In July, Inman gazes at the glitter and glam of the luxury real estate market. Snapshots of the country’s top luxury markets, advice from leading agents, features on what affluent homeowners want now and a breakdown of the top sales of 2023 (so far) are all in the cards leading up to Inman Luxury Connect, Aug. 7-8 at the Aria in Las Vegas. Make plans to join us now.
This is the 10th article in a 11-part series spotlighting housing markets in Virginia, Texas, Florida, California and New York and the U.S. market. Read the entire Summer Cooldown series here.
It never rains in Southern California, but hefty home prices, volatile mortgage rates, an uneasy tech industry and growing climate change concerns have slapped California homebuyers and homesellers with gale-force strength.
Rachel Swann
“The best way I would describe [the market] is a wild rollercoaster ride,” San Francisco-based The Swann Group founder Rachel Swann told Inman. “We have seen some ups and downs — some of the torrential rain pour that we saw at the beginning of the year, really gave us a slow start to spring, which caused a bit of our typical spring market trends to come in the summer.”
“In June, we saw a slight increase compared to the previous month,” she added. “But also we were seeing declines compared to 2022, and a lot of that has to do with rates, you know, the ups and downs,” she added. “Now we’re experiencing some tech layoffs, and I’ve heard there are more on the way. There’s the ongoing battle with supply and demand as well. It’s making a lot of people hold back.”
Inman spoke to eight agents across the state who echoed Swann’s sentiments and said the unpredictable nature of mortgage rates has pushed homesellers to the sidelines and tanked inventory to a one-month range based on current sales trends.
Meanwhile, retreating homsellers have compounded the list of challenges for homebuyers who must contend with a mind-blowing statewide median sale price of $796,500 — the highest seen in the Summer Cooldown series — in addition to elevated borrowing costs, insurance rates and other home-related expenses, like HOA fees.
Lauralee Ensign
“You have a lot of stop and go, stop and go,” Vacaville-based Century 21 Epic broker Lauralee Ensign said. “You have first-time homebuyers or entry-level homebuyers where the affordability is an issue for those folks, and they’re hoping either the interest rates will go down or even that the sellers will understand their plea of wanting to buy a home and reduce the prices. But it just wasn’t happening.”
Although median-home prices of $1.4 million (San Francisco), $1 million (Orange County), $975,000 (Los Angeles), $935,000 (San Diego), and $475,000 (Sacramento) are hard for homebuyers to swallow, agents said they’re encouraging well-qualified clients to charge into the storm rather than wait for headwinds to shift.
“I myself made an offer on something recently, and I was kind of just mulling it over and thinking about it,” Swann said. “I submitted my offer, and the agent called me and told me they had an NDA offer already that they couldn’t even tell me about. I wasn’t looking for a first house. I was looking for an investment opportunity.”
“If I had just moved one day quicker, I could have made it happen and potentially for less than what the property actually sold for. I’m probably a lot more immune to being upset about things not happening than most buyers might be because I’ve done several personal transactions,” she said. “Timing is everything for people and they think, ‘I’m gonna wait for the deal. I’m gonna wait for the deal.’ With the way that trends go, by the time you realize the bottom came, we’re up on the other side.”
“I don’t think there’s ever a bad time to buy real estate right now.”
Want top-dollar? Make sure it’s red carpet ready
Like their contemporaries in other states, California agents said their markets are like scales in the balance with neither side having full leverage over the other. While sellers can still get their asking price or a few percentage points above it, homebuyers are making them work for their profits — listings must be perfectly maintained.
Daryl Rogers
“I would characterize it still as a seller’s market, but it’s not as pronounced as it was a year ago or two years ago,” Better Homes and Gardens Real Estate Reliance Partners broker Daryl Rogers said. “Sellers have to make sure their home is well-priced and prepared for sale the right way. It has to be deep cleaned, staged, repainted, fresh carpet installed and inspected. If there are any issues, they must get all — or most — of them fixed beforehand.”
“It sounds simple, but not everyone does it,” he added. “If a seller does that, they can get an all-cash offer with all contingencies removed. It’s still in favor of the seller, but they have to put in effort.”
Beyond having a picture-perfect home, Chino-based Century 21 Select broker Shelinda Bryant said homebuyers in her area also put a lot of emphasis on curb appeal since full landscaping services can cost up to five figures.
Shelinda Bryant
“I don’t want to say the home has to be immaculate, but it’s about seeing the seller has done their job and the listing is good to go,” she said. “The people that are buying a fixer-upper, they want it to be almost a giveaway. They’re like, ‘Oh if I’m gonna have to do any work, you’re going have to make it a sweet, sweet deal.”
“The landscaping needs to be handled too,” she said while noting the 2018 Paradise fire made a fully-landscaped home a commodity. “The brand new houses built since the fire are beautiful, but they have zero landscaping. There’s a hefty little charge to get a property fully landscaped, and most buyers just don’t have the energy for a project.”
Most agents said there are small pockets of their markets where homebuyers can get a great deal; however, the most desirable homes — fairly-priced single-family lots with great upkeep and curb appeal — are still garnering multiple offers.
“We’re seeing multiple offer situations,” Palo Alto-based Redfin principal agent Josh Felder said. “I would kind of say during this crazy run we’ve been having for the last 12 years, it was like we were going 115 to 120 miles an hour. Now, since May, I would say we’ve probably slowed down to about 75 or 80.”
“We’re not seeing as many offers as we would have seen prior to when interest rates started coming up,” he added. “You would’ve gotten maybe eight to 10 offers, and one or two that were these outliers that were way over the asking price, because these people had written offers on multiple homes, and they didn’t win. So they got frustrated, and they finally just throw a lot of money at it. I don’t see as many of those outlier offers now.”
Although few homebuyers will find themselves locked in a 2020-esque bidding war, agents said homebuyers must make “clean offers” in cash with little to no contingencies. If a 100-percent cash offer isn’t possible, a fully-underwritten mortgage helps ease sellers’ worries that a deal will be canceled.
“I don’t think we’re back in the COVID days. It was almost comical how much higher over-asking you had to put in to get a deal,” LA County-based Century 21 Masters broker Keith Thompson said. “Right now you have a lot of investors that are jumping in the market. I mean, they have been for the last couple of years, but now that the market has kind of stabilized and is on the upward swing again, you see a lot of investors jumping in.”
“The rate really doesn’t matter to them. They’re coming in with cash, so you are competing against investors,” he added. “Buyers must have the right agent that’s going to position them appropriately.”
Rogers said homebuyers can get a leg-up by finding out what a seller needs outside of the monetary value of selling. Do they need an extra week after closing to move to a new home? Or do they need a month to rent the house back while wrapping up a deal? If so, Rogers said it’s worth giving sellers that time.
“Flexibility with the seller on move out helps a lot,” he said while noting most sellers are immediately reentering the market as buyers. “You know, give them 30 days to stick around after to find their next spot. Those little touches can always help.”
Jessica LaMar
For first-time homebuyers who don’t have the financial strength to make a cash offer or make other concessions that sweeten the deal for sellers, Sacramento-based House Real Estate agent Jessica LaMar said it’s important to pull in reinforcements — a.k.a. parents.
“The hard thing with a first-time buyer is the wage gap is so wide right now, and that’s where that generational wealth can really come in to help,” she said. “And even then, maybe it’s not that they are using cash funds to support the child but possibly just co-signing with them.”
“I tell my clients all the time to talk to their tax person first, but [co-signing] is another option,” she added. “There are better ways to go about that. But I am seeing more of it because I think those first-time buyers just really need more help than ever.”
Each agent said historical market data shows home values in California, even in down markets, continue to appreciate. With that in mind, they said buyers and sellers must be flexible and creative with how they approach current opportunities.
Swann said homebuyers may need to expand their search radius to include neighborhoods and housing types they may not have initially considered. In San Francisco, she said more buyers are utilizing the tenancy-in-common segment which is more affordable and enables people to share a home with fellow professionals who only need to be in the city proper a few days a week.
“While the rates may be high, that has also resulted in some lower price points,” Swann said. “When [young or first-time buyers] are thinking about building generational wealth, it’s always about trading up, right? Now is a good time for them to buy into things and as the market continues to go up, they’ll have some instant equity, and they can always be financed when the rates go down.”
“Somebody who’s savvy, and has somebody savvy to guide them is going to be able to make some really good decisions right now, and have some really great deals that are going to translate to a [return on investment] in the future.”
On the other side, Rogers said homesellers who are having a difficult time letting go of a three-percent mortgage rate should consider keeping their current abode and renting it.
“You’re just paying so much money to rent in Sacramento and surrounding areas,” he said. “In Sacramento, it’s tough to find a single-family home to rent for under $2,500 a month. Whereas, five or six years ago, you could find places to rent for $1,100 or $1,200 bucks a month, and that’s just not happening.”
“So renting their home out it’s definitely an option because rents are still high,” he added. “So it almost makes more sense to hold on to that home and rent it out and go find something else because their difference on the payment and what they can rent it out, are far greater.”
Constant red flag warnings put buyers on edge
Although California’s perennial summer is a main attraction for homebuyers, a severe lack of rainfall in recent years fueled historically destructive fires in 2020 and 2021 throughout the August Complex, Dixie, Mendocino Complex, SCU Lightning Complex, Creek, LNU Lightning Complex and North Complex.
This year brought much-needed rain to the state, with The Washington Post publishing a lengthy feature in July about the revival of statewide irrigation systems and reservoirs. However, the article noted climate change means the state will deal with cycles of extremely dry and extremely wet weather patterns, something that will inevitably place homebuyers — literally and figuratively — in the line of fire.
“Two of our counties have been devastated in the last 10 years with wildfires,” said Ensign, who has 300 agents across Solano, Sonoma and Lake counties. “So that’s at the top of our minds at all times.”
Ensign said the three counties her brokerage serves are like night and day when it comes to pricing trends, buyer and seller activity and the lifestyles they provide; however, concerns about another decade of ferocious fires are at the top of everyone’s list.
“Every time we go into a transaction, we look at the state maps. They are crazy. Every home is in a fire zone,” she said. “So when a buyer starts entertaining the thoughts of a purchase, we have that education time period we have to handle the fire insurance talk then because we don’t know what we’re going to end up with as far as quotes, and that could be the difference in making sure they can afford the home they want.”
“Is that policy going to cost $5,000 a month? Or is that policy going to cost $1,000 a month?” she added while noting she serves a lot of luxury homebuyers throughout wine country. “That buyer needs to know because that significantly impacts their monthly outgo when you have such a range of insurance quotes.”
Like Ensign, Bryant is extremely concerned about insurers retreating from California. State Farm and Allstate announced in June they’d no longer provide new home insurance plans in the state due to “rapidly growing catastrophe exposure.” Both said they’d continue supporting current policyholders, but that hasn’t eased Californians’ minds.
“There are rumors that AAA is leaving too, but we’ll find out soon. In fact, we have a Zoom meeting with someone today about that topic,” she said. “The California Department of Insurance Commissioner Ricardo Lara spoke to Realtors last week. We see how hard he’s trying to help, but it’s definitely going to be a problem.”
“I often think about Paradise. Paradise got burned out, and so we have higher fire ratings in this area, especially in our rural areas. Homeowners in the heart of the city and stuff haven’t had the issue, but soon they will too,” she added. “Yesterday, we had our first listing this summer where it’s not in a fire zone, and yet they were being told that they were still going to have to use the California FAIR Plan for fire insurance.”
Bryant said she’s worried about already expensive insurance rates becoming untenable for buyers, and potentially pushing them out of the market because they can’t handle rising mortgage costs, HOA fees and the overall cost of living in addition to another four-figures per month for insurance.
“It’s going to be a huge problem going forward with affecting affordability and desirability,” she said. “Worse than that, you’re not only paying more money to have the insurance, the insurance you have is worse. It’s like you’re paying more for less. If something goes wrong, and you have just a lot less coverage for everything.”
The other agents Inman spoke to said wildfires aren’t an immediate threat to their markets; however, they see the impact of wildfires on the availability of new single-family, condo and townhome housing. Strict zoning laws and permitting have always served as a barrier to developers, but booming insurance rates are further choking an already inventory-starved market.
“You have to jump through a lot of hoops as a developer to really get going on a development in California,” Ensign said. “This is only going to make it worse.”
Welcome back, welcome back, welcome back
Although buying and selling in California has faced more twists and turns than the latest summer blockbuster, agents said natives and transplants are doing all they can to bask in the rays of The Golden State.
“I’ve traveled to almost every state in the United States and there’s so many cool places. But when you compare them to California, I mean, there’s no other place like it,” Thompson said. “You’re close to the beach, you’re close to the mountains, you’re close to the river, you’re close to the lakes. You can do the desert sand toys and the ski resorts. There are so many things at your fingertips.”
Ensign also touted the natural beauty of the state while marveling at the highway scenery as she drove to a listing appointment during her chat with Inman.
“When you take a trip out here, you understand why we’re willing to pay these crazy prices. I’m looking at all the beautiful vineyards at Sonoma right now, and it’s absolutely glorious,” she said. “We are within an hour or so of the major metropolitan areas. We’re an hour or so from Silicon Valley. We’re right at the footsteps of San Francisco. If you’re commuting, it’s a good central location to get to those destinations.”
Beyond being an outdoors person’s paradise, Swann, Rogers and Felder pointed to California’s strong tech and entertainment industries as a strong foundation for the housing market’s future, despite current layoffs and strikes hitting San Francisco and Los Angeles.
“Now, we are experiencing some layoffs. And we have seen and I have heard that there are some companies that be doing more layoffs,” Swann said of San Francisco’s labor market. “I think some people who think that they may be affected by the layoffs are being very cautious, but I have had other people who are saying, ‘You know what, we think that that might happen and so we want to fast track our search.’ They don’t want to be looking, get in the contract on something and be laid off.”
“They’re still confident about their overall career prospects, and there are a lot of people that say, it’s still a great opportunity even if I am laid off,” she added. “Even with the right rising rates, owning a home is often less than rent, if you take a comparable property.”
Rogers and Felder said professionals are being called back into the office, and as prices rise in nearby pandemic boomtowns across Nevada, Montana, Idaho and other places Californians fled to in 2020 and 2021, it’s turning out to be a better deal to live in California.
“People were moving out and going to Nevada, Arizona, Idaho, Montana. There was we were seeing a ton of that because there was this huge price difference,” Rogers said. “I can sell my home in California for $1,000,005 and buy a great place in Idaho for $700,000. Well, all of the surrounding states prices went up because of us sort of driving that volume there, and now that price differential it’s not like this huge lottery win anymore, right?”
“People aren’t getting something that’s that amazingly better, and I believe that migration trend will sort of swing back to us,” he said. “Not to knock the other states, but California has prices that are generally high and stay high, because it’s an incredible economy with a ton of jobs. And nothing against Nevada, Idaho or Montana, but they don’t have nearly the jobs that we have. I think people will start to see it’s now worth it to get out of their 3 percent mortgage rate and move back home.”
Within the state, Felder said he’s seeing people leave outlying markets and come back to San Francisco’s city proper.
“A few years ago, a lot of these outer line areas outside of the Bay Area, like the foothills outside of Sacramento, like El Dorado Hills, Folsom and Lake Tahoe, and certain areas coast side like Halfmoon Bay and El Granada come up like 40 percent, because all of a sudden everybody was selling their properties that were located close to all these tech hubs,” he said. “They could get away better deal and a lot more house.”
Doug Echelberger
“Now we’re seeing sort of the opposite,” he added. A lot of these tech companies, biotech companies in a lot of these industries that heavily influence our market around here, are now sort of calling people back into the office. Large populations of tech people are coming back and buying townhouses and condos. Those segments are a little softer than move-in-ready single-family residential homes.”
Most agents said they’re looking forward to a more robust fall, as long as the Federal Reserve doesn’t through the market into a tailspin with a series of severe hikes. If the economy stays relatively stable, they’re expecting a small bump in inventory in the fall and winter, which will clear the path to a more balanced market and allow the state to recover from double-digit annual sales declines.
“We’re aiming right now for a pretty balanced and healthy market, right? Slanted markets can be difficult for both people on both sides of the transaction,” Inhabit Real Estate founder Doug Echelberger said. “Looking at where we are with inventory, we’re not expecting any sort of clear inventory boom in our second half of this year. In fact, that should start to trail off.”
“And then as far as buyer demand that typically does follow the same line as the inventory,” he added. “So you know, fewer houses available and fewer buyers still keep your market somewhat balanced. If those interest rates start to come down, as we kind of head into the beginning of 2024 that definitely could throw some gas on the fire for buyers that have been sitting on the sidelines, waiting for lower interest rates so that they could squeeze that payment out.”
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