UCSD Rady School Forecasts Housing Prices To Fall 12% In San Diego This Year

By Chris Jennewein, Times of San Diego

February 16, 2023

A new technique for forecasting home prices based on consumer demand predicts San Diego County will see a 12% decrease by the end of this year.

The model, which leverages insights from online search activity, was recently published in a study by UC San Diego’s Rady School of Management.

The model created by Allan Timmermann of Rady and collaborators at Arhus University in Denmark tracks the rate at which prospective buyers use the internet to search for homes.

The model’s predictions have been shown to have an accuracy rate of up to 70%.

“It is one of the purest measures of potential demand that you can get because the first thing you do when you’re looking for a house or interested in buying a house, is to go to the internet and look at what is available,” said Timmermann, a distinguished professor of finance.

“Those in the market for a home leave a big footprint with their online search activity because of the time it takes — often several months — to find something that is the right fit,” he said.

The model predicts that cities like San Diego will see housing prices drop more than the national average of 5% because it’s where the market overheated the most during the pandemic, Timmermann said.

“What you saw following the lockdowns in March 2020 was that sunshine and suburbs became a big thing,” Timmermann said. “People were shifting to working from home, so they wouldn’t have to be located close to the job and then they might cut out of their area altogether, choosing to live somewhere with more space and better weather.”

“San Diego has plenty of suburbs and desirable weather, of course,” he said.

These traits plus limited supply caused prices to skyrocket across the county, but the local market has cooled by 2.5% since May of 2022 when prices peaked.

“Many households got priced out of the market so now we are seeing levels adjust,” Timmermann said.

Home prices in other cities are expected to fall even more, with Phoenix predicted to have the biggest drop at 18%.

The model’s methodology is fully transparent and replicable as the study is public, so anyone can see how it works.

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