A recent commercial real estate analysis described the U.S. economy as an “almost economy”: expanding, but without the job growth, credit expansion, and broad-based momentum that usually define a true boom. That framing is useful not only for CRE, but also for residential real estate—especially in supply-constrained markets like San Diego and much of Southern California.
The key question is not whether the economy feels strong. It is whether today’s unusual mix of slow hiring, concentrated wealth, stable credit, and persistent housing shortages will weaken housing demand enough to lower prices. In San Diego, my view is that this environment is more likely to suppress transaction volume than to trigger a meaningful decline in home values. The result is a market that can feel frustratingly slow while still remaining stubbornly expensive.
That may sound contradictory, but it fits the moment. San Diego’s labor market is still expanding, just barely. The Bureau of Labor Statistics reported that San Diego metro nonfarm payrolls were up only 0.3% year over year as of December 2025, while county unemployment stood at 4.4%. That is not recession territory, but it is also not the kind of labor backdrop that normally produces a burst of first-time buying, aggressive move-up demand, or a major sales boom. It is a “low-hire, low-fire” market. People still have jobs, but fewer households feel the kind of income momentum or career confidence that typically drives housing acceleration.
And yet San Diego housing prices have not broken. Far from it. According to the latest San Diego market activity data, the February 2026 median price for detached homes reached $1,089,795, up 2.1% from a year earlier. Detached months of supply sat at just 1.9, inventory was down 19.1% year over year, and sellers still received 98.2% of original list price on average. In other words, the market has cooled in pace, but not enough to create real price discovery on the downside. Buyers are taking longer, but they are still paying.
This is the first major implication of the “neutral cycle” thesis for San Diego residential real estate: weaker macro momentum does not automatically mean weaker pricing when inventory remains constrained. In many markets across the country, softer job growth would lead to more visible price pressure. In San Diego, scarcity changes the equation. Too few owners want to sell, too few homes are being added, and too many buyers still want access to the region’s schools, coastal lifestyle, climate, and job base. That imbalance matters more than the lack of a classic boom.
Mortgage rates are a big part of this story. Freddie Mac reported the average 30-year fixed mortgage rate at 6.22% on March 19, 2026, up from 6.11% the prior week, though still below the 6.67% level a year earlier. Rates at this level are high enough to reduce affordability and dampen activity, but not high enough—at least so far—to trigger broad distress. Instead, they have created a lock-in effect. Millions of homeowners refinanced or bought at much lower rates in prior years and now have a powerful reason to stay put. That shrinks resale inventory and helps support prices even as buyers complain, correctly, that monthly payments remain difficult.
This lock-in effect is even stronger in California than in many other states. Homeowners here often hold properties far longer than the national average, helped by tax incentives embedded in Proposition 13. The result is a market where owners have both financing and tax reasons not to move. That does not help affordability, but it does create a stronger floor under prices than a standard macro model might predict. In a place like San Diego, that means elevated mortgage rates may reduce mobility far more than they reduce valuations.
The second major implication of the article is about who still has spending power. Nationally, consumer spending has become increasingly concentrated in higher-income households. That matters for residential real estate because San Diego is not a purely middle-income housing market. It is a market supported by a significant cohort of higher-earning households tied to biotech, defense, medicine, law, entrepreneurship, finance, and long-held real estate wealth. BLS data show San Diego’s average weekly wage at $1,558 and annual household expenditures at $108,694, with housing as the largest spending category. That does not mean affordability is healthy; it means the region still contains enough financially resilient households to keep competing for limited inventory, especially in prime submarkets.
This creates what I would call a two-speed housing market. In the upper-middle and premium segments—coastal neighborhoods, good school districts, established infill communities, and high-quality detached housing—demand remains surprisingly durable. In the more payment-sensitive segments, especially where buyers are more dependent on conventional wage growth and mortgage affordability, demand is less robust. That divergence already appears in the latest local data. Detached housing in San Diego showed price growth and very low supply, while the attached segment was noticeably softer: attached median prices were down 2.2% year over year to $660,000, days on market climbed to 50, and months of supply stood at 2.8. That is still not a distressed market, but it is clearly more rate-sensitive and less insulated than detached housing.
For Southern California more broadly, the same logic applies, but unevenly. Coastal and land-constrained markets such as San Diego and parts of Orange County are likely to remain more resilient because scarcity and higher-income demand provide support. Outer-ring and more affordability-dependent markets may feel the slowdown more acutely. Those buyers are more exposed to financing costs, commute burdens, and slower wage growth. In those markets, a neutral macro economy can translate into longer selling times, flatter prices, and more concessions even without a formal recession. California’s statewide data already point in that direction: February’s median home price was $830,370, up only 0.9% year over year, while year-to-date statewide sales were still down 0.7%. That is not a boom. It is exactly what a slow, uneven, rate-constrained market looks like.
Another important point from the CRE article is that higher interest rates have not triggered the kind of systemic credit event many people expected. That matters for housing because forced selling is still limited. A true price reset in residential real estate usually requires one of two things: a big supply surge or widespread distress. Right now, neither appears dominant in San Diego. New home sales nationally have weakened, construction costs remain elevated, and builders continue to face labor and lot constraints. Even where local governments talk more seriously about housing production, the actual pace of deliverable housing remains constrained by entitlement timelines, infrastructure costs, insurance, and financing. So while demand may be imperfect, supply is still more imperfect.
This is why the market feels so confusing to many participants. Buyers look at rates above 6%, stagnant affordability, and soft economic psychology and assume prices should fall. Sellers look at their ultra-low mortgage payment, limited local inventory, and continued buyer competition for good homes and assume values should hold. In San Diego, the sellers have mostly been right. The market is not hot in the old sense. Homes generally are not flying off the shelf in a weekend the way they did in the post-pandemic frenzy. But a slower market is not the same thing as a cheap market.
What does this mean for owners, investors, and developers in San Diego and SoCal?
First, it suggests that holding well-located housing still makes sense, particularly detached product in constrained submarkets. Second, it suggests that underwriting should favor slower absorption and more selective buyers, not deep price crashes. Third, it reinforces the idea that affordable or entry-level product is under more pressure from financing costs, while premium and differentiated housing may continue to outperform. And finally, it means that land and development plays should be approached with realism: the demand story is still there, but the velocity story is weaker.
For homebuilders and developers, that distinction matters. A market can support finished values without supporting fast exits. That means projects need more discipline on timing, carry costs, and absorption assumptions. The easy-money, fast-turn version of the cycle is gone. But so is the widespread fear-driven liquidation scenario that some have been predicting for years. In practical terms, San Diego today looks less like a market on the verge of collapse and more like a market stuck in a narrow band: too supply-constrained to become cheap, too rate-constrained to become fast.
That is probably the clearest takeaway from the article’s thesis. The CRE cycle may feel stuck in neutral, but in San Diego residential real estate, neutral does not mean weak. It means slower movement, sharper segmentation, and stubborn pricing. For buyers, that is frustrating. For owners, it is protective. For investors and developers, it is a reminder that the opportunity is still there—but it belongs to those who understand the difference between a market with weak momentum and a market with weak fundamentals. San Diego, at least for now, still has the former much more than the latter.
Alex Lisnevsky