While we all prepare to turn the page on 2022 and start a fresh year, it’s important to take time to reflect on everything that has happened in the real estate market in order to try to figure out where the market is headed in 2023. It’s no secret that this year has been tough as March brought large and swift increases in 30-year mortgage rates while housing prices were already at all-time highs – in recent months, this has caused home values to come back down to earth, which has put some buyers & investors in difficult financial situations.
What’s been happening is not going to magically end with the turn of a calendar page – however, we believe that with preparation and knowledge, investors will be able to take advantage of trends in the market for a profitable and successful 2023. With that in mind, we’ve read through a joint report issued by PwC and the Urban Land Institute and have summarized our findings below to help you better plan for what’s to come in the next calendar year.
Investors Will Benefit from Taking the Long View
While it’s true that a lot of investors first dipped their toes into investing in 2020 and 2021 and achieved substantial profits, this is not how the market typically works. Quickly rising house prices benefited investors across the board – however, the market is now regressing to the mean, bringing housing prices back down to earth. For some investors who bought at peak prices within the last couple of months, falling property values could mean losses on short-term projects like fix & flips. Some social media influencers have experienced this firsthand, and have come out saying that now is not a good time to get into real estate investing.
While that style of investing may now look risky, experts agree that those taking a long view on investing should not be in panic mode now, nor any time soon for that matter. The past couple of years were unprecedented, and the levels of success achieved by some investors will be difficult – if not impossible – to recreate in the future. Those conditions prompted a lot of new investors to enter the market, who are now promptly exiting. This is bringing decreased competition, which should make professional investors’ lives easier, and put an end to bidding wars that pushed housing prices as high as they went.
The Rental Market Will Remain Strong
While property values remain on the higher end and interest rates remain high as well, a lot of would-be homebuyers – especially first time homebuyers – are likely to stay on the sidelines until prices and rates come all the way back down to earth. While it’s difficult to predict exactly what’s going to happen with prices and rates, most experts predict that mortgage rates will remain on the higher side for much of 2023 until inflation gets low enough for the Fed to begin cutting interest rates again. With many homebuyers understanding that now isn’t an ideal time to buy, many are choosing to rent until market conditions become more favorable.
While multifamily construction has been booming in recent years, the pandemic brought about a heightened demand for single-family homes as it’s become less important for office workers to live near employment centers. Whether this trend will continue remains to be seen as the effects of the pandemic begin to wear off and return to office policies take effect, but of those currently renting, 65% would prefer to buy, while 35% prefer the flexibility that renting single-family properties affords them. Of those 65% who would prefer to buy, most are unable or unwilling to due to economic conditions, making the case of a strong single-family rental market in years to come.
Infrastructure Spending & Climate Change Are Impacting Real Estate Markets
New federal infrastructure spending can provide the opportunity to replace and expand urban infrastructure to rebuild cities and spur new development while addressing historical inequities. Climate change is bringing more extreme weather and severe climate events, especially when it comes to coastal and wooded areas (flooding and wildfires have seen dramatic increases in the last decade). Both of these external factors bring a lot to the table when it comes to considering areas for investment. Waterfront property, especially in hurricane-prone areas, is becoming much more expensive to insure on an annual basis, which can play a big part in determining whether or not it’s worth it to enter certain markets.
Pimlico Capital Can Help You Navigate Your Investment Decisions
Even for the most experienced investors, changing economic conditions can bring about a lot of uncertainty. At Pimlico Capital, we don’t claim to have all of the answers all of the time, but we value every relationship and strive to provide the best level of service possible – as real estate investors ourselves, we know how we’d like to be treated, so it’s important that we make all of our borrowers feel like partners in every project that we work on together.
We’re happy to take the time to go over potential deals, including possible upsides and downsides before deciding whether to commit to a given purchase, refinance, or fix & flip project. To see rates that you qualify for, fill out our online rate calculator, or speak with a loan officer right now by calling 410-855-4600!
