Real Estate Investors: Simple 2023 Guide and Forecast

With 2022 coming to an end and 2023 just around the corner, Upkeep Media believes now is the ideal moment for real estate investors to reflect on the previous year and make plans for the next one. What should we expect in 2023 based on what we see in the housing market today?

Interest rates started to rise in 2022 from almost 0% in March 2020 and are now (as of this writing, for the typical 30-year fixed mortgage) at 7.04%. In reaction to these rising rates, most communities’ home sales are slowing or halting. Real estate investors are naturally concerned, and many want to know where the economy and home market are headed. Should they purchase additional properties, and where should they buy them? Is it more advantageous to keep the money and wait for things to improve?

 

Predictions for the housing market in 2023

According to this Bankrate analysis, here is what property investors can expect in 2023.

• Mortgage rates: Mortgage rates may continue to rise in 2023, with 30-year mortgage rates peaking at 8.50%-8.75% and 15-year mortgage rates at 7.70%-8.25%. However, if the Fed can handle inflation, rates may fall to 6.0% and 5.25% for 30-year and 15-year mortgages, respectively.
• Interest rates: Depending on the inflation rate and what the Fed does, interest rates will range between a high of 8.5% and a low of 5%. A lot will depend on how the economy responds to the Fed’s attempts to curb inflation.
• Home sales: Home sales are expected to drop by 7%-15%. Home sales could decline by 10% if the Fed raises interest rates. However, if the Fed’s measures result in a deceleration of inflation, the drop could be 7%-8%. On the other hand, home sales could drop by as much as 15% if the economy goes into recession.
• Home values:  Due to low inventories, home values may not fall in 2023, but prices will go up, but this is only if interest rates don’t climb higher. If interest rates increase, as expected, it might create opportunities for all-cash buyers and other buyers who know how to navigate a high-interest rate market.

 

A guide for investing in real estate in 2023

As changes initiated by the pandemic begin to settle, property investors may be able to capitalize on the following changes in the housing market:

• Due to affordability issues, the housing market in most areas will become more balanced instead of favoring sellers, as it has done in the last two years.
• With most businesses returning to full operation and offices occupied to capacity, we can expect increased activity in urban areas.
• Finally, in some locations, there will be a buyers’ market as sellers holding out for greater prices are compelled to enter the market.

 

With these in mind, real estate investors can adopt the following strategies in 2023:

Most individuals assume that interest rates and home values are inversely related. They anticipate that when interest rates rise, housing values will fall. In most circumstances, this is what happens, although there are exceptions. Supply and demand are two more elements that can influence what happens to property values when interest rates rise. When interest rates rise, demand for homes falls due to higher prices, often prompting sellers to lower their prices. This creates an opportunity for savvy real estate investors. Higher prices imply reduced demand and competition. Investors can now purchase properties that they would not have been able to buy if borrowing rates and demand were normal.

Look for properties in the best neighborhoods, hedge against the possibility that property values could fall even further as interest rates rise, and purchase assets that would not have been possible to acquire otherwise. This is a good technique since prices usually do not fall evenly across a region when the housing market crashes. Typically, the cost of the best real estate in the neighborhood does not fall; rather, it experiences a dip. The fall was severe in low-income neighborhoods where demand was artificially high. With this strategy, one purchases homes in higher-priced neighborhoods where values are expected to remain reasonably constant. Invest in less desirable places after the market has crashed and can only go up.

 

So, what will happen in 2023 if interest rates continue to rise and demand continues to fall? Whatever happens, the mentioned strategy will help you earn more money.