Will a San Diego home become more ‘affordable’ this year? One study thinks so

A new study says buying a home in San Diego should be more affordable by the end of this year.

The forecast from Seattle-based Zillow doesn’t say buying in San Diego will soon be “affordable” by any economic measure — just that it should be better than it is now for new buyers.

Affordability is a loaded term in real estate, especially in expensive areas like San Diego, because what might be good for higher-income buyers could seem like another universe to thousands of people.

The recent Zillow report says buying a home in San Diego County will become more affordable because it predicts lower mortgage rates, slow-growing prices and a slight rise in incomes. It forecasts that by the end of 2026, a new San Diego County homebuyer will spend 56.2% of household income on a mortgage.

Spending more than half of your monthly income doesn’t sound great, but that is actually is better than it has been: In October 2023, Zillow said new San Diego County homeowners were likely to spend around 69% of monthly income on a mortgage. It’s about 58% right now, Zillow said.

Looking at affordability across the 50 largest U.S. metros, San Diego was forecast to be the second-least affordable metro by the end of the year. The metro area for Los Angeles and Orange counties was predicted to be the least affordable, with 65.4% of household income going to a mortgage.

“The projected path to improved affordability is one of slow, gradual change, where incomes rise, price growth remains in check and rates gradually ease,” said Kara Ng, a senior economist at Zillow. “It’s not a quick fix, but it would help buyers regain their footing while allowing homeowners to continue building wealth.”

The Zillow study stands out because it makes a forecast, something that most economists shy away from because of the high possibility of being wrong. Ng went further in her prediction, citing her key assumptions.

Zillow predicts by the end of 2026 that mortgage rates will be around 6%, home values will grow by 1.9% (much slower than historical norms) and incomes will rise by 3.3%. For the income prediction, it cited a Bloomberg survey of economists.

The U.S. Department of Housing and Urban Development says spending more than 30% of income on housing — even including utilities — counts as being “cost burdened.” It says spending more than 50% qualifies as “severely burdened” — which would apply to San Diego County homebuyers even if Zillow’s forecast comes true.

In data going back to 2018, Zillow said the closest San Diego County came to the official definition of affordable was August 2020 when households were spending around 38.6% of household income on mortgages.

For context, Zillow said by the end of 2026, U.S. buyers would spend 32.6% of household income on mortgages — much lower than America’s Finest City. The most affordable place of the 50 largest metros, it said, will be Pittsburgh, where new buyers are forecasted to spend 22.3% of their monthly household income on homes.

The research takes into account mortgage rates at the time, median household income, and assumes a buyer will be able to come up with a 20% down payment (around $186,000 in San Diego County if Zillow’s prediction holds).

Here’s how the Zillow study breaks down for San Diego County by Dec. 31, 2026:

• A home value of $934,621, growing 1.9% in a year.
• A monthly mortgage of $5,587.
• Annual rise of median income by 3.3%, which would be about $135,100, based on current area median income figures from the San Diego County Housing and Community Development Services Department.

The value forecast is different from a straight home price prediction, which is typically higher than median sale prices. Zillow calculates the value of a typical home using the average middle third of home values (eliminating statistical anomalies at the high and low end).

San Diego County’s median home price — the point where half of the homes sold for more and half sold for less — was $872,200 in November, said Attom Data Solutions. The San Diego Union-Tribune’s Econometer panel of economists and business leaders predicted in January, on average, that the median home price would be higher at $913,462 by the end of the year.

Mortgage predictions for the end of next year have, in general, been lower than current rates (6.17% average for a 30-year, fixed-rate mortgage on Monday afternoon, said Mortgage News Daily, but recent global events might be a reason to take them lightly.

There was a sell-off of U.S. government bonds last week, tied to President Donald Trump’s threats to take over Greenland and use tariffs against nations that opposed the plan and that drove up interest rates. Mortgage rates usually follow the yields on mortgage-backed securities. These bonds typically track the yield on the U.S. 10-year Treasury.