As we navigate through 2023, the real estate market continues to battle the forces of supply and demand, painting a complex picture of highs and lows, opportunities and hurdles. The housing landscape is characterized by persistent tight supply, which is slowing sales, driving up prices, and making housing affordability a significant challenge. This pressure on the market is largely due to elevated mortgage rates relative to the 2010-2021 period, causing potential sellers to hold off on listing, in what’s referred to as the “lock-in effect.”

However, not all news is grim. The housing supply crunch is creating fertile ground for developers. Rising residential construction rates in recent months suggest a silver lining amid the real estate turbulence. Yet, these efforts have not sufficiently mitigated California’s housing supply struggles. Even with increased construction activity nationally, supply constraints are expected to persist in the Golden State in the short term.

After a slight uptick in April, housing supply tightened once again. Despite a 19.0% increase in new listings from April to May, listings for existing single-family homes statewide remained almost 30% below the level from a year ago. A slight improvement in the unsold inventory index at the state level is expected in June. However, this would be due to softer demand, not an increase in supply.

In the realm of mortgage rates, recent decisions by Central Banks, including the Fed’s announcement of two more rate hikes before year’s end, have kept rates relatively steady since early June. However, with predicted easing inflation, mortgage rates are likely to decline in the second half of 2023, potentially dropping below 6%.

Despite high-interest rates, homebuilders remain cautiously optimistic. Groundbreaking on new homes surged in May, with housing starts rising more than 20% from April and nearly 6% year-over-year. Developers’ optimism stems from the ongoing tightness in the existing housing market and improving conditions on the supply side.

Meanwhile, single-family rent growth is moderating, according to CoreLogic. April’s year-over-year increase was 3.7%, a significant decrease from the 14.2% jump observed in April 2022. This deceleration in rent growth is anticipated to continue with more multifamily supply entering the market.

On the consumer front, optimism is slowly returning despite a rocky housing market. A University of Michigan survey reported a four-month high in consumer sentiment, driven by eased inflation concerns and a more positive economic outlook. However, many still expect challenging times ahead, as sentiment remains below historical standards.

The real estate market in 2023 presents a mixed bag. With high prices, low affordability, cautious optimism from builders, and improving consumer sentiment, it’s clear that navigating this landscape requires a keen understanding of market forces. 

With years of successful negotiations, an understanding of valuation intricacies in Real Estate and Commercial Business markets, and experience in timing and positioning a property, I can help you get “top dollar”! I represent properties for sale, purchase, AND Commercial Businesses as part of the Commercial Property. Contact me today at (805) 801-5889 for a complimentary consultation.