Real Estate Market 2023

Debunking the Fear of Another Housing Crash

The echoes of the previous housing crash still haunt many potential buyers and sellers, making them wary of entering the market. It's an apprehension, seemingly solidified by Fannie Mae's December consumer survey. This study showed the highest percentage of Americans believing home prices would decrease in over a decade. But why?

Prominent financial figures such as Jeremy Siegel, the Russell E. Palmer Professor of Finance at the Wharton School of Business, and Mark Zandi, chief economist at Moody’s Analytics, projected a fall in housing prices by 10% to 15%, and even 20% in the event of a typical recession. This, understandably, fanned the flames of uncertainty.

However, contrary to these expectations, home prices are experiencing a resurgence. This article aims to shed light on the truth, debunking the myths and highlighting the real growth trajectory of the housing market.

Pandemic Years Versus the Present Real Estate Landscape

The global health crisis has transformed the real estate sector in recent years. A surge in demand for personal living spaces was observed as people sought homes with dedicated offices and expansive backyards.

An influx of both first-time and vacation home buyers was seen entering the market. Mortgage rates, already at a low, were pushed to unprecedented depths. With the implementation of the forbearance program, foreclosures became almost non-existent. Home values soared, reaching levels of appreciation previously unheard of.

The market evolved into something that had always been aspired for but was rarely attainable in pandemic years. Understanding that the current rise in home prices cannot be directly compared to the increases seen over the past couple of years is vital. Freddie Mac suggests that 2020 and 2021 observed unique surges in property appreciation.

As we navigate this year, we may encounter unsettling headlines about the housing market, many of which will likely draw ill-suited comparisons with the pandemic years. The years marked by the global health crisis were exceptional and unlike any other. Therefore, consistently comparing the present state of affairs with the unique circumstances of the pandemic years is unjust and hinders our ability to progress.

The Rebound – Home Prices Are Rising

Goldman Sachs, which had initially predicted a double-digit decline in home prices, recently released a report which contrasted starkly with their original outlook.

Economists Joseph Briggs and Giovanni Pierdomenico from Goldman Sachs wrote in a new report. House sales, which also declined with rate increases, are beginning to stabilize too, they write:

“House prices are leveling out more quickly and at a higher level than would normally be expected given the rapid rise in mortgage rates.”

“House sales and prices in major economies seem to be recovering at a surprisingly fast pace,”

“But the recent data and our findings suggest that this risk may be somewhat more limited than historical relationships and models imply,”

The report titled "As interest rates climb, the global housing market is surprisingly stable" highlights an unexpected resilience in the housing market. Despite the rapid rise in mortgage rates, house prices are stabilizing more quickly and at a higher level than expected. Home prices are holding firm and rising in major economies such as the U.S., Australia, and Canada.

What Economists are Saying About the Housing Market

Lawrence Yun, Chief Economist at the National Association of Realtors (NAR):

“Inventory levels are still at historic lows. Consequently, multiple offers are returning on a good number of properties.”

Selma Hepp, Chief Economist at CoreLogic:

“We have not seen the traditional uptick in new listings from existing homeowners, so undersupply of housing will continue to heighten market competition and put pressure on prices in most regions. Some markets are already heating up considerably, but price premiums that we saw last spring and summer are unlikely.”

Clare Trapasso, Executive News Editor at Realtor.com:

“Well-priced, move-in ready homes with curb appeal in desirable areas are still receiving multiple offers and selling for over the asking price in many parts of the country . . .”

Jeff Tucker, Senior Economist at Zillow:

“. . . sellers who price and market their home competitively shouldn’t have a problem finding a buyer.”

Evidence from Core Indices

Month-on-month numbers from reputable sources such as Case Shiller and the FHFA further substantiate this upward trend. Remarkably, 56.5% of the largest markets in the country have set a new peak in home values. The Zillow Home Value Index's seasonally adjusted reading for April shows that home prices in most markets are rising again month-over-monthly this spring.

Why the Misinformation?

Given the upward trend in housing prices, why are many headlines proclaiming a crash? Unfortunately, the adage "bad news sells, and horrible news sells best" rings true in this scenario. The media often spins narratives based on dramatic events, and the story of a looming housing crash is more sensational than the reality of a steady, rising market.

For instance, San Francisco, often cited as a symbol of falling prices, is reported to have experienced a 10% decline in prices year-over-year, which is factual. Yet, Case Shiller's data tells a different story for the last quarter. Prices in San Francisco over the last quarter have only dropped by 0.3% and have increased by 1.04% over the last month. The prices are rising in San Fransisco, currently appreciating, not depreciating. So is the vast majority of the rest of the country.

Embracing a Normal Housing Market

Despite inventory being up compared to the pandemic years (arguably the most prosperous years in American real estate history), it's still well below the levels of the preceding average years. Zillow predicts home prices will rise 4.8% between April 2023 and April 2024. So, while some may negatively compare this to the meteoric appreciation during the pandemic years, the reality is that we're just returning to a regular housing market where appreciation will be more moderate.

Current Real Estate Activity

Showing Traffic is Rising

There is evidence of heightened buyer interest in the housing market, as shown by an increase in showing traffic. The latest ShowingTime Showing Index, a metric that measures the activity of buyers touring homes, demonstrates a higher number of people viewing homes than before the pandemic. Despite the slight dip compared to the buyer rush of the past couple of years, the present pace is not far behind. It's evident that a multitude of interested buyers are actively exploring available homes.

Why Are Buyers Active Amid Higher Mortgage Rates?

Given the present circumstances of higher mortgage rates than the previous year, why are buyers so engaged?

A Resilient Job Market Outpacing Expectations

Despite high inflation, multiple hikes in the Federal Funds Rate by the Federal Reserve (the Fed), and talks of a potential recession, the strength of today's job market may surprise many. More so, it is gaining further momentum. The Bureau of Labor Statistics (BLS) releases data on the number of new jobs added to the U.S. job market each month. The chart above highlights that 88,000 more jobs were created in April than in March, surpassing expert predictions. This strong growth in job creation is a clear sign of a robust job market.

Unemployment Reaching Historic Lows

Contrary to expectations of a rise in the unemployment rate due to the Fed's measures against inflation, the opposite has occurred. The unemployment rate has dipped to 3.4%, a level not seen in the past 50 years.

For those contemplating selling their homes this year, the presence of an active market filled with interested buyers can be quite heartening. With the number of homes for sale currently at a low, your home entering the market is likely to pique increased interest.

Los Angeles Real Estate Market 2023

How competitive is the Los Angeles housing market?

According to Redfin data, the Los Angeles housing market is deemed "somewhat competitive." This means that some homes receive multiple offers. On average, homes sell for around the list price and go pending in approximately 42 days. Additionally, 44% of homes in Los Angeles sold above the asking price last month, indicating high demand.

Are house prices dropping in Los Angeles?

Rocket Mortgage data suggests that homes in Los Angeles have sold for 3.2% more than they did a year ago. This indicates an upward trend in selling prices, reflecting a seller's housing market. Buyers in Los Angeles should be prepared to pay more than the asking price to secure a home.

Are homes selling in Los Angeles?

On average, homes in Los Angeles go pending within approximately 42 days, and this relatively short timeframe suggests a fast-paced market where properties are being snatched up quickly. In some cases, homes can even go pending within 21 days if they are in a desirable neighborhood and priced correctly; these homes sell for about 4% above the list price.

Is Los Angeles Real Estate Overpriced? 

While some home sellers may set unrealistic and overpriced listing prices, these properties often need help attracting buyers and linger on the market. In a competitive market like this, you should price your home at or slightly below the market rate. Doing so will generate significant buyer interest and provide the necessary exposure for your property. This increased visibility can lead to multiple offers, maximizing your profit potential.

Is now a good time to sell a house in Los Angeles?

Indeed, the current market conditions in Los Angeles favor home sellers. However, it's crucial to ensure your property is effectively marketed and priced correctly to make the most of these favorable conditions.

Is now a good time to buy a house in Los Angeles? 

While waiting for mortgage rates to decrease may seem like a strategic move for potential homebuyers, there are several vital points to consider. Firstly, waiting may increase competition as more buyers enter the market, potentially driving up housing prices. On the other hand, purchasing a home now gives buyers more negotiation power, as sellers may be more open to accepting negotiations since the buyer frenzy is less intense.  Additionally, buying now allows for the potential to refinance when rates drop, providing the opportunity to secure lower mortgage rates. Ultimately, the decision to buy now or wait depends on individual circumstances and risk tolerance, and seeking advice from mortgage professionals or financial advisors can help make an informed choice.

What are the mortgage rate forecasts?

Several organizations, including Fannie Mae, the Mortgage Bankers Association, and the National Association of Realtors, predict a decline in mortgage rates through the first quarter of 2024. The forecasts show a drop of half a percentage point to about nine-tenths of a percentage point during this period. For example:

Interest rate projection

Conclusion

As we navigate through this year and beyond, it's clear that the real estate landscape is undergoing significant transformation. Despite the shifts and challenges, opportunities remain for both buyers and sellers. Increased buyer interest, coupled with a resilient job market, suggests a vibrant and dynamic marketplace. While we can anticipate the potential for further changes, understanding these trends provides us with the knowledge to make informed decisions in our real estate journeys.

Although the pandemic years were unique, drawing comparisons with the present can often lead to misconceptions. It is vital to acknowledge that we are transitioning towards a more typical, yet evolved, housing market. By understanding these dynamics, we can move forward with confidence, making the most of the opportunities that arise in this ever-changing landscape.

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