Summer ’23 Housing Climate: Cool Weather – Hot RE Market

The weather in Los Angeles may be a bit cooler than we are used to this time of year, but the real estate market is definitely heating up, and buyers are starting to feel the heat as they compete over fewer homes for sale.

As we move further into the typically-busy summer months, real estate prices seem to be increasing, and in some cases surpassing the higher prices from before interest rates began to increase back in March ’22. With interest rates settling in the mid to high 6% range, buyers are seemingly beginning to accept the rates as they see prices continue to climb. Given that, we have seen a more competitive buying market, with multiple-offer situations and homes selling for over-asking when representing both sellers and buyers.

Is there any relief in sight for buyers in this hot real estate market? The honest truth is we do not know, but we can prepare you for the hot market by helping you understand the factors at play, and what you can do to stand out from the crowd without getting ‘house-burnt’.

Prices Have Increased – Why?

There is more demand than supply. In most Southern California cities, prices have increased over the last 3 months while interest rates have remained in the mid to high 6% range. A big driver for the increase in housing prices is the lack of inventory for the amount of demand from buyers. In most cities, sold inventory over the first 5 months of the year is down 25-50% when compared to last year when rates began to increase. For smaller homes, inventory can be down by more than 50% while real estate prices continue to climb.

First-time home buyers looking to enter the market usually go after smaller, more affordable entry-level homes, and these are typically very popular. As real estate prices have continued to climb, these homes become the only option for some buyers, making them even more desirable. Moreover, since prices have increased, many homeowners that could benefit from selling their current home to purchase a larger one are choosing not to move due to affordability and inventory concerns.

This cycle is creating a gap in the potential inventory that could be for sale vs how much is actually on the market. Another reality is most homeowners with sub 3% interest rates will likely want to keep the property because of the rate, possibly making it a rental, which would keep it from becoming part of the real estate market inventory. To make matters worse, more buyers are entering the market, further upsetting the supply and demand balance. The result is lots of buyers thirsty for owning a home and the watering hole keeps getting lower and lower. Just last week we had a 2 bedroom condo for sale in Rancho Palos Verdes – a typical entry-level home for the area that was well-priced with recent comparable sales. Given the lack of inventory and proper presentation of our client’s unit, we received multiple cash offers and ultimately accepted an offer that was 10% over our asking price. Given that, we can assume that there is plenty of demand for entry-level housing.

How Can You Compete?

If you are looking to buy an entry-level home in 2023 be prepared to compete, especially if the property is priced well and properly presented. Having that mentality upfront can be extremely helpful. Just like we wear a hat and sunglasses when we’re out in the sun, having the right mentality is vital to not getting burned when jumping into a hot real estate market. The entry-level home segment is the most competitive because it has the largest pool of potential buyers, so standing out can be difficult. Luckily, a clean offer is often the winning formula for getting ahead of the other buyers, and it’s not always about the price! See our clean offer post for more details.

Looking to buy in Rancho Palos Verdes, San Pedro, or any of our South Bay neighborhoods? We’d love to help! Contact us today to get expert advice on your real estate endeavor!