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Buyer’s Market Conditions Possible in California, During 2023

As the California real estate market continues to settle down, home buyers are starting to enjoy certain benefits they haven’t had in a while. In fact, conditions have shifted so much that some analysts foresee a real estate buyer’s market in California later in 2023.

This is good news for house hunters across the Golden State, especially when you consider the highly competitive conditions of the past two years.

A California Buyer’s Market in 2023?

Earlier this month, the California Association of Realtors (C.A.R.) published its latest housing market report. Among other things, they reported a significant decline in the number of home sales this past month, when compared to a year ago.

That’s just one of several metrics that show the California housing market has decelerated during the second half of 2022. These trends seem to be benefitting home buyers in a number of ways.

According to C.A.R. President Otto Catrina:

“As sellers adjust their expectations, well-priced homes are still selling quickly. And for buyers: more homes for sale, less competition, and fewer homes selling above asking price, all point to a more favorable market environment for those who were outbid or sat out during the past two years when the market was fiercely competitive.”

Here are three ways home buyers in California could benefit from a slower market in 2023…

1. More time to research home prices, comparable sales, etc.

During the second half of 2020, the COVID pandemic accelerated the real estate market to a pace we haven’t seen before. All across California, purchasing activity surged while inventory levels plummeted. This forced buyers to compete fiercely for a limited number of homes. It was the real estate equivalent of a foot race.

One of the biggest challenges for buyers was that they had little time to consider each individual property. When you’re buying a house, you want to take your time to evaluate the asking price, have the home inspected, and “sleep on it” before making a decision. But that’s not always possible when the market moves at a breakneck pace.

By contrast, 2023 might bring something resembling a buyer’s market in California. The overall pace of home sales has slowed significantly in recent months. And these conditions could continue into 2023 as well.

Going forward, home buyers should have more time to evaluate individual properties, research comparable sales in the area, and perform other steps that will lead to a more informed purchasing decision.

2. More leverage when asking for seller concessions.

A “seller concession” occurs when a homeowner volunteers to contribute money toward the buyer’s closing costs. They do this to attract more offers and, as a result, sell the home more quickly.

Seller contributions tend to be more common in a slower real estate market, and more rare in a fast-paced seller’s market. And this is another area that’s currently showing signs of a shift.

Reports published over the past few weeks have shown an increase in the number of seller concessions in California and nationwide. If we move closer toward a buyer’s market situation in 2023, seller concessions could become more of a norm, rather than an exception.

3. A better market for contract contingencies.

Last year, many home buyers found that they had to remove their contract contingencies just to get their offers accepted by a seller. Next year, this might not be an issue.

A real estate “contingency” is a condition or event that has to occur in order for the deal to move forward. For example, a mortgage financing contingency says that the buyer must be approved for a loan in order to close the deal. Otherwise, the buyer could exit the transaction without sacrificing their earnest money deposit.

At the height of California’s real estate market frenzy (late 2020 and throughout 2021), many buyers waived their contingencies to make their offers more competitive. It became something of a necessity. After all, if a homeowner receives a dozen offers within the first few days of listing, they can pick and choose what they feel is the best one.

Here again, the housing market in California is shifting to favor buyers more so than in the past. Anecdotal reports from real estate professionals suggest that home buyers are having an easier time submitting offers with contingencies attached.

So we seem to be taking small steps toward something resembling normalcy. Historically speaking, it’s normal for home buyers to add one or more contingencies to their offers. Waiving all contingencies just to get your offer accepted is a rare thing that usually only occurs in a fast-moving market.

It’s too early to say whether we will see a true buyer’s market in California during 2023. But conditions are clearly favoring house hunters a lot more than they did in the past.

Mike Trejo

Mike Trejo is a Bay Area mortgage broker with 20+ years of knowledge and experience.

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