Inventory vs. Demand: Navigating the Current Housing Market
The complex relationship between housing inventory and buyer demand continues to shape today's real estate landscape. Current trends in accessory dwelling units (ADUs), mortgage rates, and homeowner intentions are creating both challenges and opportunities for buyers and sellers in the current market.
ADU Programs: Solving San Diego's Housing Crisis?
San Diego's ADU (Accessory Dwelling Unit) bonus program allows homeowners to build additional housing units on their properties to help address the housing shortage.
Benefits of ADUs for VA Loan Users and Investors
The ADU program offers several advantages:
Creates affordable housing options in areas with limited inventory
Provides investment opportunities for property owners, including veterans using VA loans
Helps offset mortgage costs through rental income
Transforms underutilized spaces (like garages) into income-generating units
Creates multi-generational housing options for families
ADUs have been popular for decades, but previously, many were built without proper permits. Today's legal ADU programs make it safer and more beneficial for homeowners to create these additional living spaces. Without proper permits, insurance companies often won't cover damages if a fire occurs, as fires don't confine themselves to unpermitted spaces.
The popularity of legal ADUs has increased significantly, with 787 ADUs approved last year under San Diego's incentive program.
The Growing Popularity of Legal ADUs
For veterans and homeowners using VA loans, properly permitted ADUs represent a significant opportunity for building wealth. These additional units can provide rental income to offset mortgage payments or create housing for family members.
While some community groups have raised concerns about increased density and parking issues, the housing shortage demands creative solutions. San Diego's planning department works to ensure ADU developments are appropriate for their zones, with careful consideration of requirements like parking based on the specific area.
Current Mortgage Rate Trends Affecting Homeowners
According to a recent Redfin report, 17.7% of homeowners with mortgages now have interest rates of at least 6%—the highest share in nearly a decade.
The Shifting Landscape of Mortgage Rates
This statistic reveals two important points:
82% of homeowners still have mortgage rates below 6%
The percentage of homeowners with rates above 6% increased by 5 percentage points from just the third quarter of 2023
This "rate lock-in effect" has significantly impacted the market, as many homeowners are reluctant to sell and lose their low rates. However, some homeowners are finding themselves needing to tap into equity despite higher rates.
Many homeowners recognize that if mortgage rates will be 6-8%, it might make sense to cash out refinance rather than carrying credit card debt with interest rates of 15-32%. Credit card companies often raise rates to 33-40% when cardholders exceed their credit limits, making mortgage debt a potentially more sensible option even at today's higher rates.
Why VA Loan Refinancing Still Makes Sense for Some Veterans
For veterans with VA loans who are carrying high-interest debt, refinancing might still make sense despite higher rates. Recent case studies show veterans saving over $22,000 by consolidating high-interest debt, demonstrating that VA loan benefits remain valuable even in a high-rate environment.
Consumer credit card debt has reached record levels, creating situations where veterans and other homeowners may need to leverage their home equity despite higher mortgage rates.
One in Five Homeowners Planning to Sell
Perhaps the most surprising data point comes from a Zillow survey showing that 19% of homeowners—nearly one in five—are considering selling their homes within the next three years.
Breaking Down Future Seller Intentions
Even more striking, 48% of those potential sellers plan to list their homes within the next year. This anticipated inventory could help ease the supply shortage that has contributed to high home prices, especially in markets like San Diego where VA loan users often struggle to compete.
Urban Exodus Continues
The data showed regional differences in selling intentions:
23% of urban homeowners plan to sell
Suburban and rural homeowners show less interest in selling
Lifestyle changes remain a primary driver, not just financial considerations
This trend reflects growing families finding that urban living no longer meets their needs. People who start in urban centers with one-bedroom units often find themselves needing more space when they have children, with considerations like school access pushing them toward suburban areas.
Top Reasons Homeowners Plan to Sell
The Zillow survey revealed the most common reasons people want to sell:
55% want a home with upgraded or more desirable features
52% want more outdoor space
50% found other homes they prefer over their current home
49% want to sell for profit to use equity for other purposes
These motivations reflect broader lifestyle shifts, not just financial considerations, reinforcing that VA loan users should consider their long-term housing needs when making purchasing decisions.
Spring Market Outlook for VA Loan Users
With mortgage applications at 30-year lows, the spring housing market outlook remains uncertain.
Why Now Might Be the Right Time for VA Loan Users to Buy
Despite high rates, qualified buyers should consider moving forward rather than waiting. While interest rates can eventually be refinanced lower, home prices are likely to continue rising, making it impossible to purchase the same home for a lower price later.
Several indicators point to continued price appreciation:
The conforming loan limit increased to $806,000 in 2025, up from $766,000 in 2024
The government anticipates continued home price appreciation
Inventory remains well below pre-pandemic levels despite recent increases
Home sales running at a near 30-year low while prices continue to hit record highs
Using VA Loan Benefits in a Competitive Market
For veterans using their VA loan benefits, current market conditions may actually present opportunities:
More inventory means more options and potentially less competition
Sellers may be more willing to negotiate on price or terms
Interest rate buydowns and seller concessions are becoming more common
The ability to refinance later when rates decrease offers long-term flexibility
Strategic Advice for VA Loan Users in Today's Market
Several key strategies can help veterans and active-duty military personnel considering using their VA loan benefits in the current market:
Consider the long game: While interest rates are high now, they will eventually come down, allowing for refinancing. Home prices, however, are likely to continue rising.
Look for negotiation opportunities: With homes taking longer to sell, buyers have more leverage to negotiate terms, rate buydowns, and other concessions.
Explore ADU potential: For those interested in investment properties, look for homes where ADUs could be added to generate income and build wealth.
Act if you qualify: Qualified buyers should consider moving forward rather than waiting. Congratulations if you can afford to buy in today's market—focus on finding the right home within your budget.
Remember Warren Buffett's wisdom: "Be greedy when others are fearful and fearful when others are greedy." The current slower market actually presents opportunities for savvy VA loan users.
For veterans and military personnel navigating today's complex housing market, working with mortgage professionals who understand VA loans and current market dynamics remains crucial to making informed decisions about when to buy, sell, or refinance.
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