With 2023 well under way, we now have a better view of the impact of rising interest rates on prices in the Los Angeles real estate market. Notably, for the first time in recent history, average prices in Los Angeles started the year lower than prices at the same time last year. Whether that trend resumes into the remainder of the year will continue to depend on interest rates. In this article, we discuss the Los Angeles 2023 Q1 real estate update, and what we expect from the market for the remainder of the year.
Mortgage Interest Rates Stabilize
The second half of 2022 saw a rapid rise in interest rates as the Federal Reserve aggressively raised the target interest rate in its efforts to battle inflation. The average rate on a 30-year fixed loan quickly jumped from the 3% range in mid-2022 to over 7% in October of 2022. Since then, mortgage interest rates have slightly declined. Now, it appears that the average rate on a 30-year fixed loan has stabilized in the mid 6% range.
Interest rate data courtesy of Freddie Mac.
Prices Soften In Light Of Higher Rates
With borrowed money becoming more expensive, buyers are forced to be more discerning in their purchase decisions. Generally, the impact of higher interest rates is less demand, which puts downward pressure on prices. However, as we previously discussed, higher interest rates have also led to less supply. Homeowners who locked in interest rates of 2-3% over the past few years are reluctant to sell those homes. That decline in supply has offset some of the impact of less demand. As a result, prices have not seen the catastrophic drop that many were predicting.
The chart below reflects the median sale price in Los Angeles since January of 2018, with each color representing a different year. Upon close inspection, you will see that the line progressively moves up the chart every year, meaning prices have increased every year since 2018. The exceptions to this rule are the end of 2022 and the beginning of 2023. November of 2022 saw the first time in recent history that prices were lower than the same time the previous year. That trend continued in December 2022 and has remained the same in January and February of 2023.
The data has also borne out in reality. Sellers are seeing fewer offers on homes, and homes are sitting on the market for longer periods of time before being sold. It appears that the days of dozens of offers on homes and offer prices hundreds of thousands above list price are largely behind us, at least for now.
What’s Next?
With the Federal Reserve signaling that it is reaching an end to its target interest rate hikes, we expect mortgage interest rates to react by stabilizing and/or slightly declining through the end of the year. The market has shown that in the current environment, prices will be slightly below last year’s prices. With rates stabilizing and/or declining, we anticipate buyers will return to the market and put some upward pressure on demand. Ultimately, we expect prices this year to remain comparable to prices at the same time last year.
If you would like to further discuss our Los Angeles real estate update, or how Esquire Real Estate Brokerage can help you in the Southern California real estate market, please call us at 213-973-9439 or send us an email at info@esquirereb.com.
