5 Key Real Estate Trends: For the New Year

When predicting 5 key real estate trends for 2023, it is our belief that this year will present many strong buying opportunities for long-time investors.

Since 2009, we have experienced a sellers market and the rising appreciation of property values in key markets. Many have felt this was unsustainable, but due to the economic nature of certain cities, prices never dramatically declined even during Covid. Yes, in Manhattan, there was a 15%-20% reduction in home values for certain properties. However, at the same time, Suburban markets increased in value, while City-Dwellers relocated to alternative locations. Below are five key factors that we believe will cause the pendulum to shift in 2023, ultimately creating more realistic buying opportunities for investors.

Real Estate Trends for 2023

1. Rising Interest Rates: For several years, investors were extremely lucky (Dare I say spoiled). Interest rates hovered at zero percent creating free money. Traditionally, rates have been in the 5%-6% range. In the 1970’s, they were in the upper teens. With current rates in the 6% range,  the market has slowed. Almost akin to the daily volatility of the stock market, buyers are continuously monitoring rates to track the latest cost of capital. High interest, taxes, maintenance and insurance are all expenses that need to be calculated when purchasing a property. There will always be cash buyers for certain properties, but the majority need financing to close out a deal.
2. Increasing Cap Rates: In order to compensate for higher interest rates, the cap rate and rate of return must increase. If the cost of capital is higher, the return must be greater to service the debt. This ultimately leads to better opportunities and more deals available.
3. Debt Coming Due: In 2023, many property Owners will face balloon payments for their properties. Traditionally, Owners have refinanced. However, with high rates and the possibility of being underwater with future payments, Owners may be forced to sell and no longer hold out for top dollar.
4. Economic Uncertainty: The global economy is in flux. Inflation is high, Companies are laying off employees and the stock market is tumbling. This all creates the perfect storm because Owners will need to sell their property at a lower price.
5. The Flip Bubble Bursting: In 2022, investors tied up industrial properties with the hope of a quick flip. Toward the end of the year, the market cooled down which will ultimately impact the resale of these assets. Some may even come back to the market as the original buyers may back out of the contracts. As a result, this will allow for more opportunities and lower pricing for the next buyer.

The key to a wise real estate investment is to use patience and perseverance. The goal should always be to buy low, sell high and negotiate hard.

In conclusion, 2023 will present many interesting real estate investment opportunities. Please don’t hesitate to reach for your next real estate investment.