It looks as though U.S. inflation is finally easing up. While that doesn’t mean we’re out of the economic woods, it does mean that we’re about to be less stuck in the tension between extreme inflation and market recession. That’s not to say prices are where they should be – but the intense squeeze of the market gives us a little breathing room.
2023 will no doubt come with challenges. The real estate market isn’t going to be easy – but that doesn’t mean investors won’t have opportunities or key advantages to capitalize on. Recessions may be tough to navigate, but the right strategy could have you coming out on top.
3 Reasons the 2023 Market Could be Great for Real Estate Investors
Easing Property Prices
An issue of affordability has plagued the real estate market for years now, though in the beginning of the price hike, demand was fueled by record-low interest rates. That incentive no longer exists as 30-year fixed rates recently crested above 7%. In response, demand has been sinking and real estate prices are finally cooling. Growth rates are becoming stagnant in some areas or decreasing.
This isn’t necessarily a bad thing. Many markets are far overvalued, which inevitably leads to a crash. Far too many buyers, spurred on by competition and desperation, overpaid for their properties through 2020 and 2021. It will inevitably lead to problems when the market corrects itself.
With that said, decreasing real estate prices, even with higher interest rates, provides great opportunities for investors to acquire new properties – particularly in more stable investment markets.
Less Market Competition
Lower home prices mean lower demand. In the coming year, investors won’t have to worry about being outbid time and time again. Not only does this, alongside increasing housing inventory, mean more options and opportunities, but it means that investors can hold fast to their due diligence and criteria.
Without bidding wars, there will be less pressure to sweeten the deal by waiving inspections and eliminating contingencies. Investors will be freer to do things the right way, even if it takes more time. In 2023, we expect investors will be able to build the portfolio they really want rather than settling for the deals few and far between that they’re able to secure.
Reliable Rental Demand
While rental demand may ease in some areas as buyers feel more equipped to return to the homebuying scene, we’re not expecting a major upheaval in rental demand. After all, the market will still be somewhat challenging. People will try to wait out high interest rates. At the same time, recessions do typically cause the growth of rental rates to slow.
This is where it really counts to have an airtight investment strategy and procedures that maximize passive income. Again, rates dropping a bit isn’t necessarily a bad thing when we look at the big real estate picture. Affordability has become a crisis – and investors need to have not just high income, but sustainable income.
The Elephant in the Room…
Interest Rates
Interest rates are the real sticking point in the real estate market right now. Prices are easing down in response to rate hikes, but not necessarily at the same rate. That makes buying properties more expensive. At the same time, investors can’t afford to wait – particularly when the property price is right.
Interest rates will shift eventually. We saw that the Great Recession created one of the strongest investment markets we’ve ever seen! Do what you can to lock in the best rate possible. Don’t try to go with a flexible-rate mortgage, either – we could see interest rates go up another few percentages before the tide turns.
Instead, protect your creditworthiness and plan to refinance down the line.
At the end of the day, there’s no telling how the market will move. We’re not sure for how long the Feds will continue their inflation offensive, or to what degree. Still, we see more opportunities on the horizon for real estate investors. The key is to take advantage of the time and market we have now. Don’t wait for the ideal – capitalize on what’s in front of you.
There’s a way to succeed in any market climate, including this one and those to come!
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