By Operations Team. For more information, contact Robert Parmar
Past, present, and possibly the future…
It’s that time of year.
The time of year when real estate experts speculate about the condition of the real estate market and what consumers can expect for the year. It can be helpful information to guide your real estate decisions for the next year.
The end of 2021 closed out a successful year for many real estate investors. Assets had increased in value and the pending inflation was seen as a temporary issue. Then in 2022, reality hit, and inflation hit a 40-year high and interest rates have caused real estate purchases to plummet. Single family home sales decreased, and rental prices skyrocketed. Builder demand was so high that projects were taking twice as long to complete. Now, fast forward to 2023.
So far in 2023, the market has settled a bit and the changes were evident even in January. Inventory has increased for single family homes as well as multifamily rental properties. It is predicted that negative rent growth will begin in 2023, which is a sign of a recession. As more multifamily units are built, rents will have to decrease to compete in the market. An increase in supply will decrease the amount of demand. Properties that were able to charge higher prices to combat inflation and higher interest rates will have to lower their prices as well as cut back on expenses where they can. This can be a great year to buy assets at reduced prices as they start to show signs of hardship.
With the inevitable rise in mortgage delinquency and hardships brought on by the recession, multifamily properties will be a great asset to add to an investment portfolio. Renting will become a more viable option for those homeowners who were forced to default on their mortgages. The basic need of shelter became a very evident necessity during the pandemic and brought to light how important it is for people to have a home. Multifamily properties are an asset that will always be in demand and there will be opportunity for rental growth as the economy calms down.
Covering the basics of the last couple of years, it is easy to see that multifamily housing has and always will be important. It can be a solid investment but too many investors are skittish about buying it with all the perceived problems it comes with. While the recession is not something to celebrate, it can bring to light the need for housing options and the trend for 2023 is just that: the need for increased housing options.
Potential buyers are not buying homes just yet. They are waiting to see how the interest rates shake out (are fluctuating) and then decide. In that interim, they are renting. They are renting to have a strong rental history, a solid payment history, and to keep their credit scores high. This is a great place to be for property owners. You have tenants who want to buy a home in the near future so they will work hard to maintain a solid relationship with their landlord.
According to the Wall Street Journal, the U.S. housing market is 3.8 million single-family homes short of what is needed to meet the country’s demand for entry-level homes. These future homeowners will need to rent until the market recalibrates, which is estimated to happen towards the end of 2023 through 2027.