In August of 2023, for the first time this calendar year, real estate prices in Los Angeles saw year-over-year gains. The gains continued into September of 2023. Surprisingly, the increase in prices came at a time when interest rates climbed to record highs. In this 2023 Q3 Real Estate Update we provide our breakdown of how and why this happened, and what to expect for the remainder of the year.
Mortgage Interest Continue To Rise
Staying true to its word, the Federal Reserve continued to moderately raise the target interest rate in Q3. The current Federal Funds Target Interest Rate sits at the 5.25-5.50 range, a quarter point higher than it was in Q2. This took the weekly average rate on a 30-year fixed mortgage up to 7.49%, the highest it has been since December of 2000. We anticipate the Fed will stay true to its word and will implement another moderate rate hike by the end of the year, potentially resulting in another jump in interest rates to close to the 8% range.
Interest rate data courtesy of Freddie Mac.
We should note that we do not expect this trend to continue in the long, or even mid-term. Inflation has leveled off at below 4%, significantly down from the 8% that we saw earlier this year. We expect that after one more rate hike this year, the Fed will hold steady until inflation starts to see further declines into the 2% range, after which the Fed may cautiously start to pull back on the target interest rate. When this happens, we anticipate a drop in interest rates. Buyers who lock in a property at today’s high rates may be able to refinance out of those loans, while having taken advantage of less competition during a time of high rates.
Summer Rush Sees Sale Prices Close To Record High
Surprisingly, the median sale price of an existing single family home in Los Angeles continued to climb, despite the jump in interest rates. In July of 2023, prices edged just slightly over where they were in July of 2022, and both August and September saw a 3% increase in prices compared to the same time last year. In fact, the median sale price of an existing single family home in Los Angeles set a record-high of $914,640 in September of 2023.
Data courtesy of California Association of Realtors.
The jump in prices is quite typical for this time of the year. What is unusual is its occurrence during a time when rates are on the rise. This can largely be attributed to the summer rush, but it will be interesting to see whether prices continue to remain above 2022 levels for the rest of this year. We expect that they will.
What’s Next?
In our most recent Q2 market update, we predicted that prices would continue to trend with prior years, “with the market ultimately seeing moderate gains (i.e. less than 5%) by the end of the year.” We were right when we made that prediction, and we expect that trend to continue into the end of the year and the short-term (i.e. appx. 6 months). We anticipate that in the mid-term, as the Fed begins to ease off of the current target interest rate, prices will rise more quickly as interest rates decline and buyers enter the market.
It may be wise for buyers sitting on the sideline, and who are able, to secure a property at today’s rates with the goal to refinance in the mid-term future, rather than jumping into the market when rates decline but prices begin to increase more aggressively. As an alternative, we will be encouraging our buyers to consider alternative rate mortgages in order to lock lower rates today, with the expectation that rates will adjust downward in the future.
Please call or email us at 213-973-9439 or info@esquirereb.com to further discuss our 2023 Q3 Real Estate Update for Los Angeles, or how Esquire Real Estate Brokerage can help you in the Southern California real estate market.
