📢 Randy Zimnoch's 🏠 Predictions for the 3rd Quarter and 2nd Quarter Recap of the Real Estate Market

LOOKING BACK AT QUARTER 2:

Quarter 2 performed better than many expected, especially for detached homes.

• Buyer demand remained relatively resilient despite mortgage rates staying elevated for most of the quarter.

• Home values continued climbing through the spring and into early summer.

• Inventory increased seasonally, but not nearly as much as it did during the previous two years.

• The lower-than-expected inventory growth helped prevent buyers from gaining too much leverage over sellers.

The biggest story continued to be the widening difference between detached and attached housing.

• Detached homes continued to outperform and reached a new median-price peak in June.

• The gap between detached and attached median price per square foot continued to widen.

• Detached homes also experienced considerably stronger showing activity.

• Attached homes, particularly condos, continued facing greater pressure from:

  • HOA fees,

  • insurance concerns,

  • special assessments,

  • limited outdoor space,

  • and buyers questioning whether the cost of ownership makes sense compared to renting.

This is no longer a temporary monthly fluctuation.

• Buyers are consistently showing a stronger preference for detached homes.

• Townhomes and twin homes with usable outdoor space are also generally holding up better than traditional condos.

• Condos can still sell successfully, but they need to be priced appropriately from the beginning.

Inventory was another important Q2 story.

• Inventory moved above 6,000 homes during the quarter.

• However, inventory appears to have reached its annual peak in May, which was approximately one month earlier than last year.

• New listings came onto the market more slowly than they did during the previous two years.

• At the same time, sales activity improved, preventing inventory from growing as much as many expected.

• For comparison, at the end 2nd quarter, we had 26% less active inventory compared to end of 2nd quarter last year.

That combination created a more balanced market than last year.

• Sellers were not completely beholden to buyers.

• Buyers were no longer agreeing to anything the seller wanted.

• Well-priced properties continued moving.

• Overpriced properties increasingly required price reductions or longer marketing times.

Price reductions became more common toward the end of Q2.

• That did not mean the market was collapsing.

• It meant some sellers were pricing according to where they hoped the market was going, rather than where the market actually was.

• Buyers became increasingly selective as more listings came onto the market.

• Properties with condition issues, high HOA fees, poor presentation, or aggressive pricing started sitting longer.

The market rewarded sellers who were realistic, prepared and strategically priced.

Mortgage rates remained the primary headwind.

• Rates spent most of the quarter within approximately the 6.25% to 6.75% range.

• That range was manageable enough to keep buyers participating, but high enough to limit affordability and purchasing power.

• Rate volatility also caused buyers to move in and out of the market depending on their monthly-payment comfort level.

• Rising oil prices, inflation concerns, geopolitical events and the bond market all contributed to the volatility.

Despite those challenges, San Diego home values performed strongly during the quarter.

• The combined 30-day median price reached approximately $930,000 around the end of June and beginning of July.

• That moved above the prior peak established in 2024.

• The strength was primarily driven by detached homes and continued supply constraints.

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LOOKING INTO QUARTER 3 AND SLIGHTLY BEYOND:

Q3 has already started slower and more uncertain than Q2.

• New listings have been trending lower since June.

• Inventory has started stalling rather than continuing its seasonal climb.

• The 30-day median price, after rising consistently since late May, recently took a step backward.

• June or July will likely represent the peak in home values for 2026.

This does not mean a major correction is coming.

• Q3 and Q4 are normally slower than the first half of the year.

• Seasonal price declines are typical after the spring and early-summer buying season.

• Because inventory did not increase as much as it did during the previous two years, any decline may be more muted than what we experienced in 2024 or 2025.

During the second half of 2024, combined median price per square foot declined approximately 3.03%.

During the second half of 2025, it declined approximately 3.09%.

My current expectation for the second half of 2026 is:

• Approximately a 2.5% decline in combined median price per square foot.

• Potentially less of a decline for detached homes.

• Potentially a larger decline for attached homes and condos.

• Considerable variation depending on neighborhood, condition, HOA health and property type.

The average percentage of original list price is one metric I am watching closely.

• This metric often changes direction before home values do.

• When the percentage begins flattening or falling, price trends commonly follow during the next month or two.

• That trend has already started flattening, which supports the expectation that values are near their seasonal peak.

Mortgage rates remain the largest risk to the second half of the year.

• By late July, the average 30-year rate had risen to approximately 6.81%.

• That put rates at roughly the same level as one year earlier and near their highest point in 12 months.

• Purchase mortgage applications also moved back in line with last year after running higher year over year for much of 2026.

• Rates have generally been trending higher since March.

This creates a more difficult affordability equation.

• Home values are meaningfully higher than they were one year ago.

• Rates are no longer meaningfully lower than they were one year ago.

• That means the monthly payment on a similar home is now noticeably higher year over year.

• Unless rates improve, demand will probably soften further during the remainder of 2026 and potentially into early 2027.

  

  

There are two possible rate scenarios from here.

If inflation remains elevated and oil prices continue rising:

• Mortgage rates could remain near the upper end of the recent range or move higher.

• Buyer demand would likely continue softening.

• Price reductions, concessions and days on market would likely increase.

• Attached housing would probably experience the greatest pressure.

If economic and employment data continue weakening:

• Bond yields and mortgage rates could eventually improve.

• Lower rates could quickly bring sidelined buyers back into the market.

• San Diego’s restricted housing supply could cause competition and prices to strengthen again.

• However, lower rates caused by a recession would come with other risks, including job insecurity and weaker consumer confidence.

For now, I expect a slower but relatively stable second half of the year, rather than a dramatic market decline.

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STRATEGIES FOR SELLERS:

Pricing correctly matters even more now that values appear to be near their seasonal peak.

• Sellers should not price based on the strongest comparable sale from May, June or early July without considering current market direction.

• The market may have supported that price several weeks ago, but buyers are becoming more cautious.

• A listing that starts too high can quickly become stale and ultimately sell for less than it might have with the correct initial pricing.

I still like the strategy of pricing slightly below market value to create attention.

• This can generate:

  • more online views,

  • more showings,

  • more urgency,

  • and stronger negotiating leverage.

• The strategy works best when the property:

  • shows well,

  • is professionally marketed,

  • is easy to access,

  • and is located in a desirable area.

Since CA MLS allows price ranges, we can use the bottom of the desired range as the list price and explain the range in the first sentence of the public remarks.

• This allows the property to appear in more buyer searches.

• It gets more people through the door.

• It gives us the opportunity to negotiate offers into the desired range.

• It also prevents third-party websites from displaying only the higher number as the list price.

Sellers should be prepared for more negotiation than they experienced earlier in the year.

• Buyers may request:

  • closing-cost credits,

  • repair credits,

  • interest-rate buydowns,

  • longer contingency periods,

  • or price adjustments.

• Concessions should not be viewed as automatically giving money away.

• A well-structured concession can help preserve the sales price while solving the buyer’s affordability problem.

I still recommend being willing to pay the buyer’s agent commission requested in the offer.

• Many buyers do not have sufficient additional cash to pay their agent on top of:

  • the down payment,

  • closing costs,

  • reserves,

  • inspections,

  • and moving expenses.

• However, if an offer comes in substantially below expectations and requests a higher commission, we can counter both the purchase price and commission structure.

Attached-property sellers need to be especially realistic.

• Buyers are closely examining:

  • HOA fees,

  • insurance coverage,

  • reserve accounts,

  • pending litigation,

  • special assessments,

  • owner-occupancy ratios,

  • and the overall financial health of the association.

• A condo with a high HOA payment or association concerns must be priced to compensate for that additional risk and monthly expense.

Assumable loans remain a valuable marketing strategy.

• If you have an FHA or VA loan with a low interest rate, the buyer may be able to assume that loan.

• A rate in the 2% to 4% range can create a major competitive advantage while prevailing mortgage rates remain near 7%.

• These transactions have important qualification, equity-gap and liability considerations, so they need to be structured carefully.

If a property has been sitting for approximately 45 days, I would consider canceling and re-listing it as new.

• When re-listing, we should also consider:

  • changing the primary photo,

  • rearranging the remaining photos,

  • improving staging,

  • adding virtual staging where appropriate,

  • rewriting the property description,

  • and adjusting the price.

• Simply re-listing without changing the presentation or pricing usually does not solve the underlying problem.

• The property needs to feel new and repositioned, not merely recycled.

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STRATEGIES FOR BUYERS:

Buyers should have more negotiating opportunities in Q3 and Q4, but leverage will not be equal across every property type.

• A well-priced detached home in a desirable neighborhood can still generate multiple offers.

• Low inventory means buyers should not assume every seller is desperate.

• Properties that are unique, remodeled or difficult to replace may continue selling quickly.

The best opportunities will usually be found among:

• Properties that have been sitting for several weeks.

• Listings that have already experienced one or more price reductions.

• Homes that previously fell out of escrow.

• Properties requiring cosmetic improvements.

• Condos with higher HOA payments.

• Sellers who originally priced according to the spring market and have not adjusted to current conditions.

Buyers should pay close attention to:

• Days on market.

• Price-reduction history.

• Previous pending or canceled status.

• Seller motivation.

• The difference between the original and current list price.

• Whether the home is vacant or owner-occupied.

Those details frequently reveal where the strongest negotiation opportunities exist.

July through September is historically a good period to negotiate with tired sellers.

• Inventory is usually still relatively elevated.

• Buyer competition normally declines from its spring peak.

• Sellers who listed during the spring may become more flexible after several months without an acceptable offer.

October through January can create even better pricing opportunities.

• The tradeoff is that fewer properties are available.

• Buyers may receive a better price, but they have fewer homes from which to choose.

• Buyers with flexible timing and property criteria are in the best position to capitalize.

Do not overplay your hand on the right property.

• If a home:

  • is competitively priced,

  • meets most of your important criteria,

  • is in a difficult-to-replace location,

  • and has several interested buyers,

  • trying to force an excessive discount may cause you to lose it.

• The objective is to secure a good property on good terms, not necessarily to win every individual negotiating point.

Where the property has been sitting or clearly missed the market, buyers may be able to negotiate:

• A lower purchase price.

• Seller-paid closing costs.

• A temporary or permanent rate buydown.

• Repair credits.

• HOA-related credits.

• More favorable contingency periods.

• Personal property or appliances.

• A longer or shorter closing based on the seller’s needs.

Assumable loans can still create exceptional opportunities.

• Many assumable loans carry interest rates far below current market rates.

• The primary challenge is usually the equity gap between the existing loan balance and the purchase price.

• Buyers may need:

  • substantial cash,

  • secondary financing,

  • or a combination of both.

• When the structure works, the monthly-payment savings can be extremely powerful.

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FINAL THOUGHTS:

Q2 was stronger than expected, particularly for detached homes.

Q3 has already started slower, more rate-sensitive and more selective.

• June or July will likely represent the peak in home values for 2026.

• Inventory appears to have peaked earlier than it did last year.

• That limited inventory should help prevent a significant decline.

• Detached housing should continue outperforming attached housing.

• Condos will remain highly dependent on price, location and HOA condition.

• Mortgage rates remain the most important variable.

The market is not collapsing.

It is transitioning from a strong spring and early-summer market into a more balanced and negotiation-driven second half of the year.

• For sellers, pricing and presentation matter more than ever.

• For buyers, timing, patience and property selection create leverage.

• For investors, conservative exit values and realistic holding periods are essential.

• For homeowners with assumable financing, a low interest rate may provide a powerful marketing advantage.

If you are considering buying, selling, investing or exploring an assumable-loan strategy, reach out and we can evaluate your specific situation.

And as always, If you are planning on relocating to another state, let me know as I can help locate a great agent in whatever city that you are planning to move to. I will actually identify a couple great agents there, interview them on your behalf and connect you to that agent once I feel like he or she can serve you as I would here. (Bonus: I would stay involved over-seeing your purchase transaction on top of it for you and consult you along the way. That's if you value my opinion, of course.)  

 IF YOU OWN A HOUSE OR RENTAL OR KNOW SOMEONE THAT DOES: 

INFORMATION PREVIOUSLY PROVIDED IN MY REPORTS:

NEW CALIFORNIA REAL ESTATE LAWS FOR 2026: 

• California's real estate landscape in 2026 is shaped by significant new mandates that prioritize tenant rights, listing transparency, and housing density. Key laws include a new "habitability" requirement for appliances and strict rules for AI-edited property photos. 

• Tenant & Landlord Regulations

  • Mandatory Appliances (AB 628): Starting January 1, 2026, working stoves and refrigerators are considered essential for "habitability". Landlords must provide and maintain them in all new or renewed leases. Tenants may opt out in writing to use their own appliances.

  • Security Deposit Updates (AB 414): Landlords must return security deposits electronically if requested by the tenant and allow for alternative return arrangements. For leases starting after July 1, 2025, landlords must take move-in/move-out photos to document any deductions.

  • Social Security Defense (AB 246): Provides an affirmative eviction defense for tenants whose rent nonpayment is directly caused by delayed Social Security benefits.

  • Bulk Internet Opt-Out (AB 1414): Tenants can opt out of mandatory bulk internet or cable packages and deduct those costs from their rent if forced. 

• Home Sales & Marketing

  • AI Photo Disclosure (AB 723): Effective January 1, 2026, any listing photo that has been digitally altered or AI-generated (beyond basic lighting or cropping) must include a clear disclosure and a link/QR code to the original, unedited image.

  • Thirdhand Smoke Disclosure (AB 455): Sellers must disclose any known tobacco or nicotine residue (including from vaping) inside a home. Failure to disclose can give buyers a right to cancel the purchase.

  • Gas Appliance Replacement (SB 382): Sellers must disclose state or local requirements regarding the future replacement of gas-powered appliances with electric ones.

  • Federal "FinCEN" Reporting: Beginning March 1, 2026, all-cash purchases of residential property by legal entities or trusts must be reported to the federal Financial Crimes Enforcement Network to combat money laundering. 

• Development & Wildfire Safety

  • Transit-Oriented Density (SB 79): Effective July 1, 2026, this law overrides local zoning to allow denser, taller housing (up to 75 feet) within half a mile of major transit hubs.

  • Wildfire Recovery Protections (AB 851): Prohibits unsolicited purchase offers in fire-affected ZIP codes in Los Angeles and Ventura counties through 2027 to prevent predatory practices.

  • Ember-Resistant Zones (AB 1455): Requires a 5-foot "Zone 0" buffer around homes in high-risk areas to be free of combustible materials. 

• HOA & Construction Changes

  • HOA Fine Caps (AB 130): General HOA fines are capped at $100 per violation unless they pose a direct health or safety risk.

  • Private Plan Review (AB 253): If a local building department takes more than 30 days to review building plans, homeowners may hire private, certified reviewers at their own expense to speed up the process. 

• Big Beautiful Bill Act

  • As it relates to real estate, the Big Beautiful Bill Act reinstates and makes permanent the mortgage insurance premium deduction, which can help homeowner with low down payments:  READ MORE HERE

  • The bill temporarily increases the state and local tax (SALT) deduction cap from $10,000 to $40,000, potentially benefiting homeowners in high-tax states:  READ MORE HERE

  • The bill makes permanent the 100% first-year bonus depreciation deduction for qualified property acquired and placed in service after January 19, 2025.  READ MORE HERE

• Short Term Rental Laws officially came into Effect on May 1st, 2023 

  • There are still licenses available contrary to what most would expect!

  • To View All STR Regulations for the City of San Diego or to apply for a license, Click Here

OTHER USEFUL RESOURCES:

• Have you ever wondered what you might be able to additionally build on your property?

  • Search and discover what is possible on any property. Browse property and permit details. Apply for permits and rebates. Learn if an ADU is possible

    • https://symbium.com/ 

• Are your electric bills out of control?  If so, consider installing solar panels like many of our clients have.  Reply to this email and I will connect you with a couple trusted solar contacts so you can compare prices and service.

Let me know if you have anything specific that you want to discuss with my team and I.  We are here to help you navigate through it all and yes, I would love it if you can refer me to anyone that is thinking about buying or selling in Southern California.Thank you in advance!

Wishing you a fruitful 3rd quarter!