One thought on the minds of future home buyers and sellers throughout Southern California is how home sales will fare in 2023, given the difficult economic factors currently impacting the industry.
According to real estate company Redfin, home sales may drop 16 percent in 2023 versus sales in 2022 due to a combination of issues like persistent inflation and the threat of a recession.
Each year, Redfin publishes its forecast for how the company believes home sales will fare in the coming year. Not only does the company publish predictions for sales numbers, but they also share their thoughts on market factors like mortgage rates.
National Home Sales Expectations
Across the nation, Redfin expects around 16 percent fewer existing home sales during 2023 than were seen in 2022. They estimate approximately 4.3 million existing home sales in 2023. Reasons for the expected decline include high mortgage rates, continuing inflation, and home prices that haven’t declined despite reduced sales activity.
The estimate suggests that home sales in 2023 will reach a low point not seen since 2011 when the subprime mortgage crisis was still impacting the country. Further, 2023 sales will sit about 30 percent lower than in 2021, when the industry was in the middle of a pandemic-influenced sales boom.
Redfin expects that sales will fall at their steepest rate in the first quarter, with a decline of 31 percent, while the second, third, and fourth quarters will see smaller declines or flat sales versus the year before. Sales may begin to recover as interest rates start to fall and create a better lending environment.
Southern California Real Estate at the End of 2022
According to data published by the Federal Reserve on the number of active listings in Los Angeles County, listings peaked in August at 11,082 and have since started a slow decline each month since. Compare those figures to November 2018, when Los Angeles County saw more than 15,600 active listings.
An analysis from Redfin on median selling prices for Los Angeles County homes shares that as of November 2022, the median was $810,000, a modest 1.2 percent dip versus the same time last year. Also, that month, the average number of days a house sat on the market before selling was 47 days, an increase of 13 days versus November 2021.
However, most notably, 3,722 homes were sold in Los Angeles County in November 2022, a rather steep decline of 43.1 percent versus the previous November. Will that trend continue into 2023?
Curiously, narrowing the scope to the City of Los Angeles shows some fascinating numbers. For November 2022, the median selling price for a home in Los Angeles was $965,000, a 3.3 percent increase over November 2021. However, overall sales volume was down by 44.3 percent versus the previous year. Despite far fewer homes sold, sales prices haven’t taken a steep dive.
The expectation by many is that the Federal Reserve will start to lower their benchmark rates to improve spending as inflation eases, which should buoy sales activity, especially in the fall when it’s expected that interest rates will again fall into the high 5 percent range.
However, prospective buyers shouldn’t assume that an interest rate reduction will come immediately. The New York Times shares that some economists believe the Fed will raise its benchmark rate again in 2023 to 5.1 before making a U-turn and lowering the rate.
Will Los Angeles Become a Buyer’s Market?
According to historical data from the Federal Reserve, interest rates hit a low of just 2.65 percent at the start of 2021 and didn’t move substantially until 2022, when the Federal Reserve began increasing their benchmark rates, which eventually pushed mortgage rates up, too.
At this point, current homeowners who might otherwise want to move into a larger home or feel ready to buy again are rethinking their timelines, especially those homeowners who already have a mortgage at a historically low rate.
An article from Forbes indicates that there have been some increases to the available housing inventory across the country, but the industry remains stubbornly in the seller’s favor, with overall inventory still well below what would be required for the market to switch gears and become a buyer’s market.
Further, in Southern California, inventory and sales volume have dropped, but a noticeable drop in median sales prices hasn’t followed. A fall in sales prices would indicate a power shift from sellers to buyers. Further, if interest rates fall somewhat, as many believe they will in 2023, that will encourage more buyers to enter the fray, which will keep the market securely in the hands of sellers.
While trying to predict the health and activity of the real estate market in Los Angeles in 2023 can help families plan whether to sell or buy a home, there’s no absolute certainty that the market will change in a particular direction.
It’s important to keep revisiting the idea of buying or selling a home and base the decision on the family’s personal circumstances rather than just the outside economic factors.
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].