My cousin asked me over the holiday how the real estate market is doing. My response was, “How much time do you have?” 2023 was a challenging year that required a breadth of knowledge to navigate it with any success at all. In looking at the stats only, the number that jumps out is the very low number of homes that were listed and sold in 2023. Transactions were down ~25% from 2022 and ~40% from the high in 2021. The main cause was lower demand due to higher mortgage rates beginning in March of 2022 through to December of 2023, when they first dipped below 7% again. Prices stabilized and were only slightly lower as the lower demand was matched by the lower supply. Sellers with low interest rates were not in a rush to sell because they had nowhere to go themselves as their own buying power also diminished. The perception for sellers was also that prices were decreasing, which you can see from the graph was only partially true. Home values were still up an average of 7% a year since 2020.
Another factor in the low number of transactions is the disruption with the increase of transactions in 2020 and 2021. The high number of transactions in 2020 and 2021 changed the natural supply and demand cycle, accelerating the typical number of transactions leaving fewer natural order buyers and sellers in 2022 and 2023.
Two other factors that influenced the market are related to each other: fire hazard and insurability. For whatever reasons, climate change or state management, there have been numerous fires that have caused significant property loss. This effects certain markets that are at risk of fire. But it has also effected all real estate markets in California as major insurers have stopped issuing new policies and others are even canceling policies and leaving the marketplace altogether. And still others are dramatically raising premiums on new policies so much so it affects buyers' purchasing power because more of their monthly budget needs to go toward insurance and cannot go toward mortgage payments.
Lastly, there was a landmark lawsuit in the midwest which may effect how buyer’s agents are paid. In California, the California Association of Realtors is a leader in establishing just laws and practices so many elements of the lawsuit in the midwest have long been part of our best practices. That being said, we could start seeing that buyers will need to pay their Realtors, in addition to the purchase price rather than the seller paying for it out of the proceeds of the sale. This is a complicating development and will have a more negative impact at lower sales prices than at higher ones.
We have only touched on these topics. 2023 really was a complicated real estate year. Please contact us to learn more about the 2023 and 2024 markets and as usual anything about real estate in general.
