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Hot Property Q&A – Southern California Buying and Selling in 2023

HP Q&A 11_23
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For anyone looking to dive into the current Southern California real estate market, keeping your eyes on the I’s is more important than ever: interest, inventory, inflation and investment. Though the outlook for purchasing remains resilient, even local real estate experts have differing views on how to approach the market. For answers to some critical questions, read on for their insights.

Q: WHAT IS THE SINGLE BIGGEST FACTOR AFFECTING THE SOUTHERN CALIFORNIA REAL ESTATE MARKET IN\ 2023?

HP Q&A 11_23
Scott Ehrens
Agent

Compass

Ehrens: Interest rates, period. Even for all-cash buyers. Who doesn’t pay attention to the cost of capital? Sellers are also very much affected. Why? Most sellers have amazing low-interest-rate loans in place. While they may have traded their pretty good house for a better one in a normal environment, now they’d have to give up their 3% mortgage for a new one at 8%. Even downsizing to a less expensive home can still lead to higher monthly cost. This will continue to keep inventory low. Interest rates will likely drive an inventory shortage throughout 2024.

“It’s ALWAYS a great time to buy real estate, but the 2024 market will likely favor buyers!”

— Joyce Rey

HP Q&A 11_23
David Kramer
President
Hilton & Hyland

Kramer: In my many years in the real estate business and seeing markets shift up and down, the single biggest factor is people’s expectations of the future of the real estate market. Everything else, such as interest rates, pandemics, and banking crises are all factors that are taken into consideration, but the biggest thing is people looking into the future and what they believe may happen. One example would be the beginning of the pandemic, where the market dropped for a brief period when everyone thought the future would be bleak and rebounded fiercely as soon as people realized there was an upmarket ahead of us.

HP Q&A 11_23
Joyce Rey
Head of the Coldwell Banker Global Luxury Division for Southern California
Coldwell Banker

Rey: It’s hard to say because there are so many factors! Perhaps the biggest is the general affordability crisis for real estate in the Los Angeles area, particularly in the luxury market. The ULA tax on properties $5M and above, high interest rates, as well as uncertainty in the financial markets are also factors. Sellers have to price their properties conservatively so they are positioned to be a remarkable value in order to attract buyer interest.

“Buy desired location. You can do anything to a house - change it, tear it down, etc., but you cannot change the location.”

— CRAIG KNIZEK

HP Q&A 11_23
Cindy Ambuehl
Executive Director, Luxury Estates
Christie’s International Real Estate

Ambuehl: It is really hard to pinpoint one specific factor currently affecting the Southern California real estate market. This year, the market has presented many significant challenges, primarily attributed to higher interest rates, increased insurance costs, the implementation of ULA in the city of L.A., the proposed Wildlife Ordinance, and various other variables. These factors have compelled us to think creatively, surpassing our usual approaches. We have prioritized patience and engaged in more conversations with our clients than ever before. The advantage of selling real estate in the luxury market is that these slowdowns are only temporary.

“Do your market research so when a deal comes by, you’re ready to go without doubts.”

— David Kramer

Knizek: Interest rates.

Q: HOW SHOULD POTENTIAL HOMEBUYERS APPROACH PURCHASING A HOME IN THE REGION’S HOTTEST AND MOST ACTIVE NEIGHBORHOODS?

HP Q&A 11_23
Craig Knizek
Managing Partner
The Agency

Knizek: Have faith in L.A.’s resiliency and desirability that there will be long-term appreciation. Certainly, it will not crash.

Rey: First, they need an experienced, professional realtor to guide them. They need to carefully scrutinize the entire market, including off-market properties, and be prepared with proof of funds or financial qualification from a mortgage broker. In multiple bidding situations, often a personal letter describing your family’s situation can be helpful. It’s the old Boy Scout motto: “Be prepared!”

Kramer: My best advice is to be ready to buy when you find the perfect home. For example, not only have your financing in place, but also understand the buying process, look at the forms in advance if you don’t know them already, and do your market research so when a deal comes by, you’re ready to go without doubts.

Ambuehl: Be patient and flexible, as the market can be competitive. Get pre-approved for a mortgage, work with a reputable and experienced agent, and prioritize your locations and must-haves. At Cindy Ambuehl Group, we offer personalized solutions, provide transparent communication, and leverage our extensive network. Client satisfaction isn’t just a goal; it’s our standard.

Ehrens: More and more, decisions will be made based on where one is in one’s life and one’s goals. With inventory tight, the likelihood of once-in-a-lifetime or once-in-a-cycle opportunities increases. There is an old saying, “You marry the house but date the rate.” If you can secure your dream property in your dream neighborhood and can tolerate a higher rate for months (or perhaps years) until rates return to a level below 5%, it might be wise to do so. Truly great properties trade less frequently these days. The winning buyers will act quickly with commitment and skillful representation.

“We are lucky to live in a place that is extremely resilient in regard to the market; we are the last to fall and the first to rise.”

— Cindy Ambuehl

Q: IS 2023 BE A GOOD TIME TO LOOK FOR A SECOND HOME, A VACATION HOME OR AN INVESTMENT PROPERTY?

Ambuehl: I always say that California real estate is a smart investment. We are lucky to live in a place that is extremely resilient in regard to the market; we are the last to fall and the first to rise. The economy will eventually pick back up and those second homes and investment properties will show their worth. 2023 has definitely presented its challenges but nonetheless, the future of California real estate remains a positive one!

Rey: It’s ALWAYS a great time to buy real estate, but the 2024 market will likely favor buyers!

Kramer: Yes, I do feel this would be an ideal time to pick up that second property you may have always been thinking of. You can make your best deal now based on the high interest rates and when the rates adjust down, you’ll have a good property for a good price and a good rate.

Ehrens: The cap rates on investment properties have been compressed to some extent by the cost of capital of late. I would focus my attention on A+ locations that seem poised for long-term outperformance, rather than cap rate. We still face a long-term housing shortage and longterm players will benefit. The second home and vacation home markets are in flux as AirBnB ROIs have also taken a dip since the go-go days of 2020/2021. There may be opportunities, but there also may be quite a bit of inventory coming from disenchanted short-term rental owners.

Knizek: I believe that the high interest rates are prohibitive, certainly not conducive, to purchasing a second home or investment.

Q: IN AN INFLATION-INFLUENCED ECONOMY, MANY HOMEBUYERS ARE LOOKING TO GET THE MOST OUT OF THEIR MONEY. WHAT ARE THE BEST METHODS TO ENSURE MAXIMUM RETURN ON INVESTMENT?

Ehrens: My first filter on real estate investments will always be location, location, location. Any opportunities that pass that filter and that produce a reasonable rate of return even in today’s high interest rate environment are likely excellent long-term plays. Now more than ever I’d focus on blue chips, if you can.

Knizek: Buy desired location. You can do anything to a house - change it, tear it down, etc., but you cannot change the location. Buy what you want in the area/street you want to live. Residential real estate is certainly an investment, but it’s tangible and has real-world benefits. It’s where your children play, where your family gathers, and where you shop. You generally only get ONE house; be in the location that fits your life.

Kramer: There is a saying in real estate, you make money when you buy, so my best advice would be to study the market that you are looking to purchase within and be able to move very quickly when the right deal comes along. That’s what my savviest investor clients have always done when they want to get the best deals.

Rey: Purchasing in a prime location will always get you the best return. There is nothing more important than that. Just like the old adage in real estate says: “Location, location, location!”

“With inventory tight, the likelihood of once-in-a-lifetime or once-in-a-cycle opportunities increases.”

— Scott Ehrens

Ambuehl: While interest rates remain high, buyers should be focusing on location, location, location. What is the best location for their children’s school, their family, friends, their community and lifestyle? Interest rates will eventually come down, and buyers will have the opportunity to refinance. But a location cannot just be changed. Buyers should feel as eager now, as ever, to buy California real estate. It always bounces back, and we have always recovered more quickly than other markets. There should be confidence in buying, as always.

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