Lunch & Learn San Diego: State of the Industry
At our recent Lunch & Learn San Diego: State of the Industry, real estate strategist and brokerage team leader Patrick Kappel, Kappel Realty Group, delivered a compelling and timely presentation exploring the forces shaping San Diego’s dynamic real estate landscape. From inflation and affordability pressures to shifting demographics and long-term investment strategy, Patrick presented a deeply informed view of why San Diego remains one of the strongest and most resilient housing markets in the country.
A Market Rooted in Scarcity and Relative Affordability
Despite a median home price of $1.1 million and historic lows in sales volume this past March, Patrick emphasized that San Diego remains the most affordable relative to area median incomes among California’s five largest competing coastal metros—San Francisco, Los Angeles, Anaheim, San Jose, and San Diego.
This affordability is relative, not absolute. What sets San Diego apart is that, even with high demand and limited land availability, it hasn't reached the extreme pricing levels of its Northern California counterparts. The region’s landlocked geography creates a persistent supply constraint, which continues to protect property values and incentivize long-term investment—a dynamic that helps stabilize the market in both strong and uncertain economies.
Lessons from the Pandemic—and a Modern "Gold Rush"
Patrick recalled advising his team in early 2020 to aggressively pursue real estate as others paused. Drawing parallels to the 1918 Spanish flu, he explained how government stimulus policies led to significant inflation and asset appreciation in both eras. He coined this moment a “Gold Rush”—a period when strategic investors reap the benefits of early action.
Today, despite economic uncertainty, the same fundamentals hold: those who act decisively during volatility tend to come out ahead.
Certainty: A Differentiator in Uncertain Times
With CEOs trimming budgets, tech layoffs rising, and over 15 policy shifts announced this year alone, economic uncertainty is everywhere. Patrick emphasized that certainty, especially for tenants, is now a major competitive advantage.
Offering longer leases, bundled utilities, and predictable rent structures can enhance tenant retention and stability. It’s a strategy that doesn’t just serve residents—it appeals to investors, too. In a volatile economic environment, San Diego’s real estate market offers rare predictability.
A Changing Buyer Profile and Shifting Wealth Demographics
While headlines highlight out-migration from California, Patrick noted that those leaving are typically priced out—while those arriving often come with liquidity. Many new buyers are wealthier, with cash offers in the $1 - $3+ million range, reshaping the region's buyer base and keeping prices strong.
This trend is reinforced by San Diego’s rapid growth as a biotech and tech hub, attracting professionals with high earning potential and long-term housing demand. In fact, from 2019 to 2022, LinkedIn data revealed that no U.S. city had a greater percentage growth in tech jobs than San Diego.
Affordability and Rising Operating Costs
Affordability is reaching a tipping point: 60–70% of household income is now going toward housing, a massive jump from the previous norm of 40%. Insurance premiums in Southern California are rising 40–60%, and income growth has failed to keep pace with rent appreciation—up 145% since the start of the pandemic.
Patrick also warned that while mortgage rates are unlikely to fall below 6% in the near term, demand for rentals will persist. The inflation rate for May 2025 stands at 2.8%, remaining above the Federal Reserve’s target of 2%. Patrick cautioned that any premature cuts to interest rates could risk reigniting inflation, a scenario the market can ill afford in its current uncertain state.
Inventory Pressures and the Vertical Future
While national inventory levels are rapidly rising, San Diego’s available housing stock relative to demand remains constrained with roughly 3.5 months of for-sale housing supply relative to the historic norm of 4.5 months of supply. Homes may take slightly longer to sell, but the region hasn’t experienced the price corrections seen in other markets—and Patrick explained why that’s unlikely to change.
Over the past 50 years, San Diego had room to build outward. But today, we have limited land to build. As Patrick put it, “The only direction left to build is up.” That means future housing development will increasingly take the form of condos, duplexes, and multifamily units.
This trend has a direct consequence: single-family homes remain scarce and hold a price premium. With limited capacity to add more detached housing, their value is further reinforced by exclusivity and long-term demand. In Patrick’s view, this is one of the core reasons San Diego’s home values are likely to continue rising—especially for single-family product types.
Why San Diego Still Outperforms
Despite rising costs and a challenging macroeconomic landscape, San Diego is still one of the best markets in the U.S. to own property. With strong job growth, a changing buyer base, and a natural limit on supply, the region is uniquely positioned for long-term value.
Patrick closed with a powerful reminder: “Buy real estate. Never sell.” In a state with the fourth-largest economy in the world, in a city rapidly redefining itself as a tech and innovation capital, real estate remains the most dependable asset for the long game.