With the second half of 2023 complete, we are pleased to finally welcome you all to what we consider to be a “normal” real estate market. Interest rates remain stable in the mid 6% range, while prices are seeing moderate seasonal growth. Both demand and supply remain relatively low, leading to a relatively flat market. We welcome this news as it makes the market more predictable, is easier to navigate for buyers who no longer need to compete with multiple significantly above-list offers, and requires diligence on the sell-side in order to properly market and sell a property.
Mortgage Interest Rates Remain Stable
As the Federal Reserve has eased its approach on raising the target interest rate, mortgage rates have continued to remain stable at around 6.5%. Although many buyers remain reluctant or hesitant to purchase due to high interest rates relative to recent history, the higher rates have become the “new normal”, with the sticker shock due to the rapid rise in late 2022 dissipating. Understandably, the higher cost of borrowing has put downward pressure on demand. The Federal Reserve has indicated it will continue its moderate approach to the target interest rate through the end of the year, and as a result we expect the same with mortgage interest rates.
Interest rate data courtesy of Freddie Mac.
Prices See Moderate Growth
Prices in Los Angeles have similarly stabilized, with signs of normal seasonal growth during the summer months. Prices remain approximately 7% below where they stood at the same time last year. It is important to note, however, that at this time last year, interest rates remained relatively low, at about 5%. Thus, much of the difference in sale prices year-over-year is likely due to the difference in interest rates.
We anticipate that so long as interest rates remain stable, growth in terms of pricing will similarly remain relatively stable, with normal seasonal gains during the summer months. We also expect that as we reach the end of the 2023, the year-over-year price difference will decline due to interest rates in the latter half of 2022 being similar to current rates. In other, more simplistic terms, the light green line for 2023 will begin to mirror the blue line for 2022 as we approach the end of the year.
Data courtesy of California Association of Realtors.
What’s Next?
As we expected and previously predicted, 2023 has proven to be a relatively “normal” pre-covid market. In fact, viewing the chart above, the median price line for 2023 appears to be fairly similar to the lines for 2018 and 2019, i.e. pre-covid. The sharp drop in interest rates combined with the increased demand for housing caused by covid understandably rapidly drove prices up between mid-2020 and mid-2022. Since then, both demand and interest rates have reversed, leading us to what was previously considered a normal market. We expect this trend to continue into the foreseeable future, with the market ultimately seeing moderate gains (i.e. less than 5%) by the end of the 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.
