The big headline last week was that the Federal Reserve cut rates for the third time this year. Mortgage rates are now at their lowest level in over a year.
That sounds like good news.
But if rates are coming down, why aren’t buyers flooding back into the San Diego housing market?
What the Fed Rate Cut Really Means for Mortgage Rates
The Fed’s latest move brought the federal funds rate down into the mid-3 percent range, the lowest level since late 2022. While that helps short-term borrowing like credit cards and HELOCs, it does not directly control 30-year fixed mortgage rates.
Mortgage rates are driven more by the 10-year Treasury and expectations around inflation and the economy.
As of early December, the average 30-year fixed mortgage rate is around 6.2 percent. That is lower than this time last year, but still far higher than the 2 to 3 percent rates buyers saw just a few years ago.
That gap is a big reason both buyers and sellers remain hesitant.
What’s Happening in the San Diego Housing Market
Here in San Diego, the market has slowed, but it has not fallen apart.
According to Redfin, the median sales price across all home types is around $930,000, down roughly 2 percent year over year. Prices have dipped slightly from their peak and, in many cases, have flattened out.
Homes are also taking longer to sell.
Median days on market are up about 13 days compared to last year. That tells us buyers have more leverage and are taking their time.
When you look closer by property type, the story gets more interesting.
Single-family home prices are down about 3.5 percent year over year, with median prices around $1.15 million. Townhomes are slightly lower than last year, while condos have seen the biggest adjustment, with prices down close to 5 percent and days on market stretching longer.
This is not a crash. It is a market adjusting.
Prices Are Down, But Affordability Is Still the Problem
One reason buyers still feel stuck is that prices remain high relative to incomes.
Zillow data shows that while many homes have lost some value compared to last year, very few sellers are actually selling for less than what they paid. In San Diego, only about 2.3 percent of homeowners are selling at a loss.
Most sellers are sitting on significant equity. That keeps prices from falling sharply, even as demand cools.
For first-time buyers especially, affordability remains the biggest barrier, even with slightly lower rates.
What Would Actually Bring More Buyers Back?
According to research from the National Association of Realtors, mortgage rates dropping to around 6 percent would meaningfully expand the pool of buyers who can qualify.
In San Diego, a move from 7 percent to 6 percent mortgage rates could allow roughly 38,000 additional households to qualify for the median-priced home. Realistically, only a portion of those households would actually buy, but it would increase activity.
The key point is this.
Lower rates alone do not flip a switch.
In today’s market, buyer activity increases when several things happen together. Lower rates help. So do price adjustments, seller credits, and mortgage rate buy-downs. Affordability improves when payments come down, not just rates.
Looking Ahead into 2026
Mortgage rates are expected to slowly trend lower into 2026, potentially into the low 6's or even high 5's. What we are not likely to see anytime soon are the ultra-low rates of the pandemic years.
That means San Diego’s housing market will likely stay slower and more balanced than what we saw in 2020 and 2021.
For buyers, that means more options and less pressure.
For sellers, it means pricing and strategy matter more than ever.
Final Thoughts
Even with multiple Fed rate cuts, buyers are not rushing back into the San Diego housing market. Prices have come down modestly from their peak, but affordability is still stretched, especially compared to incomes.
This is not a broken market. It is a recalibrating one.
If you are wondering how these trends affect your own situation, whether you are buying, selling, or just keeping an eye on your home’s value, feel free to reach out. I am always happy to walk through the numbers with you.
And if you want a deeper breakdown of the FED RATE CUT, check out my latest video on how mortgage rates are affecting the Housing Market. Click HERE.
See you next week for San Diego Housing Market Mondays!
