Impact of Foreclosures on New Homes in San Diego: Lower Prices per Square Foot

In a recent analysis by Zillow, in the city of San Diego, California, this year new home buyers are encountering some of the most significant price reductions nationwide for new homes, compared to prices of existing homes.

According to Zillow, despite new home prices still being above pre-pandemic COVID-19 levels, buyers in 21 metropolitan areas across the United States today find lower prices in new constructions, with an average of around $3.50 per square foot, the largest observed discount in sale prices.

And according to the report, San Diego is the city where buyers find the largest discounts among all metropolitan areas. The report also indicates that new constructions sold for approximately $552 per square foot, while existing homes were priced at approximately $609 per square foot.

Starter Homes in San Diego

Zillow analysts noted in their report that Salt Lake City and Los Angeles closely followed San Diego in terms of savings on new constructions, with discounts of $53.60 and $52.40 per square foot, respectively, representing the largest savings observed so far since the last months of 2018.

This trend in price changes is believed to be mainly due to two factors: the type of construction and the smaller lot sizes where these new homes are being built, as they today occupy on average 460 square feet less than constructions built in 2018.

Zillow adds that today, smaller units are much more attractive to developers due to high interest rates, and considering that suitable land for construction is becoming scarcer, the trend increasingly leans toward smaller, more cost-effective constructions.

Another reason for the temporary expansion in sale prices per square foot, as expressed by the real estate company Zillow, is that townhouses and condos represent a smaller proportion of new constructions sold in recent months compared to 2018, when the company began tracking this data. The report also says that these townhouse and condo units are generally more expensive per square foot of living space than single-family homes.

Affordable Housing Needs in San Diego County

This report comes as new constructions gain greater importance, with elected officials across San Diego striving to close the inventory gap caused by years of underbuilding, which has driven up housing costs.

In 2023, San Diego issued more permits for new home construction than at any other time in the last decade, granting nearly 9,700 permits to housing developers. However, this number of construction licenses has not met the demand for new homes in San Diego, according to the city’s mandatory housing element, which serves as a roadmap for cities to demonstrate how they plan to meet the housing needs of their residents.

To date, it is estimated that San Diego needs around 13,500 new housing units per year across all income levels.

Available Foreclosures:

San Diego: 1200 homes available. 

Salt Lake City: 800 homes available. 

Los Angeles: 1500 homes available.

By Elias DaSilva | October 3, 2024.