Wall Street Times

Experts expect a better 2023 for the real estate market

Because of the trend toward increased demand and decreased prices for homes both domestically and overseas, real estate experts anticipate that 2023 will be a year of recovery for the real estate market.

The real estate market slowed down as the pandemic struck many nations. In addition, people put off their ambitions to purchase real estate because of the market’s skyrocketing costs caused by changes in interest and mortgage rates.

The Federal Reserve’s stringent and robust stance on battling national inflation has made the market unstable for buyers, sellers, and investors. As a result, although there was still a great demand for real estate, some acquisitions had to be canceled since the prices fluctuated.

Today, analysts note a 0.3% year-over-year decline in housing prices. Additionally, the  8.8% annual price rise for luxury houses has significantly decreased from its previous 10.9%.

Jonathan Miller, the CEO and president of the assessment firm Miller Samuel, stated that the US markets are slowly emerging from the downturn. Miller thinks the upcoming recession won’t be as bad as the US has experienced previous economic disasters, despite what experts and the Fed said.

“Clearly, the pivot of Fed policy has had an impact on every housing market in the country because rates were too low for too long. It created this insatiable demand and obliterated supply,” said Miller.

Mansion Global’s digital real estate website predicted that several domestic and international real estate markets would face substantial challenges in 2023. For instance, this year will see the revival of the housing markets in Sydney and London. The situation is the same in US residential places such as New York, Miami, and others.

Read Also: 2022 ended some people’s dreams to buy a new home

Real estate in the country

Industry specialists in New York and Miami who Mansion Global consulted concluded that this is a common viewpoint. Real estate investors in New York and Miami are feeling better.

The CEO of Brown Harris Stevens, Bess Freedman, discussed the benefits and drawbacks of the real estate sector in 2022. Hopefully, this year will be better. However, she adds that the adjustment may not be as significant given the strengthening of the currency and the Fed’s steadfast fight against inflation.

“The first two quarters of 2022 were excellent, like superb. And then the third quarter started to slow down, and now the fourth quarter has really slowed down,” said Freedman.

“Real estate will be as it has been recently, which is a little bit rocky. It’s been ups and downs. There are still a lot of people spending a lot of money on expensive apartments—we just had somebody sign something for over $20 million. People are still closing and signing; they aren’t all walking away, but it’s slower. It’s going to be a little challenging in the first quarter and maybe into the second, but I think we’ll rebound and start picking up again,” she added.

“It creates a cautionary environment. No one likes uncertainty, and Manhattan is no different. We’re probably looking at a year closer to pre-pandemic, which was a little bit below average in terms of activity. The 2023 story is going to be normalized, [and] certainly not a boom,” adds Miller.

“Miami—and I think it speaks to a large portion of Florida—was rebranded as a place to work during the pandemic,” Miller said.

“The ability of remote work and greater mobility generally comes with higher compensation. So there’s been a restructuring of Miami real estate, not just because the significant excess supply has been obliterated, but because it’s providing a pro-business atmosphere that is pulling companies out of high-cost housing markets to Florida.”

“When you compare the third quarter of 2022 to the third quarter of 2019, you’re looking at a market with nearly 60% less supply and sales that are 22% higher. In 2023, we’re expecting more of the same: A limited inventory with relatively stable sales activity.”

Read Also: The Feds and its role in setting market prices

Overseas

Due to several variables, interest rates have also risen in other nations, including Australia. Experts predict that even if loan rates continue to rise in 2023, other purchasers will be encouraged to invest in real estate. Australian regional markets have experienced a rise in property sales.

“On the ground, we’ve seen a definite cooling of the market but little signs of distress. No one is rushing to get out of the market, but for those selling, there is less competition for properties, which is flowing through to flatter price growth,” explained Ray White agency’s chief economist.

“With interest rates expected to continue to rise, it’s looking like a much slower property market compared to what we’ve become accustomed to over the past two years,” she continued.

“After recording a steep monthly decline of 1.6% in August, the rate of monthly decreases in national home values eased. Across Sydney, the quarterly decline trend has eased from -6.1% over the September quarter to -4.4% in the three months to November,” wrote a report from CoreLogic.

Mansion Global predicted that Dubai’s real estate market would see a tremendous rise.

“2022 has been a record-breaking year in terms of transaction volume recorded at the Dubai Land Department, as well as highest price transactions for both rentals and sales,” explained Luxhabitat Sotheby senior global property consultant Andero Morgos.

“We are quite bullish on the luxury real estate market but do not anticipate prices to go up much in 2023. “The focus is all on the quality of the product now, especially branded residences which are being launched along with developers offering more supply of projects in the luxury sector to cater to the influx of millionaires and [ultra-high-net-worth] clients into the UAE,” he adds.

 

Real estate market tipped for normalization this year

Real estate: The housing market in 2022 was plagued by issues, including demand, high costs, and a shortage of properties available.

The market is anticipated to shift as the new year gets underway, especially in light of the rise in interest rates last year.

Normalization

Home prices are still dropping on the real estate market.

Many in the industry have changed their outlook to prioritize normalization over correction.

Sales activity and price increase experienced a rapid rise between March 2020 and March 2022 that seemed impossible to stop.

But things are beginning to change.

The global home price growth for luxury properties, which comprises the top 5% of the market, dropped to 8.8% per year in the third quarter.

A Knight Frank report indicates that it has decreased 10.9% from its peak at the beginning of 2022.

The report takes into consideration the inflation in housing costs, which are falling by 0.3% year-on-year.

The markets

The US markets are “coming back to earth,” according to Jonathan Miller, president and CEO of the New York-based appraisal company Miller Samuel.

“Clearly, the pivot of Fed policy has had an impact on every housing market in the country because rates were too low for too long,” said Miller.

“It created this insatiable demand and obliterated supply.”

Despite concerns about a recession, Jonathan Miller thinks it won’t be as severe as previous ones because of a healthier labor market.

Meanwhile, similar headwinds are being experienced in other major cities.

Experts predict that areas where large populations travel to (Dubai and Miami) will likely have little change or impact.

Read also: 2022 ended some people’s dreams to buy a new home

The New York market

New York’s sales activities set records in 2021.

Since then, the city has experienced a major slowdown that began in December and is anticipated to persist into the second quarter.

The CEO of Brown Harris Stevens, Bess Freedman, observed that deals are down and demands have cooled.

“The first quarters of 2022 were excellent, like superb,” said Freedman.

“And then the third quarter started to slow down, and now the fourth quarter has really slowed down.”

Bess Freedman anticipates turmoil in the real estate market this year as the Fed keeps raising rates to fight inflation.

Despite the robust labor market, she claims that worries about a recession are still present.

“Real estate will be as it has been recently, which is a little bit rocky,” she elaborated.

“It’s been ups and downs. There are still a lot of people spending a lot of money on expensive apartments – we just had somebody sign something for over $20 million.”

“People are still closing and signing; they aren’t all walking away, but it’s slower,” Freedman continued.

“It’s going to be a little challenging in the first quarter and maybe into the second, but I think we’ll rebound and start picking up again.”

Dollar strength

For foreign investment, the dollar’s continued rise remains a barrier.

Jonathan Miller claims that incentives for Wall Street executives may be reduced by more than 30% from 2021 levels, which would be detrimental to market expansion.

While there are a lot of cash buyers in Manhattan, he continued, the borough would still profit from lower rates.

The financial markets, which have been erratic as a result of the Fed’s policy adjustments, also worry New York buyers.

“It creates a cautionary environment,” Miller explained.

“We’re probably looking at a year closer to pre-pandemic, which was a little bit below average in terms of activity.”

“The 2023 story is going to be normalized, [and] certainly not a boom.”

Read also: The Feds and its role in setting market prices

The Los Angeles market

The Agency’s CEO, Mauricio Umansky, remarked that the Los Angeles real estate market underwent changes around the middle of 2022.

He highlighted that over the previous two and a half years, the market has shifted from an unsustainable pace.

“Volume dropped while the industry’s cyclical nature and historical seasonality quickly returned,” said Umansky.

“What felt like a jolt was actually what I believe was the beginning of a rebalancing act.”

This year, he anticipates the luxury market in Los Angeles to remain robust.

“More millionaires exist today than at any other point in history,” explained Umansky.

“Markets are more globalized than ever, and there is much wealth to be distributed, especially among hyper-wealthy markets.”

The CEO of The Agency went on to explain:

“I believe housing remains a primary investment for the world’s most affluent citizens and a safe hedge against inflation.”

“While economists predict the slowdown in volume to continue into the start of the new year, supply is still tight, and demand is on the rise, meaning price growth is still expected in the year ahead.”

According to a recent Knight Frank projection, the value of prime properties in Los Angeles is predicted to increase by 4% in 2023.

The upcoming year should be stable, according to Mauricio Umansky:

“While the current market presents some points of discomfort, buyers, sellers, and agents will acclimate to our new normal until the market picks up again.”

Reference:

Real estate markets set to normalize in 2023 after nearly three years of the pandemic boom

Rent continues to rise, but pace is still slow

Image source: Greenback Expat Tax Services

Rent: Rent for single-family homes and apartments has been rising, but it has been happening very slowly.

Consumers are being squeezed by inflation, while landlords have been losing pricing power.

Growth

For the tenth straight month, rent growth slowed in November, rising just 3.4% compared to the pace in November 2021.

It is the weakest gain in 19 months, according to Realtor.com.

The 50 largest urban markets had a decrease in the median asking rent, which fell to $1,712.

It is down $69 from the peak in July and $22 from October.

Realtor.com’s chief economist, Danielle Halle, issued the following statement:

“Many Americans’ budgets are being pulled in multiple directions as the holidays approach, bringing a more typical season cooldown to the rental market that we haven’t seen in the last few years.”

“Despite this recent relief, renters will continue to be challenged by affordability in 2023, with rents forecasted to hit more record highs.”

Read also: After robust real estate market last year, home sales drop significantly on Staten Island in 2022, data shows

Market

The amount of rent relief varies by market.

For instance, rentals in the Sun Belt increased by 0.9% annually while rents fell for the first time in almost two years in areas like Austin, Texas, and Jacksonville, Florida.

Rents are rising in Indianapolis and Kansas City, respectively, by about 10% and 9%, making the Midwest markets less affordable.

Despite the fact that the Realtor.com research looks at all rents, a separate report from October that concentrates on single-family rents portrayed a similar picture.

According to CoreLogic, single-family rent growth dropped to 8.8% from October 2021, which saw the slowest pace of appreciation in more than a year.

It is still three times higher than the pre-pandemic rate.

Although rents usually decrease in the fall, the rates in 2022 were slower than usual.

Homes and apartments

Due to a lesser supply of apartments than in single-family homes, single-family home rents increased more quickly than those of apartments.

In addition, during the early years of the pandemic, there was a greater demand for single-family homes in the suburbs.

Most of the tenants have remained put.

In the meantime, the Sun Belt is still seeing high demand.

For instance, Miami, Orlando, and Florida had the highest single-family rents, which were up 16% (in Miami) and 15.5% (in Orlando and Florida) from the previous year.

Read also: Southern California Brokerage Joins Better Homes And Gardens Real Estate

Construction

Homebuilders are still expanding the market for homes built for rent, but slower rent growth may already be having an impact on multi-family buildings.

Multi-family building permits decreased more than expected (18%) in November compared to October, according to the US Census.

Bleakley Financial Group’s chief investment officer, Peter Boockvar, said:

“I have been hearing anecdotal stories of multi-family projects getting canceled because the numbers no longer work with the still elevated cost of construction, the sharp rise in funding rates, and the slowing pace of rent growth.”

The factors indicate a more pronounced decline the following year, along with a high degree of ongoing building.

According to Robert Dietz, the National Association of Home Builders’ senior economist, nine hundred thirty-two thousand multi-family units were under construction in November.

The number was the highest since December 1973.

“We are forecasting declines for apartment construction in 2023 due to the large amount of supply in the construction pipeline, as well as tightening commercial real estate finance conditions,” wrote Dietz after the November home construction report.

According to a study published in November by the Commerce Department, single-family house construction in the US has reached a 2-year low.

Additionally, the research noted that as rising mortgage rates continued to cool the housing market, permits for new buildings plummeted.

References:

Rents are now rising at the slowest pace in 19 months

Higher mortgage rates depress US single-family housing starts, building permits

Home construction rates drop as market conditions intensify

Home construction plummeted in November as mortgage rates jumped 7%, making home construction costlier for many American families.

Despite being lower than in recent months, the rates are still twofold what they were a year ago. As a result, many Americans find it difficult to build their homes due to high mortgage rates and rising material costs. Recent figures from the US Census Bureau show that new home development in America fell in November from October by 0.5% and from a year earlier by 16.4%. Due to rising mortgage rates, the slump began this spring and has sustained since.

However, residential construction increased in August as mortgage rates fell dramatically. However, that was the final fall in rates, as they kept rising until recently, reaching a two-decade peak in October. This has stalled house development, putting pressure on many homeowners and construction businesses. As a result, permits to build have plummeted, falling to 11.2% in October.

“The home building market weakened further in November, and it’s tough to forecast the bottom given relatively high mortgage rates,” explained Navy Federal Credit Union corporate economist Robert Frick.

“Potential homebuyers should see some relief next year in the form of lower mortgage rates and possibly lower home prices,” he added.

Read Also: After robust real estate market last year, home sales drop significantly on Staten Island in 2022, data shows

Confidence is down among home builders

A poll found that many builders are less enthusiastic this December. And this is influenced by the faltering housing market, which has been worsening for over a year. Furthermore, rising mortgage rates, increased home prices, and supply chain bottlenecks contribute to the market’s negative outlook among investors and builders.

“NAHB is expecting weaker housing conditions to persist in 2023 and forecasts a recovery coming in 2024. Given the existing nationwide housing deficit of 1.5 million units and future lower mortgage rates anticipated with the Fed easing monetary policy in 2024,” said the chief economist of the National Association of Home Builders (NAHB), Rober Dietz.

“A slowdown in new construction is concerning because the housing market remains underbuilt relative to the long-term demand,” added Odeta Kushi, First American deputy chief economist.

“With many existing homeowners locked in to historically low, sub-3% mortgage rates, few have a financial incentive to sell their home only to purchase a new one with a much higher mortgage rate. A lack of existing-home inventory means that new home construction will be more essential in bridging the supply gap,” she added.

The Feds affecting the market

According to Kelly Mangold of Real Estate Consulting, first-time customers have resisted purchasing new homes due to increasing market pricing. Prices, she added, influenced purchasing power, harming both buyers and sellers. She did, however, highlight the significance of the Feds in modulating the dynamics of the housing market.

“Motivated buyers or those who are not financing a large portion of their home, such as a downsizing empty-nester, may be in a position to find a good deal as builders are beginning to adjust their pricing to move inventory,” said Mangold

“With construction costs up more than 30% since inflation began to take off at the beginning of the year, there is little room for builders to cut prices,” added NAHB chairman Jerry Konter.

“A friendly enough Fed could easily break the range, but we have doubts about how much fuel the Fed will want to add to the fire. If anything, the Fed is more likely to try to temper the exuberance. Because the exuberance is counterproductive to the Fed’s goals,” added Matthew Graham, Mortgage Daily News chief operating officer.

“It’s still extremely unaffordable even with rates coming down, even with prices coming down in each of the last four months. We’re still less affordable than we were at the peak of the market in 2006, and you see that play out in the rate lock numbers,” explained Andrew Walden from Black Knight.

“As we move throughout 2023, you’re going to see prices continue to soften. You’re going to see incomes hopefully continue to grow and eat up some of that gap. And I think we are going to see rates come down from where they are today, but it’s going to take an extended period to get there,” he added.

Read Also: Southern California Brokerage Joins Better Homes And Gardens Real Estate

Buyers and their budget

The housing market has been turbulent, with alterations around every turn. As the Feds slash and raise mortgage rates, along with external circumstances, first-time homeowners will confront significant difficulties. However, experts advise clients to monitor their budget and wait for values to plummet before buying.

“There are some very, very modest green shoots over the last few weeks, as rates have come down, but I am not ready to get sucked back into the conversation we had in August when we felt better,” said the CEO of Toll Brothers, Doug Yearley.

“There have been a handful of pieces of relatively good news for the housing market lately, but we’re far from out of the woods. Key indicators of homebuying demand will likely be teetering on a knife’s edge with every data release that comes out related to the Fed’s path to eventually bringing rates down,” added economist Taylor Marr from Redfin.

“Inventory levels are still tight, which is why some homes for sale still receive multiple offers. In October, 24% of homes received over the asking price. Conversely, homes sitting on the market for more than 120 days saw prices reduced by an average of 15.8%,” explained Lawrence Yun, an economist from NAR.

2022 ended some people’s dreams to buy a new home

For many citizens, 2022 would have been the year they finally bought a home. However, as the year ends, first-time buyers hold off on their dream of owning a house.

Evan Paul and his wife hoped to purchase a house this year. Both of them are employed scientists in biotech companies in the United States. However, even with their combined income, they could not keep up with the high prices of homes in the market. Evan and his wife already have a baby girl this year. But their dream to give their daughter a new house would have to wait.

“We just kind of got to that place in our lives where we were financially very stable, we wanted to start having kids, and we wanted to just kind of settle down,” said Evan, 34.

The couple needed help sealing a deal with home sellers because of the high prices of houses in the market. So Paul began searching for a home when interest rates were low. However, other buyers outbid them even before he could find a home fit for their budget.

“There’d be, you know, two dozen other offers, and they’d all be $100,000 over asking. So any time we tried to wait until the weekend for an open house, it was gone before we could even look at it,” recalled Paul.

Unfortunately, the housing market became pricier after the Feds insistently hiked interest rates to stave off the worsening inflation in the country. As a result, mortgage rates climbed. And ultimately, it led to high prices, a range that Paul could not readily pay. The prices were too high for Paul and his wife to afford.

“At first, we started lowering our expectations, looking for even smaller houses and even less ideal locations. Then, the anxiety just caught up to me, and we just decided to call it quits and hold off,” he said.

Read Also: The Feds and its role in setting market prices

Home buyers are stuck

With the steep increase in mortgage rates for many months in 2022, there has been a freeze in the housing market. Buyers stopped searching for homes since they knew that affordable homes were hard to get by considering the economic conditions faced by the country. Moreover, sellers are also aching owing to the high mortgage rates that would affect them. Lawrence Yun from the National Association of Realtors said that people are stuck. Yun added that the housing market is somehow ‘frozen’ at the moment. According to NAR, for ten months, home sales were stagnant.

“Existing-home sales fell for the tenth month in a row in November 2022, with all regions of the U.S. recording month-over-month and year-over-year declines,” NAR wrote in a press release.

“In essence, the residential real estate market was frozen in November, resembling the sales activity seen during the COVID-19 economic lockdowns in 2020. The principal factor was the rapid increase in mortgage rates, which hurt housing affordability and reduced incentives for homeowners to list their homes. Plus, available housing inventory remains near historic lows,” added Yun.

“The market may be thawing since mortgage rates have fallen for five straight weeks. The average monthly mortgage payment is now almost $200 less than it was several weeks ago when interest rates reached their peak for this year.”

“The sellers aren’t putting their houses on the market and the buyers that are out there, certainly the power of their dollar has changed with rising interest rates, so there is a little bit of a standoff,” explained Susan Horowitz, a real estate agent from New Jersey.

Read Also: Home construction rates drop as market conditions intensify

Low inventory

Prices are high, but they have remained stagnant. And this is due to the low inventory in the market. In November, unsold houses were around 1.14 million, falling for the fourth consecutive month. In a recent survey, builder confidence is also low because home sales are down.

“Anything that comes on the market is the one salmon running upstream, and every bear has just woken up from hibernation,” adds Horowitz.

“A year ago, this probably would’ve already sold. This home will sell, too. It’s just going to take a little bit longer.”

Home builders refuse to build new houses because the market activity is low. Building more houses would mean another cost for construction companies, but without an immediate return on investment, home builders could not risk spending their capital. Ultimately, this is caused by the high prices brought on by mortgage and interest rates.

“NAHB is expecting weaker housing conditions to persist in 2023 and forecasts a recovery coming in 2024. Given the existing nationwide housing deficit of 1.5 million units and future lower mortgage rates anticipated with the Fed easing monetary policy in 2024,” said the chief economist of the National Association of Home Builders (NAHB), Rober Dietz.

“A slowdown in new construction is concerning because the housing market remains underbuilt relative to the long-term demand,” added Odeta Kushi, First American deputy chief economist.

“With many existing homeowners locked into historically low, sub-3% mortgage rates, few have a financial incentive to sell their home only to purchase a new one with a much higher mortgage rate. A lack of existing-home inventory means that new home construction will be more essential in bridging the supply gap,” she added.

The Feds and its role in setting market prices

In its century-long history, the Feds has played a crucial role in determining the tone of the stock market and market values.

As the government fights inflation this year, the Central Bank has quickly warned that the economy would tighten. Unfortunately, a tight economy means the Feds will strive to soften economic circumstances. The epidemic has had an impact on the world, resulting in bleak economic dynamics marked by fewer available employment, reduced salaries, a tight labor market, and rising commodity prices. For example, the Feds had to raise interest rates to calm the market, which caused mortgage rates to fluctuate.

“I think they know they gambled and lost and have to do something serious to get inflation back under control. I fear that they took a gamble that inflation wasn’t too real at the beginning of 2021,” said Notre Dame University economics professor Jeffrey Campbell.

The Fed has adopted tighter policies, frequently distinguished by an aggressive response to economic variables. The Chairman of the Federal Reserve, Jerome Powell, has stated that he will keep up the tough measures as long as they help to reduce inflation in the United States.

“Their message is that we should expect them to remain in restrictive policy mode even after we start to see inflation data head in the right direction. So he went to pretty extensive lengths to dispel assumptions of any pivot coming forward soon,” said Keith Buchanan, Globalt Investments portfolio manager.

“It would be sufficient for them to acknowledge that the near-term rate is trending in the right direction, but, definitely, they should not allow that to [influence] their trajectory. The real dilemma is, how much good data do they need in hand before they pause?” said Brad Conger, a deputy chief investment officer from Hirtle Callaghan.

“Given current rates of inflation, I believe that the Fed has more work to do in order to get inflation under control. This will entail further rate increases to tighten financial conditions,” added Cleveland Federal Reserve Bank President Loretta Mester.

“Our responsibility to deliver price stability is unconditional. While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses,” Powell said.

“The longer the current bout of high inflation continues, the greater the chance that expectations of higher inflation will become entrenched,” the Chairman added.

Read Also: Home construction rates drop as market conditions intensify

Feds and the mortgage rates

Fortunately, interest rates on mortgages have been declining recently. So naturally, there is now a higher demand for mortgage applications. Although many purchasers still believe they must wait for the economy to improve, prices are still comparatively higher year over year, which puts pressure on many housebuilders and sellers. As a result, in November, the US home construction pace slowed.

“The ongoing moderation in home-price growth, along with further declines in mortgage rates, may encourage more buyers to return to the market in the coming months,” said MBA economist Joel Kan.

“A friendly enough Fed could easily break the range, but we have doubts about how much fuel the Fed will want to add to the fire. If anything, the Fed is more likely to try to temper the exuberance. Because the exuberance is counterproductive to the Fed’s goals,” added Matthew Graham, Mortgage Daily News chief operating officer.

“There are some very, very modest green shoots over the last few weeks, as rates have come down, but I am not ready to get sucked back into the conversation we had in August when we felt better,” said the CEO of Toll Brothers, Doug Yearley.

“There have been a handful of pieces of relatively good news for the housing market lately, but we’re far from out of the woods. Key indicators of homebuying demand will likely be teetering on a knife’s edge with every data release that comes out related to the Fed’s path to eventually bringing rates down,” added economist Taylor Marr from Redfin.

Read Also: After robust real estate market last year, home sales drop significantly on Staten Island in 2022, data shows

Lesser home building

The Fed’s shifting interest rates have made things difficult for housebuilders. The number of new residences built decreased in November. Prices remain high even though there are more houses on the market than last year. As a result, many customers will decide to put off making purchases.

“In essence, the residential real estate market was frozen in November, resembling the sales activity seen during the Covid-19 economic lockdowns in 2020,” NAR chief economist Lawrence Yun said.

“The principal factor was the rapid increase in mortgage rates, which hurt housing affordability and reduced incentives for homeowners to list their homes. Plus, available housing inventory remains near historic lows,” he added.

“We have seen home prices come down from their summer peaks over the past five months. But, at the same time, we have also seen rent growth retreat for ten consecutive months,” added George Ratiu from Realtor.com.

“However, the cost of real estate remains challenging for many households looking for a place to call home, especially as high inflation and still-elevated interest rates have been eroding purchasing power,” he added.