San Diego Multifamily Sales Sink 28%, Buyers Vanish

Market Volatility Reveals Sector Vulnerabilities and Recovery Signs

When multifamily sales in San Diego plummeted by 28%, it marked a dramatic market correction. Investors were left to face prolonged uncertainty in one of California’s resilient real estate arenas.

The sharp decline brought to light vulnerabilities in what was believed to be a sector immune to broader economic pressures. Transaction volumes fell as buyers retreated, leaving sellers scrambling to adjust pricing strategies. Buyers remained cautious as higher mortgage rates affected affordability, paralleling the decline in broader housing markets.

Unexpectedly, market recovery signals appeared in Q3 2025, with sales surging 52% to reach $713 million. This defied analyst expectations and highlighted the volatile trends in the multifamily environment.

Despite the recovery, the sales volumes matched the highest recorded levels in 2024. This underscored the market’s erratic performance.

Construction activity mirrored broader market instability, with multifamily permit applications declining nearly 20% in 2024. This slowdown threatens future supply and could worsen housing shortages in key submarkets.

Developers completed 4,610 multifamily units in 2024. This was marginally fewer than in 2023 but exceeded 2017 averages.

A deeper look at construction revealed stark urban and suburban disparities. Downtown San Diego expects fewer than 500 new units, while suburban areas like Mission Valley lead development.

This suburban shift indicates changing investor preferences and urban development challenges.

Vacancy rates remained stable at 4.5%, below the national average of 6%. This condition provided crucial support during the sales decline. The metro area’s sub-5 percent vacancy rates at the start of the year contributed to this tight market environment.

Rent growth projections show a 2.5% increase year-over-year in 2025, improving from 2024. Monthly rents varied greatly, with studios at $1,794 and three-bedroom units at $2,959.

Demand fundamentals stayed robust despite sales volatility. Median home prices over $1 million pushed residents toward rentals, sustaining leasing pressure.

The challenging homebuying environment reinforced demand stability for multifamily units. This was prevalent even as transaction volumes fell.

External factors added layers of complexity. Wildfires in January 2025 caused disruptions, producing uncertain impacts on multifamily performance.

Persistent economic uncertainty and evolving interest rates dampened investment and transaction speeds. Institutional investors remained cautious, monitoring market rebalance signals.

The Q3 2025 sales recovery hinted at potential stabilization, though analysts urged against premature optimism.

San Diego’s multifamily sector showed resilience contrasting with volatility in other real estate areas.

The market’s limited supply, strong rental demand, and geographic constraints positioned it for potential outperformance, despite ongoing transaction hurdles.

Frequently Asked Questions

What Is the Average Price per Unit for San Diego Multifamily Properties?

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How Long Are Multifamily Properties Staying on the Market Before Selling?

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Which Neighborhoods in San Diego Are Most Affected by the Sales Decline?

The neighborhoods experiencing the sharpest decline in multifamily sales statistics are mainly in North and East counties. These areas have witnessed high construction activity.

In contrast, Downtown San Diego is performing better. This is largely due to the sustained demand for rentals.

Are Rental Rates for Multifamily Properties Also Declining in San Diego?

Rental trends indicate that multifamily properties aren’t experiencing a decline in San Diego.

Market analysis shows that rental rates have actually increased across different unit types in Q1 2025.

This trend demonstrates landlord pricing power despite challenging sales conditions.

Economic pressures don’t seem to impact the upward trend in rental rates.

What Financing Options Are Still Available for Multifamily Property Buyers?

Multifamily buyers have various financing options available. They can explore traditional bank loans which remain a common choice.

Additionally, government-backed programs such as Fannie Mae and HUD offer reliable avenues for financing. These programs often provide favorable terms.

For those seeking creative financing, bridge loans and Commercial Mortgage-Backed Securities (CMBS) are viable options. Bridge loans are particularly useful in navigating the current elevated rate environments.

Short-term bridge financing is an alternative that helps buyers manage effectively. It allows flexibility until more stable financing is secured.

Assessment

San Diego’s multifamily sales have plummeted by 28%, reflecting broader market distress. Elevated interest rates and economic uncertainty are deterring buyers from this sector.

Industry professionals are facing increasing pressure with collapsing transaction volumes. Asset valuations also remain unstable.

The significant withdrawal of capital from multifamily investments is jeopardizing development pipelines. Existing property operations across the region are also at risk.

Recovery prospects depend on changes in Federal Reserve policies and a resurgence in investor confidence. However, market analysts caution that the downturn may continue through 2024.