Selling or buying a home at the right time can make a ton of difference in an era with a volatile real estate market, and no other market in the nation keeps industry watchers guessing as much as Los Angeles and Southern California. 

From the stratospheric rise in values during the COVID-19 pandemic to the emerging threat of a recession, the last few years have felt like a roller coaster for industry experts and homeowners alike. No prediction is ever set in stone, but taking a look at current trends can help homeowners and buyers decide when to act. 

For sellers interested in putting their homes on the market and buyers wanting to make an offer, what does the rest of 2023 have in store? Will the country fall into a recession and cause a housing market reset? Will the lack of inventory continue to make Southern California a unicorn when it comes to real estate? Let’s find out. 

What Did Industry Insiders Predict Last Year for 2023?

In 2022, economists, real estate agents, and industry watchers generally believed that the real estate industry wouldn’t exhibit any huge changes over the next year. Persistent low inventory would work against any economic downturns or interest rate hikes that would normally cause a drop in values and sales activity. 

If we look at a 2022 article from USA Today, it appears as though those predictions have remained mostly true so far. Low inventory, particularly in places like Southern California, has prevented any meaningful drops in values despite the specter of a recession. 

Last year, predictions by the California Association of Realtors (CAR) included a drop in home prices of 8.8 percent for 2023. As of March 2023, Redfin measured a drop of 4.4 percent for median sales prices in Los Angeles. 

If the country enters an official recession, prices may continue to drop to reach CAR’s expected change of -8.8 percent. Overall, the real estate market in Los Angeles is less competitive than it was in 2022, which has been a contributing factor in home sale prices.

The Mansion Tax in Los Angeles

One factor that will likely influence the remainder of 2023 is the Los Angeles “mansion tax,” which introduced a four percent tax on home sales above $5 million and a 5.5 percent tax on home sales above $10 million in Los Angeles. 

According to an article from The Daily Mail, just two homes above $5 million sold in April 2023, the month the mansion tax came into effect. In March, right before the policy went live, 126 homes above $5 million were sold. The tax was introduced by the City of Los Angeles in an effort to combat affordable housing issues and homelessness. 

It’s possible that some owners of homes worth more than $5 million are waiting to put their homes on the market until a pair of lawsuits make their way through the California court system. Those lawsuits argue that the tax is unconstitutional. 

Will the mansion tax impact the average homebuyer or seller in Los Angeles or Southern California? A quick search on Realtor.com indicates the median listing home price is $1.1 million, far short of the mansion tax threshold. 

It’s likely that the mansion tax will have a significant impact on the highest-priced real estate in Los Angeles but won’t be a topic of discussion for the average seller or buyer. 

2023 Real Estate Predictions in Los Angeles

If we set aside the mansion tax for the moment, some of the most impactful issues guiding the real estate market include the following:

Interest Rates Mean Homeowners Will Stay Put.

According to an article from The Los Angeles Times, homeowners enjoying a mortgage rate somewhere between 2 and 3 percent are unlikely to consider a move to a new property, with rates sitting above 6 percent. 

Elevated interest rates mean fewer homes will reach the market for the foreseeable future. Low inventory in Southern California will likely prevent a market correction. 

Los Angeles is Cooling but Not Frigid.

Numbers published by local station KTLA reveal that home prices are sinking in Los Angeles due to rising mortgage rates, thoughts of a recession, and the already high cost of homes in the region. 

However, the drop in sales prices during 2022 and into 2023 wasn’t anything near the stratospheric 32 percent drop experienced by Los Angeles homeowners during the “Great Recession” of the mid-2000s. 

Buyers May Score Better Deals Now.

Los Angeles and Southern California home values remain much higher than in most other major metropolitan areas of the country, but the modest drop in sales prices is a change from previous years. 

Buyers who were on the fence about making a purchase a few years ago might find it advantageous to enter the market now, despite high interest rates, with the expectation of refinancing a high-rate mortgage in the next few years. 

The Bottom Line in the Los Angeles Real Estate Market

As always, no one can truly predict the exact behavior of the real estate market, but many predictions from last year have come true in 2023. The real estate market in Los Angeles has cooled slightly, as expected, but it hasn’t fallen off a cliff, and it’s likely the market will continue in the same vein for the rest of the year.

Have questions?

If you or anyone you know has questions about financing or the current housing market, your expert Los Angeles mortgage brokers at Peak Finance are here to help. Contact us today at [email protected].