San Diego Home Prices Fall for Sixth Consecutive Month in 2026

Breaking Down the October 2025 Case-Shiller Report: The Sixth Consecutive Monthly Decline

The S&P CoreLogic Case-Shiller Home Price Index is considered the gold standard for tracking residential real estate values across 20 major metropolitan areas in the United States. The October 2025 report, released in early January 2026, delivers troubling news for San Diego homeowners [1].

The key findings paint a picture of persistent decline:

• Monthly decline of 0.10% in October 2025, continuing the downward trajectory
• Year-over-year decline of 0.59% compared to October 2024
• Six consecutive months of falling prices, extending from May through October 2025
• San Diego ranking #12 among the 19 tracked metropolitan areas—an improvement from earlier months, but still showing negative growth [2]

What makes this data particularly significant is that it represents an extension of a trend we've been tracking for months. Our previous analysis in September covered the fourth consecutive month of decline [3]. Now, with two additional months of falling prices, the narrative has shifted from "temporary market correction" to "sustained downturn."

The median home price for single-family homes in San Diego County stood at $985,000 in October 2025, representing a tangible loss of equity for homeowners who purchased or refinanced at higher valuations earlier in the year [2]. For a homeowner with a $1 million property value in April 2025, the six-month decline translates to approximately $5,900 in lost equity—and that's before accounting for the costs of maintenance, property taxes, and mortgage interest during that holding period.

The Troubling National vs. Local Contrast: Why San Diego Is Underperforming by Nearly 2%

Perhaps the most concerning aspect of the latest Case-Shiller report isn't the decline itself—it's the dramatic divergence between San Diego and the national housing market. While San Diego prices fell 0.59% year-over-year, the national composite index rose 1.36%, creating a 1.95 percentage point gap [1].

This underperformance is not an isolated incident. San Diego joins a cohort of struggling Western and Sunbelt markets that were "pandemic darlings" during the 2020-2022 housing boom but are now experiencing the sharpest corrections. As Godec noted: "It's a stark reversal from the pandemic boom, as the markets that were once 'pandemic darlings' are now seeing the sharpest corrections while more traditional metros continue to post modest gains" [2].

The markets experiencing year-over-year declines alongside San Diego include:

• Tampa (-4.17%—the worst performer among tracked metros)
• Phoenix (-2.39%)
• Las Vegas (-0.67%)
• Portland (-0.62%)
• Denver, Dallas, Miami, Atlanta, and Seattle (all showing year-over-year declines) [1][2]

Meanwhile, traditional Midwest and East Coast markets are posting gains:

• Chicago (+5.83%—the best performer)
• New York (+6.39%)
• Cleveland (+4.68%) [2]

This geographic pattern reveals a fundamental rebalancing in the U.S. housing market. The cities that saw the most dramatic pandemic-era appreciation are now giving back those gains as remote work patterns normalize, migration trends reverse, and elevated costs of living push buyers toward more affordable markets.

For San Diego homeowners, this means you're not competing in a national housing market that's rising—you're stuck in a regional market that's falling while watching other parts of the country recover. The gap is likely to widen before it narrows.

What's Driving San Diego's Continued Price Erosion? Three Structural Factors

Understanding why San Diego home prices continue to fall requires examining three interconnected structural factors that show no signs of resolving in the near term.

1. Elevated Mortgage Rates Creating Affordability Barriers

As of January 2, 2026, the average 30-year fixed mortgage rate stands at 6.22% [4]. While this represents a modest decline from the January 2025 peak of 7.04%, rates remain far above the 3-4% levels that fueled the pandemic-era housing boom [2].

For context, on a $985,000 median-priced San Diego home with a 20% down payment ($197,000), the monthly principal and interest payment at 6.22% is approximately $4,820. At the pre-pandemic rate of 3.5%, that same payment would be just $3,540—a difference of $1,280 per month or $15,360 per year.

Mortgage rate forecasts for 2026 suggest only modest relief. Experts predict rates may drift down to 6.0% by mid-2026 and potentially reach the 5.5-6.0% range by late 2026 [4]. However, even these optimistic projections keep rates well above levels that would restore strong buyer demand.

2. Severe Affordability Crisis: Nearly $275,000 Income Required

San Diego's affordability crisis has reached unprecedented levels. According to a Zillow analysis, San Diego families now need an income of nearly $275,000 annually to afford a mortgage on a home—nearly double the pre-pandemic requirement [5]. This calculation assumes spending no more than 30% of income on housing after making a 10% down payment.

San Diego ranks as the fourth-least affordable major metropolitan area in the United States, trailing only San Jose, San Francisco, and Los Angeles [5]. With the Area Median Income (AMI) for San Diego County at approximately $119,500 for a family of four, the typical household earns less than half of what's needed to afford homeownership [5].

This affordability gap has decimated the buyer pool. Only an estimated 18% of potential buyers can afford to purchase a home in San Diego in 2026 [6]. As Joel Berner, Senior Economist at Realtor.com, observed: "Momentum in the housing market is struggling to pick up, as affordability constraints and a softening labor market weigh on demand" [2].

3. Inflation Outpacing Home Price Appreciation

Godec's analysis in the Case-Shiller report highlights a critical dynamic: "Elevated mortgage rates, paired with inflation that continues to outpace home price gains, have intensified affordability pressures, potentially setting a new equilibrium of minimal price appreciation or, in some markets, outright declines" [1].

When inflation runs at 3-4% but home prices fall 0.59% annually, homeowners experience a double squeeze. Their nominal equity declines while the real purchasing power of that equity erodes due to inflation. This creates a powerful incentive to convert home equity into cash before both forces continue to diminish its value.

Expert Analysis: The Market Is "Settling Into a Much Slower Gear"

The expert commentary surrounding the latest Case-Shiller report consistently points to a sustained slowdown rather than a temporary blip. Nicholas Godec's characterization of the market "settling into a much slower gear" [1] suggests a fundamental recalibration of expectations.

Lisa Sturtevant, Chief Economist at Bright MLS, offers a measured outlook: "Affordability should continue to improve in 2026 through a combination of lower mortgage rates and slower price growth" [2]. However, note the key phrase: "slower price growth." For San Diego, which is experiencing price declines rather than growth, this suggests continued negative or flat performance through much of 2026.

The consensus among real estate economists is that 2026 will be a "reset" or "transitional" year rather than a recovery year [7]. Multiple forecasts predict modest appreciation of 2-4% for San Diego by year-end 2026 [6][8], but these projections assume stabilization occurs first—which requires finding a bottom in the current decline.

For homeowners considering selling, this expert consensus raises a critical question: If the best-case scenario is stabilization followed by modest 2-4% appreciation in late 2026, is it worth holding through another 6-9 months of potential decline to reach that point? The math often doesn't support waiting.

Neighborhood-Specific Impacts: How Premium San Diego Communities Are Faring

While the Case-Shiller Index provides county-level data, the impact of falling prices varies significantly across San Diego's diverse neighborhoods. Premium coastal communities and established inland neighborhoods each face distinct challenges.

La Jolla: Luxury Market Resilience

La Jolla maintains its position as one of San Diego's most expensive neighborhoods, with median home prices around $2.5-2.8 million in early 2026 [9]. The luxury segment has shown relative resilience, with annual appreciation of 5% reported in some analyses [9]. However, this performance reflects sales of ultra-premium properties that often involve all-cash transactions, insulating them from mortgage rate pressures.

For mid-tier La Jolla properties in the $1.5-2 million range that require financing, the affordability crisis hits harder. At these price points, buyers need household incomes exceeding $400,000, severely limiting the buyer pool.

Pacific Beach: Tourist Appeal Meets Financial Reality

Pacific Beach, with a median home price of approximately $1.3 million, has seen 4.5% year-over-year appreciation in some reports [9]. However, this masks significant volatility at the individual property level. Two-bedroom rentals average $3,500/month, suggesting some investor demand remains [9].

The challenge for Pacific Beach homeowners is that the neighborhood's laid-back, beach-town appeal attracts buyers who are often stretching to afford coastal living. When mortgage rates rise and affordability deteriorates, these marginal buyers disappear from the market, leaving sellers with fewer options.

North Park, Point Loma, and Central San Diego Neighborhoods

Central San Diego neighborhoods like North Park, Point Loma, South Park, and Hillcrest occupy the critical $800,000-1.5 million price range where the affordability crisis hits hardest. These neighborhoods require household incomes of $200,000-375,000, placing them out of reach for the vast majority of San Diego residents.

Inventory in these neighborhoods has increased as sellers who listed in spring and summer 2025 failed to achieve their price expectations and now face the reality of a weakening market. Homes that might have received multiple offers in 2022-2023 now sit on the market for 60-90 days or longer.

East County and South Bay: Value-Oriented Markets

Neighborhoods like Allied Gardens, Del Cerro, San Carlos, and areas of South San Diego offer more affordable entry points, with median prices in the $700,000-900,000 range. These areas should theoretically benefit from buyers being priced out of premium neighborhoods, but even these "affordable" options require household incomes of $175,000-225,000 [5].

The result is that inventory rises across all price tiers, putting downward pressure on prices throughout the county.

The Case Against Waiting: Why "Month Seven" Will Likely Bring Another Decline

For homeowners who have watched their property values decline for six consecutive months, the natural instinct is to wait for a recovery before selling. However, the structural factors driving the decline—high mortgage rates, severe affordability constraints, and inflation—show no signs of resolving quickly enough to reverse the trend in the near term.

Consider the math of continued decline. If San Diego home prices continue falling at the current pace of 0.10% monthly (the October rate), a $1 million home loses $1,000 in value each month. Over six months, that's $6,000. Over a full year of continued decline, it's $12,000.

But the actual loss is likely greater for three reasons:

1. Carrying Costs: Property taxes, insurance, maintenance, and mortgage interest continue regardless of market direction. For a $1 million home with a $800,000 mortgage at 6.22%, monthly costs easily exceed $6,500—or $39,000 over six months.
2. Opportunity Cost: Cash locked in a declining asset cannot be deployed elsewhere. In a 5% savings environment, $200,000 in home equity generates $10,000 in annual interest if converted to cash.
3. Acceleration Risk: If the decline accelerates—as it did in some months of the current six-month trend—losses compound quickly. A shift from 0.10% monthly decline to 0.20% doubles the equity erosion.

The historical pattern of housing market cycles suggests that once a sustained decline begins, it typically continues for 12-18 months before stabilizing. San Diego is six months into this decline. The most likely scenario is another 6-12 months of flat to negative performance before any recovery begins.

For homeowners who need or want to sell within the next 12-18 months, waiting for a recovery that may not materialize until late 2026 or 2027 means absorbing more equity loss and carrying costs while hoping for a reversal that expert analysis suggests is unlikely in the near term.

Cash Buyer Advantages in a Declining Market: Speed, Certainty, and No Appraisal Risk

In a declining market characterized by financing challenges and buyer hesitation, cash offers provide distinct advantages that become increasingly valuable as traditional sales become more difficult.

Speed: 10-14 Days vs. 30-45 Days

Cash transactions close approximately 14 days faster than financed purchases, with many cash buyers able to close in 10-14 days compared to 30-45 days for traditional sales [7]. In a declining market where prices fall monthly, each week of delay represents lost equity. A two-week faster close on a $1 million home in a market declining 0.10% monthly saves approximately $500 in equity loss plus two weeks of carrying costs.

Certainty: 5-8% Higher Success Rate

The closing success rate for cash transactions is 5-8 percentage points higher than financed purchases [7]. In practical terms, this means that if a traditional financed offer has a 75% chance of closing, a cash offer has an 80-83% chance. In a declining market where buyers are increasingly nervous and prone to backing out, this certainty advantage is significant.

From a seller's perspective, a deal that falls through after 30 days in escrow means restarting the marketing process in a market that's likely declined further—often requiring a price reduction to attract new buyers. The probability of this scenario increases in falling markets as appraisals come in low and buyers develop cold feet.

No Appraisal Risk: Critical in Falling Markets

Traditional financed buyers require appraisals that meet or exceed the purchase price. In a declining market, appraisals increasingly reflect the downward trend, coming in below contract prices and forcing renegotiation or deal cancellation.

Cash buyers eliminate this risk entirely. The transaction closes based on the agreed price, regardless of appraised value. For sellers in neighborhoods experiencing notable declines, this removes a major source of deal failure.

Negotiating Power: Competing in a Market with Reduced Competition

With only 18% of potential buyers able to afford San Diego homes [6], competition has decreased significantly from the pandemic-era frenzy. However, cash buyers maintain their purchasing power regardless of mortgage rates. This creates a scenario where sellers have fewer options while cash buyers can negotiate from a position of strength.

In practical terms, a homeowner who received multiple offers in 2023 might receive one or two in 2026—and if one of those is a cash offer, it carries disproportionate weight because the alternatives are limited and carry higher failure risk.

Traditional Buyers Facing Financing Challenges: The Deal-Killer Trifecta

The challenges facing traditional financed buyers in early 2026 create a "deal-killer trifecta" that increases the risk and timeline of conventional sales.

Challenge #1: Qualifying at 6.22% Interest Rates

Lenders qualify buyers based on debt-to-income ratios, typically requiring that total monthly debt payments (including the proposed mortgage) not exceed 43-50% of gross monthly income. At 6.22% interest rates, the monthly payment on a $788,000 loan (80% of a $985,000 median-priced home) is $4,820 in principal and interest alone.

Add property taxes ($821/month assuming 1% annual rate), insurance ($150/month), and HOA fees (if applicable), and the total housing payment exceeds $5,800/month. To qualify under a 43% debt-to-income ratio with no other debts, a buyer needs gross monthly income of $13,488—or $161,856 annually.

This assumes the buyer has no car payments, student loans, or credit card debt. In reality, most buyers carry some additional debt, pushing the required income even higher. The result is that many pre-approved buyers from 2023-2024 no longer qualify at 2026 rates and prices.

Challenge #2: Appraisal Gaps in Declining Markets

When home prices fall, appraisals lag slightly behind market rates because appraisers use recent comparable sales (typically from the past 90-180 days). If prices fell 0.30% over the past three months (3 months x 0.10%), a $985,000 contract price might appraise at $982,000—creating a $3,000 gap.

In stronger markets, buyers often cover small gaps with additional cash. In declining markets, buyers question why they should bring extra cash to cover a gap when they believe prices will fall further. This leads to renegotiation demands or deal cancellations.

Challenge #3: Declining Confidence and Deal Fatigue

San Diego County is experiencing "one of its slowest homebuying years in history" in terms of transaction volume [2]. This reflects not just affordability constraints but declining buyer confidence. When buyers read headlines about six consecutive months of falling prices, they hesitate to commit, fearing they're "catching a falling knife."

This hesitation manifests in extended due diligence periods, aggressive inspection repair demands, and last-minute cancellations. Sellers increasingly report that buyers who seemed committed at contract suddenly develop concerns and back out as the close date approaches.

For homeowners pursuing traditional sales, these challenges mean longer marketing times, more deal failures, and often multiple price reductions before finding a buyer who actually closes.

2026 Market Outlook: What Forecasts Tell Us About the Coming Months

Multiple real estate forecasting firms have released 2026 predictions for the San Diego housing market, and the consensus points to stabilization rather than robust recovery.

Price Predictions: Modest Appreciation or Continued Flat Performance

Most forecasts predict 2-5% appreciation for San Diego County by the end of 2026 [6][8]. However, these projections assume that the current decline bottoms out in Q1 2026 and recovery begins by Q2-Q3. Given that we're already six months into a decline with structural factors (rates, affordability) unchanged, these optimistic scenarios face significant risk.

More conservative forecasts suggest the market will "hold steady" with 0-2% movement in either direction through mid-2026 before showing signs of recovery in late 2026 [8]. Zillow's one-year forecast predicts just 1.2% appreciation for the metro area [10].

Mortgage Rate Predictions: Modest Relief by Year-End

Mortgage rate forecasts suggest 30-year fixed rates may decline to 6.0% by Q4 2026 and potentially reach 5.5-6.0% by late 2026 [4]. While this represents improvement from current levels, these rates remain well above the pandemic-era levels that would restore strong demand.

As Lisa Sturtevant noted, affordability improvement in 2026 will come from "a combination of lower mortgage rates and slower price growth" [2]—meaning prices must stagnate or decline for affordability to improve enough to stimulate demand.

Inventory Predictions: Increasing Supply Pressure

Current inventory stands at just 2.9 months of supply for single-family homes and 2.5 months for condos [4], which technically indicates a seller's market (below the 6-month balanced market threshold). However, this low inventory exists alongside low sales volume, indicating a "frozen" market where neither buyers nor sellers are transacting in significant numbers.

As 2026 progresses, forecasters expect inventory to increase gradually as more sellers who delayed listing in 2025 conclude they can't wait any longer [8]. Increasing inventory without corresponding demand growth typically leads to continued price pressure.

The Bottom Line for Homeowners

The 2026 outlook suggests a year of transition and uncertainty rather than clear recovery. For homeowners who need or want to sell, the choice is between:

1. Listing traditionally and competing in a market with growing inventory, financing-challenged buyers, and minimal price appreciation
2. Accepting a cash offer that provides certainty, speed, and eliminates the risks of deal failure and continued decline

Neither option returns to the seller's market of 2022-2023, but one provides certainty while the other requires gambling on a recovery that may not materialize until 2027.

Frequently Asked Questions

Conclusion: Your Home Has Declined for Six Months—How Many More Can You Afford?

San Diego's six consecutive months of home price declines mark a fundamental shift from the pandemic-era boom to a new reality of affordability-constrained demand and structural price pressure. With local prices falling 0.59% while national prices rise 1.36%, San Diego homeowners face a market that's dramatically underperforming the country and showing no signs of near-term recovery.

The data is clear: mortgage rates stuck above 6%, household income requirements approaching $275,000, and inflation outpacing home appreciation have created a perfect storm that won't resolve quickly. Expert analysis points to stabilization in mid-2026 at earliest, with modest 2-4% appreciation only if conditions improve—a timeline that extends well into 2027 for meaningful equity recovery.

For homeowners in Pacific Beach, La Jolla, North Park, Point Loma, and throughout San Diego County, the question isn't whether to sell—it's how. Traditional sales face extended timelines, financing-challenged buyers, appraisal gaps, and high failure rates in a declining market. Each month you wait to sell potentially costs you equity, carrying costs, and opportunity.

Cash offers provide an alternative path: certainty instead of speculation, 10-14 days instead of 90-135 days, and elimination of the deal-killers (financing, appraisal, buyer hesitation) that plague traditional sales in falling markets. The cash offer may be 7-12% below your aspirational price, but when you account for the costs, time, and risks of traditional sales—plus another 3-6 months of potential market decline—the net proceeds often favor the cash option.

Your home has declined in value for six consecutive months. How many more months of decline can you afford to absorb while waiting for a recovery that expert forecasts suggest won't materialize until late 2026 or 2027? For many San Diego homeowners, the answer is simple: it's time to lock in certainty before month seven brings another drop.