Opportunities in Real Estate in 2023
Rentals Will Still Reign Supreme in 2023
By Erica LaCentra
Investors probably wish they had a crystal ball to easily predict what the new year will hold for real estate and more importantly, where the biggest opportunities in the market will be. However, even without a crystal ball, predictions are in for what 2023 has in store for the real estate industry.
Investors will need to be shrewder and savvier to be able to thrive as the market continues to slump. However, 2023 does not have to be a year of investors waiting on the sidelines in hopes of brighter horizons. There are plenty of opportunities in the real estate market that investors can jump on now. It is just all a matter of knowing where to look.
A Year for Buying
While 2021 and early 2022 were challenging times to try to buy a property, whether as a homeowner or an investor due to incredibly low interest rates, low inventory, rising home prices and unprecedented demand, 2023 may be a bright spot especially for investors to finally be able to snag properties due to the downturn.
Home sales have already fallen quite dramatically at the tail end of 2022 with the National Association of REALTORs reporting that pending home sales “slid for the fifth consecutive month in October, down 4.6% from September 2022’s reported findings” and “year-over-year, pending transactions slipped by 37%.”
This drop comes as no surprise due to buyers facing 20-year high mortgage rates with many folks taking a wait-and-see approach to the market in hopes rates will come down or the market will show signs of stabilizing before they make a move on purchasing a property. And this trend is predicted to continue through 2023. In a recent Redfin report, Economist Taylor Marr predicted “existing home sales will fall 16% on an annual basis next year to about 4.3 million—their lowest level since the aftermath of the Great Recession in 2011.”
From an investor perspective, this could be the ideal time to find an investment property. As interest rates have risen, and buyer demand has lessened, home prices have also started dropping and are projected to continue to drop below their summer peaks. However, these price drops are expected to be modest over the course of the year but can still be impactful for investors looking to buy.
Plus, for the first time in a very long time, there are increases in inventory, something buyers across the board have been clamoring for for years. Realtor.com has predicted that in 2023, buyers should be looking at “an increase in existing home sales, up 22.8% year-over-year, as the inventory refresh that began in the summer of 2022 accelerates.”
This perfect storm of less competition in the marketplace, upticks in inventory, and dropping home prices means that investors will have great opportunities to swoop in and purchase their next investment property. Especially if they are not concerned about higher interest rates, as most investors are not, and as long as the numbers make sense, there will be increased opportunities to find properties that can offer significant returns whether in the rental market or in the flip market.
Rentals Are Still a Safe Bet
Since investors will have greater opportunities to buy in 2023, it is important to also consider what investment strategies are going to pay the biggest dividends based on how the real estate market will fare in the coming year. It appears, even with higher interest rates, investors’ best bets will be buying properties to hold as long-term rentals. For the same reasons the market will be good for investors looking to buy, it will make it more challenging for homeowners that are finally looking to purchase.
High mortgage rates with slowly declining home prices plus stagnant wage growth will continue to cause affordability issues for first-time home buyers. Plus, as rents continue to climb and are projected to continue to reach new highs, this will leave even less ability for many to save for a down payment for a home.
Many people who may have been waiting to buy a home will have to continue to wait and be forced into renting for another year. Investors that are looking to put their properties to work will have ample opportunities to do so if they set them up as long-term rentals.
Also, with predictions that many major companies will continue to push to have employees in office more frequently than in past years following the pandemic, this will cause increased rental demand in major markets where buying a home is completely unaffordable for most. Plus, with travel restrictions being a thing of the past and with most people no longer concerned about COVID, this could also be a great opportunity for investors to consider purchasing and operating short-term rentals in major cities to diversify their portfolios. So, whether investors choose to do long-term or short-term rentals, it seems like rentals will still reign supreme in 2023.
Optimism in the New Year
While there has been tremendous concern about what rate hikes from the Fed would spell for the real estate industry and threats of a recession looming, 2023 does not appear to be all doom and gloom. There will still be tremendous opportunities available in real estate for investors. It will just be a matter of adjusting strategy, making sure the numbers work, and knowing where to look.
