Economists Weigh in on the 2023 Housing Market

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As 2022 comes to a close, predictions and prognostications among economists regarding the 2023 housing market vary widely, perhaps more so than at any time in recent history. While some have adopted Grinch-like opinions for the coming year, many others are predicting merry and bright futures ahead, especially for real estate investors.

The Motley Fool predicts 2023 Could Be an Explosive Year for Real Estate Investing. Why? Declining home price growth will improve affordability for investors, and higher interest rates will keep competition at bay for housing inventory which, while still low, is seeing signs of growth. “We're already seeing a notable decrease in demand and, thus, less competition in the marketplace. There's also been a major uptick in inventory, helping ease the rate of home price growth, a trend that will likely continue in the new year. 2023 has all the signs for a decelerating housing market that may or may not be accompanied by a recession. Meaning it could be a tremendous buying opportunity to purchase rental homes at a discount.”

Fortune did its own roundup of 2023 home price predictions from major housing forecasts and found that a majority are expecting home prices to decline anywhere from 0.2% (Freddie Mac) to 10% (Moody’s Analytics and Morgan Stanley) and even as much as 20% (John Burns Real Estate Consulting and Zelman & Associates, which revised its forecast from 4% in the summer to a peak-to-trough decline of 20% next year). A smaller number of forecasts anticipate home prices rising, but only modestly, including the Mortgage Bankers Association prediction of an increase of 0.7%, Zillow at 0.8% and CoreLogic at 4.1%. Falling house prices make it that much more affordable for both existing investors and new investors to grow their portfolios.  

In its 5 Expected 2023 Rental Property Investing Trends, Think Realty is bullish on rental investment trends citing stronger demand in secondary and tertiary markets: “For those considering investing in a long-term rental property, smaller markets will offer more demand and higher return;” and technologic advancements in rental property investing: “We can expect existing proptech companies to grow and new ones to appear in the next couple of years to meet all investor needs, making the real estate investing process even more seamless and profitable.”

“In 2023, the rental market is expected to remain as dynamic as it has always been. There will be numerous lucrative opportunities for investing as long as investors analyze the market, use reliable data, and follow recent developments and forecasts.”

Multi-Housing NewsSFR Market Trends to Watch in 2023 provides a deep dive into the single-family rental sector and its growth potential, with historical context going back to the Great Recession. A review of single-family market trends that shaped 2022 and how the pandemic affected SFR activity sheds light on what can be expected going into 2023.  

“With the cost of buying a home rising and the average rate on the 30-year, fixed-rate mortgage above the 7 percent mark for the first time since 2002, the SFR market has been thriving. And even though it is also dealing with cost overruns due to supply constraints, rent growth has kept pace with the increase of construction costs,” according to Doug Ressler with Yardi Matrix. Also in the article, Al Otero, portfolio manager at Armada ETF Advisors, believes there is plenty of opportunity for investors. “But investors are starting to see some signs of opportunity as homes sit on the market longer and inventory levels of unsold homes move up from historically low levels. It is expected that the acquisition environment for SFR will improve in 2023 as the Federal Reserve eventually ‘pauses’ in its aggressive interest rate stance and the yield curve reflects slower growth and moderating future inflation.”

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