is still not at a level that would indicate a collapsing housing market.

Historical Days on Market Until Sale

This chart tells a similar story. Homes are taking longer to sell, with detached homes taking roughly 35 days and attached homes nearly 41 days⁴. Both are taking longer to sell than at any point in the past 5 years. That usually means buyers have a bit more leverage than they did during the frenzy, but it does not mean demand has disappeared.

Historical Average Sales Price

The Historical Average Sales Price chart is probably the most important one. Even with higher rates and lower transaction volume, average detached prices were still up 6.1% year over year in April 2026, while attached prices were down only 1.2%⁴. That is a big part of why this housing slowdown has felt strange. There is less activity, but prices remain stagnant.

Historical Months Supply of Inventory

Detached homes had 2.3 months of supply and attached homes had 3.6 months of supply⁴. That is higher than the ultra-tight market of a few years ago but still not the kind of oversupply that can begin to cause major price declines.

Historical Housing Affordability Index

Finally, SDAR’s Housing Affordability Index shows how far income has fallen behind home prices and mortgage costs. The index compares the median household income with the income needed to qualify for the median-priced home, with 100 meaning the median household has exactly enough income to qualify. In April 2026, the index was only 40 for detached homes and 65 for attached homes, meaning the typical household had just 40% of the income needed to qualify for the median-priced detached home and 65% of the income needed for the median-priced attached home.⁴

The cause

Affordability is the central issue, driven by elevated mortgage rates and a lock-in effect that constrains supply.

One of the primary reasons the housing market has slowed is affordability. Buyers are wrestling with higher home prices and mortgage rates that are still very elevated compared to the last decade. As of the time of this writing, the average 30-year fixed mortgage rate was approximately 6.5% to 6.6%⁵. This is below the 2023 peak, when rates briefly moved above 7.5% to 7.7%, but it is still a very different world than the 3% mortgages many homeowners locked in during the low-rate COVID era.

The connection between Treasury yields and mortgage rates helps explain why affordability remains under pressure. While it may seem that a 30-year mortgage should move with the 30-year Treasury, mortgage rates tend to track the 10-year Treasury more closely because most borrowers do not keep the same mortgage for the full 30 years. They often refinance, sell, move, or prepay the loan early. Because of that prepayment risk, lenders and mortgage investors generally price mortgages more like intermediate-term bonds, such as the 10-year Treasury, rather than a 30-year instrument. As of late May 2026, the 10-year Treasury was hovering around 4.5% to 4.6%⁶. The move higher from the beginning of the year has helped keep mortgage rates elevated.

U.S. 10-Year Treasury Yield vs. Mortgage Rate

At the same time, many existing homeowners are sitting on much lower mortgage rates and have little incentive to sell unless they have to. That creates a peculiar market where demand is still there, but the monthly payments are much harder to justify, and supply is still constrained because sellers are hesitant to give up their low-rate mortgage.

Potential solutions

Most proposals aim to ease monthly payments rather than reduce home prices directly.

Some of the proposed solutions aim to make the monthly payment easier to absorb rather than addressing home prices.

• Portable mortgages would allow homeowners to take their existing low-rate mortgage with them when they move, which could help unlock inventory from people who feel trapped by their current rate.
• A 50-year mortgage would stretch the loan over a longer period and lower the monthly payment, although the tradeoff is that buyers would build equity much more slowly and pay more interest over time.
• Zoning and permitting reform: Other ideas include loosening zoning rules in areas currently limited to single-family homes and speeding up the permitting process to help new housing get approved and built more quickly.

There is no perfect fix, but all of these proposals attempt to address the same issue, which is that the current cost of ownership is too high for many buyers. Without some relief, the market will continue to slow.

What should a potential buyer do?

When the monthly cost to own runs thousands above the cost to rent, the math favors renting for many households.

If you are a potential buyer, this does not mean you should never buy a home. It means you should be honest about the rent-versus-buy math. A recent San Diego Union-Tribune article highlighted just how wide that gap has become in California, using Zillow data to compare the full monthly cost of ownership with estimated rents. According to the article, the typical California renter could save about $3,331 per month⁷ compared with owning, or roughly 47%⁷, after factoring in the mortgage payment, property taxes, insurance, maintenance, and other ownership costs. This does not mean renting is always better. When the monthly cost to own is that much higher than the cost to rent, however, the math favors renting for many households.

After reading the article, we wanted to test the idea locally using Zillow data for a standard 3-bedroom, 2-bathroom home near our office in Solana Beach. We compared Zillow’s estimated monthly cost to own with Zillow’s estimated rent for a similar home in our local market.⁸

Solana Beach Home

Home Details: 2 bed / 3 bath / 1,656 sq. ft.

List Price: $1,649,900

Estimated Cost to Own: $10,613/month

Zillow’s Zestimate® (Estimated Rent): $5,623/month

Difference: $4,990/month more to own

Source: Zillow listing and monthly payment estimate⁸

Mortgage Assumptions: Based on a 20% down payment of about $329,980, an estimated loan amount of $1,319,920, and a 30-year fixed mortgage.

Estimated Cost to Own Breakdown

This example shows the current rent-versus-buy challenge. Zillow estimates the monthly cost to own this home at about $10,613/month, compared with an estimated rent of $5,623/month. In this example, the estimated cost to own is roughly $4,990/month higher than the estimated cost to rent.

The bottom line is that buying a home is not just about whether you can afford the mortgage payment. You also have to account for property taxes, insurance, maintenance, repairs, closing costs, and the opportunity cost of using your down payment. If renting saves thousands of dollars per month, that money can be invested, saved, or used to keep flexibility while the market works through higher rates and affordability pressure.

So for many potential buyers, the best move right now may be patience. Keep saving, keep your credit strong, understand what monthly payment actually fits your plan, and do not force a home purchase just because buying is what you’re “supposed” to do. In this market, renting can be a very rational financial decision.

Sound management for your secure future

Pacific Wealth Management is a fee-based, fiduciary firm offering comprehensive financial planning and investment advisory services.

Our disciplined planning process includes:

• Goals-Based Needs Analysis
• Cash Flow and Real Estate Decision Analysis
• Tax Planning Coordination
• Investment Portfolio Management
• Retirement Distribution Strategies
• Social Security and Long-Term Projections

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