San Diego Housing Crisis:

Case-Shiller Index: San Diego home prices continue downward trend

Total Cost of Ownership Traps Sellers and Freezes Market

BOTTOM LINE UP FRONT: San Diego's housing affordability crisis extends beyond purchase prices to encompass crushing total ownership costs—property taxes, insurance, HOA fees, and Mello-Roos assessments—that not only make buying unaffordable but also trap existing homeowners, particularly baby boomers seeking to downsize. These costs erode sale profits, while capital gains taxes and property tax reassessment fears keep would-be sellers locked in place, further constricting inventory and perpetuating the crisis.

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San Diego's housing market dysfunction operates through multiple reinforcing feedback loops. While headline home prices declined 0.9% in September—the fifth consecutive monthly drop—the true crisis lies in total ownership costs that make buying economically irrational while simultaneously trapping existing homeowners who might otherwise sell.

The Total Cost Trap

Monthly payments for starter homes statewide have climbed nearly 80% since 2020 to over $3,400, while mid-tier homes now carry average monthly payments of $5,536, according to California's Legislative Analyst's Office. These mortgage figures represent only the beginning of ownership burdens.

For a median-priced San Diego home at $900,000 with 20% down:

Monthly Mortgage Payment (7% rate): $4,787 Property Tax (1% base): $750
Homeowners Insurance: $150 HOA Fees (median): $360 Mello-Roos (newer developments): $250

Total Monthly Cost: $6,297

This compares to average rent of approximately $2,100 statewide—a $4,197 monthly premium for ownership. Yet these same costs erode the equity homeowners might extract when selling, creating a financial trap that keeps inventory frozen.

How Ownership Costs Devour Sale Profits

Consider a baby boomer who purchased a home in 1991 for $240,000, now valued at $900,000. The apparent $660,000 gain vanishes under scrutiny.

Many boomers whose homes have surged in value now face massive capital gains tax bills when they sell. California's top income tax rate rose to 14.4% as of January 1, 2024. Combined with federal rates and the 3.8% Net Investment Income Tax, sellers can lose 35-38% of their taxable gain to taxes.

After the $500,000 married-couple exclusion, the remaining $160,000 gain faces taxation approaching $60,000. In 2023, 8% of US sellers made more than $500,000 in profit, up from 1.3% in 2003. If adjusted for inflation, the $250,000 cutoff for individuals would be $496,000 in 2024 dollars—but Congress has never updated the 1997 thresholds.

Transaction costs consume another 6-8% of sale price ($54,000-$72,000 for a $900,000 home). The seller's net proceeds after taxes and costs: approximately $708,000-$726,000 from an apparent $660,000 gain.

The Downsizing Impossibility

A homeowner who sells for $500,000 may find that a condo in their same area is $450,000, leaving minimal financial benefit. In San Diego County, 55.2% of homes have HOA fees with median monthly costs of $360, ranging from under $100 for suburban homes to over $1,000 for luxury condos.

While Proposition 19 allows homeowners 55+ to transfer their property tax base to a replacement home anywhere in California up to three times, the benefit diminishes rapidly. If the replacement home costs more than the original, the difference is added to the transferred assessed value. For downsizers moving to expensive coastal areas or newer developments with HOA fees and Mello-Roos, property taxes plus monthly assessments can approach or exceed their previous total housing costs.

The financial calculus becomes brutal: after paying capital gains taxes, transaction costs, and facing new HOA fees plus potential Mello-Roos on a replacement property, boomers find they're spending comparable or more money for less house—while depleting retirement savings in the process.

Inventory Locked by Financial Reality

Empty-nest baby boomers own 28% of large homes, twice the 14% owned by millennials with children. Half of boomers own their homes outright, so rate lock-in doesn't apply. For those owning outright, median monthly ownership costs including insurance and property taxes total just $612.

Many boomers say they want to downsize but it doesn't make financial sense. Others close extra bedrooms and try not to maintain them, concluding "it's just too much house at this point". When older adults decide their homes are too big, they must move out of their neighborhoods because zoning allows only single-family homes, with no smaller options available.

CoreLogic chief economist Selma Hepp notes people are "feeling locked in" by capital gains taxes. A Clever Real Estate survey shows 54% of boomers have no intention of ever selling, citing homes that fit their lifestyle and desire to age in place.

The result: Boomers refusing to downsize contribute to keeping inventory tight, perpetuating the shortage that drives prices beyond reach of younger families.

The Inheritance Tax Cliff

Proposition 19, effective February 2021, essentially eliminates parents' ability to pass Proposition 13 tax bases to children, with limited exceptions for primary residences worth under $1 million where children live in the home. All inherited rental, business, and vacation properties are fully reassessed with no exceptions.

This eliminates another traditional path to housing access. Children who might have inherited parents' homes at favorable tax assessments now face full market-rate reassessment, making inherited properties unaffordable to keep and forcing sales into an already dysfunctional market.

The Vicious Cycle

The interconnected cost structure creates a self-reinforcing trap:

1. Total ownership costs (mortgage + taxes + insurance + HOA + Mello-Roos) make buying unaffordable for typical families
2. These same costs erode profits from selling, making downsizing financially unattractive
3. Capital gains taxes consume 35-38% of profits above $500,000
4. Boomers stay in place, restricting inventory
5. Limited inventory drives prices higher, worsening affordability for buyers
6. Prop 19 eliminates inheritance tax benefits, forcing heirs to sell rather than keep properties
7. Young families remain priced out, unable to compete with the few buyers who can afford total ownership costs

Policy Responses Miss the Mark

Recent legislation focuses on production without addressing the cost structure. Two bills eased California Environmental Quality Act review standards while Senator Wiener's measure allows high-density development near transit regardless of local zoning. Yet even if production goals were met, the fundamental economics remain prohibitive.

California's homeownership rate has barely changed over three decades, running approximately 10 percentage points below the national average, with particularly stark disparities for Black and Latino residents. Nearly 50% of lower-income families unable to purchase are Latino, who continue renting rather than building equity.

Market Outlook: No Relief in Sight

The S&P Case-Shiller Index shows San Diego tied with Seattle for the second-steepest monthly price drop at 0.9%. Zillow reports median discounts of $50,000 from initial list prices in San Diego. Yet these corrections address neither the total cost burden nor the structural factors trapping inventory.

Housing market experts predict minimal changes in 2024, with most boomers staying in place. "Demographics don't tsunami, they trickle," says First American chief economist Mark Fleming. The anticipated "silver tsunami" of boomer downsizing won't materialize when the economics make selling financially destructive.

The confluence of crushing total ownership costs, capital gains taxation, property tax reassessment fears, and inadequate smaller-home inventory creates a market where neither buying nor selling makes economic sense—freezing San Diego's housing market in permanent dysfunction regardless of nominal price fluctuations.

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Sources

1. California Legislative Analyst's Office (2024). Housing Affordability Report. Sacramento: LAO. Available at: https://lao.ca.gov

2. S&P Dow Jones Indices (November 2024). S&P CoreLogic Case-Shiller Home Price Indices. Available at: https://www.spglobal.com/spdji/en/index-family/indicators/sp-corelogic-case-shiller/

3. Axios San Diego (February 2025). "San Diego's share of homes with HOA fees outpaces national average." Available at: https://www.axios.com/local/san-diego/2025/02/18/homeowners-association-fees-hoa-dues-san-diego-county

4. NPR (April 2024). "Baby boomers own big houses and it's affecting the housing crunch." Available at: https://www.npr.org/2024/04/18/1244171720/baby-boomers-large-houses-millennials-homeownership

5. CNN Business (January 2024). "Boomers are not moving out of their big homes, here's why." Available at: https://www.cnn.com/2024/01/29/economy/why-boomers-are-not-moving-out-of-their-big-homes/

6. Burrowes Real Estate (December 2024). "How Capital Gains Taxes Trap Boomers." Available at: https://www.burrowes.com/blog/how-capital-gains-taxes-trap-boomers-and-what-it-means-for-buyers-in-2026/

7. HousingWire (January 2025). "Capital gains tax discourages older homeowners from downsizing." Available at: https://www.housingwire.com/articles/capital-gains-tax-discouraging-older-homeowners-from-downsizing/

8. California Association of Realtors (2024). "Proposition 19: Property Tax Portability." Available at: https://www.caprop19.org/propertytaxportability

9. Redfin (2024). Baby Boomer Housing Analysis. Available at: https://www.redfin.com

10. San Diego County Assessor's Office (2024). Property Tax Information and Mello-Roos Districts. Available at: https://arcc.sdcounty.ca.gov

11. Zillow Research (Fall 2024). Home Price Analysis and Market Trends. Available at: https://www.zillow.com/research/

12. Fortune (December 2023). "Housing market experts split on whether the 'silver tsunami' will happen." Available at: https://fortune.com/2023/12/26/housing-market-silver-tsunami-baby-boomer-downsizing/