Kevin's Predictions for the Q1 to Q2 Real Estate Market

Since the start of 2023, buyers, sellers, and real estate professionals have been closely watching the market to see what opportunities might present themselves over the coming year. As we look ahead to the spring 2023 real estate market, here are a few things that seem likely, if not certain, to shape the market. ?

Lower-than-Average Inventory Will Persist

While inventory has recently edged up across the country and in most regions of California, most markets are still recovering from the buying blitz of late 2020 to early 2022. As a result, even though many regions have doubled their inventory from a year ago at this time, it doesn’t mean inventory is high. As an example, consider the situation in California.

Historically, five months of inventory has been viewed as average, with higher levels pointing to a strong buyer’s market. In January 2023, California reported just 3.6 months of inventory statewide. In some regions, inventory was much lower (for example, San Francisco reported just 2.8 months of inventory in January).?

While it may be the case that the inventory levels we have historically used to determine what constitutes a low versus high inventory market need to be rethought, until an economist tackles this project, we can safely conclude that inventory is still well below average.?

Higher Mortgage Rates Will Hold the Market Steady

In addition to tight inventory, there is growing pressure on all sides of the market. Buyers want to buy, and sellers want to sell. While high mortgage rates explain why average-income buyers are stalling, many high-net-worth individuals are also currently sitting on the sidelines. If buyers across the income spectrum seem to be stalling, it likely reflects the fact that risk-averse buyers want to see which direction the market will head next before investing.?

Additional Major Price Adjustments Are Unlikely

Although many potential buyers appear to be waiting for additional price adjustments, in most regions of the United States, the market adjustment has already happened. In the face of persistent low inventory and pent-up demand from buyers who were unable to break into the market from 2021 to early 2022, a steady price climb seems likely from here on out, even with mortgage rates hovering around 6 percent.?

Still, a few regions, including San Francisco, which has been slower than other cities to bounce back from the pandemic, may continue to offer buyers opportunities well into Q2. Particularly on the luxury side of the market, the city continues to report significant price cuts. But I wouldn’t wait too long to get in on the action.?

A recent LinkedIn survey found that next to Austin, San Francisco is now attracting more new residents than any other U.S. city, suggesting it may be poised for a major rebound by late 2023. Optimism is also high in other major urban centers from Los Angeles to New York City, and so it should be. As previous periods of market volatility have demonstrated, even when real estate is temporarily impacted, in major urban centers, real estate values generally head in just one direction, and that is up.

Advice for Buyers, Sellers, and Agents ?

If you’re looking to buy, now is the time to act, especially if you are in a position to buy without financing or require a lower-than-average level of financing. In fact, if you’re waiting for a crash, you’re likely going to be disappointed.?

If you’re looking to sell, low inventory is still working in your favor, and so are prices. While you may not be able to sell your property for the price you could have demanded in early 2022, even if you’ve only owned your current property for just five years, in most regions, you’re still likely to see a strong return on your investment.?

Finally, if you’re a real estate professional, don’t get complacent. This spring promises to be another highly active season, and there is no better time than the present to start building relationships with this year’s prospective buyers and sellers.?