Market Predictions for 2023
Recapping 2022
Throughout 2022, the real estate market proved to be, at times, chaotic and competitive. The year started with multiple-offer deals, sales closing at high above the listing price, and properties flying off the market. But, as the months passed, the market began to tame, and inflation began to soar. With the highest mortgage rates in 40 years, affordability became an issue; coupled with jobs and no wage increases (that were recouped after the pandemic), buyers were not able to keep up with the pace of inflation.
Despite great job growth through 2022, 2023’s inflation will continue to clock in well above the Federal Reserve’s 2% target. This inflation has priced out many buyers from the market, as both owning and renting have become more expensive. According to the National Association of Realtors, buyers now ‘need to earn more than $100,000 if they want to purchase the median-priced home without going beyond their budget.’ In addition to the issues buyers are facing, renters are facing high price points, making saving for a down payment unlikely.
So, it‘s no surprise that with many buyers forced out of buying possibilities, the housing market has cooled down extensively over the last several months. Nevertheless, NAR reports that home prices are still higher than the previous year. Demand for homes continues to outpace supply despite having fewer buyers in the market. “The current housing shortfall was created over decades. After the mid-2000s boom, the U.S. continues to underbuild compared to the historical average. New Construction Homes fell below the historical average of 1.5 million units indicating that inventory will remain tight, putting upward pressure on home prices.”
Where We’re Headed in 2023
It’s likely that the housing market will make a turnaround early in 2023. In the fall of 2022, pending sales fell, but contract signings still were higher than previous years. These are leading indicators for future sales. While mortgage rates are still twice that of a year ago, it’s likely that as inflation lowers, mortgages will again drop to below the 6% line, potentially bringing back new and old buyers to the market. In turn, this will increase the demand for housing.
But just because there is a demand for housing, it does not mean there will be enough inventory on the market. 2023’s housing inventory is going to be slow in the first few months, as we are still dealing with the supply issues caused by the 2020 pandemic. “While 2022 is the first year with a decline of single-family starts since 2011, single-family construction is forecasted to experience additional declines in 2023. Meanwhile, fewer homeowners will sell their homes and purchase another as mortgage rates are substantially higher than in 2021.”
So, how can you find the best deal as an investor in 2023? Will 2023 be a good year for selling your investment properties, or should you look into buying? Well, all of that is contingent on the housing market you’re looking into. Where you are located — along with the outlined factors listed below — will determine how likely you are to buy, sell, and invest in real estate this upcoming year.
Housing Affordability Matters — When buyers are scoping out your zipcode for sales, they will be looking to find something in their price range. According to NARs, ‘weakening affordability is the primary reason for this year’s housing market cooling. While many buyers have been priced out from the expensive markets, affordable areas continue to attract buyers’ interest.’ Keep this in mind if you’re considering selling.
Can Renters Afford To Become Homeowners? — This is an important question to ask yourself before looking to sell. If your area has more renters who can afford to buy the median-priced homes, ownership rates and the possibility of selling increase. As renters become homeowners, the demand for your property grows, making it likely that you’ll score a great deal on selling your investment.
Strong Job Growth — Unsurprisingly, where there are jobs, there is a stronger housing demand. Look to buy in areas that are growing with warehouses, hospitals, and universities. NARs also suggest looking for areas with a high amount of workers in the information industry, as it is one of the most lucrative and growing careers.
Are People Moving There? — If renters or buyers are flocking to a metropolis or neighborhood in droves, start looking for deals in these locations. People will need a place to live, and they will likely be looking to rent, making it a great investment opportunity for you. Also look for population increases, as the housing demand is expected to be stronger in areas with a fast-growing population.
High Inventory Is Your Friend — especially when you are buying!
Low Inventory Is Your Friend, Too — especially when you are selling!
Getting Prepared for New Investments in the New Year
Investing in 2023 can be a lucrative way to increase your passive income. Take the early months of the year to get the best team you can in place. You want to be well-prepared by acquiring a great broker, agent, title company, lender, and property management company. This will ensure you are ready to go when the perfect deal comes on the market.
To learn more about assembling the best team in 2023, read our series, ‘Building the Right Team.’