In 2022, many people refrained from buying homes due to the high prices. At the end of the year, many homebuyers decided to put off their purchases due to rising interest rates and inflation. Although a return to normal conditions would benefit the real estate industry, it is still crucial to monitor the various developments that will happen in 2023.
Mortgage Rates
As inflation starts to subside, investors are becoming more concerned about the various factors that will affect the economy in the coming years. This has caused mortgage bondholders to anticipate a possible increase in volatility.
If another outbreak of COVID-19 occurs, it could cause investors to rethink their mortgage strategy. They may want to hold on to some extra cushion to cover potential risks, such as the possible impact of China’s reopening on inflation and energy markets and the geopolitical situation in Ukraine and Russia.
Home Prices
Home prices could fall by 5% to 10% in 2024. If mortgage rates decline much faster than expected, this could cause home prices to stay flat throughout the year. But, if real incomes increase faster than inflation, this could boost home sales and affordability.
If that is the case, then, from 2025 to 2027, home prices will gradually increase by around 1% to 2% over the inflation rate. It might take some time for them to reach the mid-2022 highs.
Single-Family Homes
When choosing a home, most potential buyers know they have to become a part of a homeowners association (HOA) if they want to live in a condominium or townhouse. According to the Census Bureau, the number of new single-family homes built in 2021 that were part of an association increased from 64% to 78%.
One of the main reasons why more people are choosing to become part of an association is because it allows them to avoid paying excessive fees and taxes. This eliminates the need for the local government to raise additional taxes and fees to meet the demand for housing.
Remote Environment
While students are back in school, many companies are still experimenting with the concept of a part-time and full-time work schedule. This could affect the commercial and residential real estate markets. A study conducted by researchers in the US revealed that the outbreak led to a doughnut effect in the country’s biggest cities.
The study revealed that the increasing number of people working full-time and part-time jobs had caused the traditional economic activities in big cities to disappear. This phenomenon, known as the doughnut effect, will likely continue for the next couple of years. Cities such as New York and San Francisco could help address housing shortages and the rising cost of living by encouraging the development of more affordable housing.