A Return to ‘Normal’? The State of Real Estate in 2023

As we move further into the new year, many keeping an eye on the real estate industry are wondering if and when the market will finally return to a state of "normalcy" after the turbulence of the past few years. We’re hot off the heels of 2022, a year when inflation soared to a 40-year high and rapidly rising mortgage rates pumped the brakes on what had been a home buying frenzy brought on by the pandemic. The truth is, the real estate market overall is constantly changing and adapting to various economic and social factors, so it's unlikely that we'll ever see a return to the exact same market conditions that existed prior to the pandemic or even just a year ago. However, here are a few positive trends that we can expect to see in the coming year.

Mortgage Rates Predicted to Stabilize. Inventory Likely to Remain Slim.

According to economists at the National Association of REALTORS®’ annual Real Estate Forecast Summit, mortgage rates are predicted to stabilize in 2023 while home sales and prices are likely to ease up after recent highs. Signs are showing that some housing markets may see a rise in home buying activity at the start of the year, especially if mortgage rates continue to fall from their recent high of 7.08% back in November ‘22. That being said, housing inventory is expected to remain tight in 2023 according to NAR Chief Economist Lawrence Yun. He states that: “The ongoing housing supply challenges will prevent home prices from falling, though price appreciation will slow”, and followed up with: “I see many hopeful signs for early next year”.

Ultimately, mortgage rates are the lifeblood that drive home sales. While they are still nearly double what they were a year ago, if inflation continues to slow and rates stabilize, that could bring more buyers back to the market and boost demand for housing.

More Variability Between Markets Expected.

We can also look forward to seeing more variability across the board between markets in the upcoming year. The majority of cities across the U.S. recently saw their hottest market and highest sales of all time after the pandemic. This will no longer be the case in every community going into 2023 as different areas should start to see differences in demand.

“For the last couple of years we could have talked about all housing markets across the country basically using the same language,” said Lisa Sturtevant, chief economist at listing site Bright MLS, speaking at NAR Real Estate Forecast Summit. “In 2023, though, there’s going to be a lot of variability in how these markets are adjusting.”

Due to more and more companies now offering remote work options, there has been a surge over the past few years in demand for affordable homes in suburban and rural areas as people looked to leave crowded cities and enjoy more space. The cities that saw a mass influx of these buyers during the pandemic— also known as “Zoom towns” — are the areas most likely to see home prices fall, a trend that has already started this year, according to Sturtevant.

That being said, there will be markets that remain very much in demand and could see home prices increasing throughout the year.

The Shift to Digital Continues

One of the biggest trends that we are likely to see continue in 2023 is the shift to a more digital approach of buying and selling homes. The rise of technology over the past decade has made it easier than ever for buyers and sellers to connect, and increasingly more people are relying on online tools to complete their transactions.

Now, more than ever, it is essential to have a strong online presence for your property that showcases impressive photos and videos of the home, as well as an internet savvy agent in your corner that knows how to get you connected with more buyers. As the digital age continues to expand, every real estate agent should be prepared to offer the highest level of online marketing in order to stay ahead of the competition.

A Bigger Focus on Sustainability.

In addition to the shift to digital, 2023 may also bring with it a renewed focus on sustainability that could have a significant impact on the real estate industry. The implementation of energy-efficient features such as solar panels, green roofs, EV home chargers, and new windows have skyrocketed in value, as well as the use of eco-friendly materials for construction. Homes already boasting these features are increasing in popularity quickly, and sustainable design projects continue to gain traction, as architects and designers look for ways to make their buildings as efficient as possible.

Rent on the Rise

Lastly, with the rising barrier of entry into homeownership, rental demand continues to rise and is predicted by economists to push the median rental price nationwide up by 6.3% in 2023. This is despite the improvement in the rental market as a result of the influx of new multifamily housing, which is helping to meet the increased rental demand.

Ultimately, with fewer households taking the plunge into homeownership, the rental market looks set to remain strong, and the demand for purchasing these investment properties will continue to grow.

In Conclusion…

Looking ahead, consumer confidence is the most important factor in the real estate market's recovery and return to ‘normal’ in 2023. As more people feel secure in their finances and trust the market's stability, sales will increase, leading to a healthier and more active market. Although the market is still recovering from the effects of a few turbulent years, new trends, technologies, and regulations are always coming into play. The industry as a whole remains to be resilient and is likely to continue growing in the months to come.

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