“Be fearful when others are greedy, and greedy when others are fearful” – Warren Buffett
The future is becoming increasingly difficult to predict. One could argue that the present is also becoming increasingly difficult to understand. The United States is now drawn into one of the most consequential wars in the Middle East – the consequences of which are already being felt across the world with the largest and most severe energy disruption in history. As I often said during Covid, you could not talk about real estate without discussing the impacts of Covid. These days, you cannot talk about real estate without discussing the impacts from the current war with Iran. I spent a significant amount of time during my early adulthood in the Persian Gulf operating off the coast of Iran in the Strait of Hormuz while serving on U.S. warships as a Navy officer. Following graduation from the U.S. Naval Academy, I served on amphibious assault ships (landing Marines on the beach) and minesweepers (sweeping and hunting for underwater mines). We operated within the waters that now have missiles flying overhead and mines deployed below. Day after day we planned for and conducted exercises to prepare for the events unfolding today. Following many years on warships, I served as the officer instructor interim Executive Officer at the Navy’s Mine Warfare Training Center here in San Diego before transitioning to the Navy Reserves to complete a 24-year military career focused on amphibious and mine warfare – subjects that certainly are being discussed today within the halls of the Pentagon and around the world. Warfare, and specifically mine warfare within the Strait of Hormuz, will continue to have global economic ramifications now and into the future due to the ability for even just one underwater mine to stop 20% of the world’s oil flow- leading to a resurgence of inflation and higher borrowing costs across all sectors.
While serving in the Navy, not only did I learn about the power of underwater mines, I also learned about the power of San Diego real estate. In my 20s a mentor told me, “buy San Diego real estate as often as you can.” I did just that. After every deployment and every promotion, I used my military pay to purchase one San Diego property after another, accumulating nine properties by the time I reached my 40s. Realizing a passion for real estate, I transitioned from active duty to the Navy Reserves while earning an MBA at UCLA Anderson followed by an MSRE at USD. Armed with real estate experience and an applicable education I launched Kappel Realty Group, San Diego’s #1 veteran-owned residential brokerage team with nearly $1 billion in San Diego sales over the last seven years. We serve our clients not just by assisting with the purchase and sale of real estate, but by teaching and educating every one of our clients along the way; from the first-time home buyer to seasoned investors.
The price of real estate, like all assets, is controlled by two things: supply and demand. The current war has not yet had a noticeable effect on real estate as most contracts closing today have interest rates that were locked prior to or at the start of the war. However, as the war drags on and inflation takes hold, we will likely see the effects of higher interest rates begin to dampen demand. The 10-year Treasury note, which is the driver of 30-year mortgage rates, stood at 3.97% on Friday, February 27th, a day before the war began. Now, four weeks later, the 10-year Treasury is nearing 4.5%. Mirroring the 10-year Treasury, 30-year mortgage rates likewise have increased 50 basis points from 6% to 6.5% plus. Of course, all of this is occurring just as the spring housing market is kicking off – a spring housing market which, up until the start of the war, had been predicted to be one of the strongest in years. Throughout the first two months of 2026 we saw interest rates dropping, even taking a dip to 5.99%, and buyer demand was rapidly growing. The increase in demand saw a rise in home prices over the last few months. In fact, we saw the median price of a detached home in San Diego County rapidly rising from a median price of $1,005,000 in October to $1,092,500 in February, an 8.7% increase over a four-month period! During that same period, we saw San Diego County townhome and condo prices drop from a median price of $659K to $650K, a 1.4% drop.
One might ask why detached home prices are increasing so much while attached townhome and condo prices are dropping. While there are many answers, there are two primary drivers that I see in the market.
The first is the fact that when it comes to single family homes, San Diego is not adding much supply relative to the larger numbers of attached homes being brought online by developers. This is causing the supply / demand curve for single family homes and condos to shift in opposite directions. We are building more condos, less homes. In fact, if you drive around the County, you will see that many developers are tearing down single-family homes to build multifamily in-fill.
The second, and perhaps primary reason we are seeing the appreciation of single family outpace attached is the K-shaped economy that we live in today. There are many reasons, both political and economic, as to why our economy is diverging into a K-shape, but the bottom line is this – the rich are getting richer and the poor are getting poorer. In San Diego attached condos and townhomes are considered entry-level homes typically targeted by first-time home buyers whereas detached homes are what we call “move-up” second or third homes for those individuals that have already built up some equity and some wealth. Unfortunately, in our current K-shaped economy buyers at the lower end of the economic spectrum (first time buyers) simply do not have the buying power that they used to have and thus we are seeing a softening in condo in townhome prices. On the contrary, wealthy San Diegans (which typically are already homeowners) have seen their net worth ballon over the last half decade due to rising home values and stock portfolios. I anticipate that as we continue to build more condos than detached homes, and as the K-shaped economy continues to expand in diverging directions, we will continue to see the appreciation of detached homes outpace the appreciation of condos.
All said – I am still an optimist and there are positives worth noting. While interest rates are creeping back up, 30-year mortgage rates are still well below the peak of 7.79% that we saw in October 2023. And while mortgage purchase applications have decreased week-over-week since the onset of the war, mortgage purchase applications are still 5% higher than this time last year. Like most appreciating assets, real estate – be it a rental property or a home that you live in, is a long-term investment. When looking at the long-view, San Diego real estate has significantly outpaced the United States in terms of appreciation.
Over the last 30 years San Diego real estate has appreciated at an annualized rate of 5.91% per year, far outpacing inflation and outpacing the national home price appreciation level of 4.74%. It is hard to go broke buying and holding San Diego real estate. In fact, quite the opposite is true – it is easy to become wealthy buying and holding San Diego real estate over the long term. That is, if you mitigate risk (one way by investing in 1–4 unit properties that allow for 30-year fixed financing rather than 5+ units – a subject for another time).
I leave you with another quote that my grandfather, a WWII Navy veteran who turns 101 this year, often reminds me of: “this too shall pass.” All good and bad things come to pass. Covid came and went. This new war in the Middle East and the closure of the Strait of Hormuz will also come to pass. But what will carry on far into the future is the fact that San Diego real estate remains, and will continue to be, one of the best investments in the world.
Mortgage News Daily - 30 Year Mortgage Rates
Median Attached Home Price San Diego County - Infosparks
Median Detached Home Price San Diego County - Infosparks
San Diego Home Price Index - 1995-2025
US Home Price Index - 1995 - 2025
