There are a variety of factors influencing housing prices as we approach 2023. What are they? How much might they move values? What is important for investors looking to avoid unnecessary risk, and benefit from the upside potential?
Days on market is one of the core barometers of housing market health. It is a measure of supply and demand.
It is true that sellers have been spoiled for years. They’ve been used to selling properties in a day, with multiple offers. Some are getting scared when they don’t see that happening today.
Yet, it is also important to note that a healthy and balanced market is when it takes an average of four months for a home to sell. So, we still have some way to go before we even get back to a healthy balance.
Still, as days on market grow, those who are fearful of not being able to sell quickly may continue to cut their asking prices.
2. Housing Inventory Levels
As sales slow, and more seek to sell their homes and capture the equity windfalls they’ve gained over the past couple of years, housing inventory levels are likely to keep rising.
Again, this is healthy for now. Yet, coming off of an extended bull run, it is likely to lead many to cut prices, and be more open to negotiating on terms, concessions, and even seller financing.
From an investor standpoint, this may finally be creating more attractive and valuable opportunities to acquire.
3. The Monopoly On Rentals
Wall Street appears to be going all in on the build to rent trend. They are funding it through many conduits. As well as acquiring entire new single family home communities. In many cases they seem to be paying as much as 50% over retail value.
This is driving up prices, and blocking regular home buyers out of the market. If this begins to border on a monopoly of housing, people may have no choice but to rent. In turn, it means that those that own all of the housing and rentals are able to pick whatever rental rates they like. If people want a roof over their heads, they will have to pay whatever it costs.
4. Interest Rates
Mortgage interest rates have now gone up more than double than last year, and appear to continue to be rising.
That has eliminated the ability for many regular home buyers to buy something. Yet, considering rates have been 14% to 20% in the past, money is still cheap. Meaning is it a great time to scale investments, and lock in low long-term rates.
5. Remote Work
New data from the Federal Reserve Bank of San Francisco, and coverage of it by Bloomberg suggests that for every 1% increase in remote work, there is almost a correlated 1% rise in housing prices.
Of course, these increases are going to be seen where remote workers are moving to, with correlating drops in the places that they are leaving.
There are a variety of factors driving housing prices as we look forward to 2023. We may be on the way to a healthier market, with better value opportunities for investors.
At the same time, it may get harder and more expensive for regular households looking for places to buy and rent.
Perhaps now more than ever it is important to pay attention to who you are investing with, and how sound their investments are. If they are grossly overpaying, they may end up getting the same end of year bonuses, while leaving their investors with deep losses. Be sure you invest with those whose interests are aligned with yours, and have a track record of not losing investor money during crises.