How Rising Mortgage Rates Shrunk Affordable Home Size by 400+ Sq Ft in San Diego

A San Diego homebuyer with a $3,000 monthly housing budget can afford a home that is 435 square feet smaller today than a year ago due to sharply higher mortgage rates and sustained price growth. This is the most significant reduction among the 50 most populous U.S. metropolitan areas, highlighting a national affordability squeeze. For buyers, this reality means compromising on space, location, or delaying a purchase altogether.

Why Can Buyers Afford Less Square Footage Today?

The primary driver is the dramatic rise in mortgage rates, which are the interest charged on a loan used to purchase a property. In September 2022, the average rate was approximately 6.7%, more than double the 3% rate available in September 2021. Combined with a 7% year-over-year increase in San Diego's median home price—rising from $749,000 to $800,000—monthly housing payments have surged. A buyer purchasing the median-priced home today would face a payment exceeding $5,000 per month, a significant jump from about $3,500 a year ago. With a fixed budget, buyers must therefore seek lower-priced, and typically smaller, homes.

How Does San Diego Compare to Other Major Metros?

The contraction in affordable space is a widespread phenomenon, though its severity varies by location. The following data, based on a Redfin analysis assuming a 20% down payment and a $3,000 monthly budget (excluding taxes and insurance), illustrates the trend across select metros.

In 29 of the 50 metros analyzed, rising rates cut at least 100 square feet from what buyers can afford. Today, a $3,000 budget buys under 1,000 square feet in six expensive metros, including San Jose, San Francisco, and New York.

What Strategies Can Buyers Use in This Market?

For buyers who need to purchase now, flexibility is critical. Based on our experience assessment, successful strategies often involve compromise. Some buyers may choose to sacrifice on location, moving further from an urban core to find more space for their money. Others might prioritize location but settle for a smaller property, such as a condo or townhome. It is also essential to get pre-approved for a mortgage to understand your precise budget and to be prepared for a competitive search for lower-priced listings.

The sharp increase in housing costs means buyers must adjust their expectations and explore compromises, whether on space, location, or home features, to navigate the current market effectively.