Key Real Estate Trends to Watch in 2023

Real Estate Trends to Watch in 2023

The past couple of years have shown unprecedented changes in the real estate market. Between drastic interest rate fluctuations and increases in home prices and inflation, to more recent decreases in home prices and buying, it’s hard to know what to expect next. We’ve gathered information from a number of industry experts to get a feel for what the real estate market will look like in 2023.

Now, perhaps more than ever, is a great time for professional development (cough cough, getting those CE courses out of the way) and community outreach. Take advantage of your opportunities to grow your career so that you're the most connected and prepared agent when the market turns in your favor. Now, let's dive into the hot topics.

Home Values Are Trending Down

The past 24 months showed an unprecedented burst in home prices, that even now are only beginning to fall—the Case-Shiller U.S. National Home Price index, at its highest point, had increased by 18.6 percent in September 2021. In September 2022, year-over-year growth (YoY) seemed to plateau around 12%, signaling that the trends may begin to shift back down. It will likely take the front half of 2023 for home values to reach steady ground; but so far, all signs point to lower values, stabilized mortgage rates, and an easier environment for homebuyers than what we saw in 2022.

In September of 2022, home values were in their second consecutive month of decline. Today, home prices have declined nearly 20% from where they were last November. So, while it isn’t the best time to sell a home, it will soon be a great time to house hunt.

Growth Rates Will Remain Low

The pandemic brought unprecedented changes to the market, and we are still experiencing the aftereffects today. In 2020, mortgages plummeted because of low consumer spending, jacking up the prices of homes. It was a seller’s market, especially in more popular real estate markets. By the end of 2021, price growth rates were recorded at around 11%.

Since then, price increases have fluctuated at unsteady rates. Until the end of this year, experts predict that home prices will continue to fall before leveling off. That means now is a good opportunity for homeowners to get their properties in tip-top shape to prepare for a more competitive market in, hopefully, 2024. For agents, it means taking advantage of training, education, and networking opportunities.

Mortgage Rates Drop

After 2020’s all-time lows, last year’s mortgage rates came as an unwelcome surprise for buyers, investors, and agents alike. Due to incredibly low rates which broke records in 2020, there was a spike in mortgage applications in the beginning of 2021, resulting in a 10-month high. With extreme swings in rates and market activity, it’s almost unsurprising that the effects have been so drastic. Through most of 2022, mortgage rates climbed at previously unforeseen rates, reaching just above 7% – the highest point in 20 years.

Luckily, these rates are now dropping, and expected to hit a more comfortable level between 4 and 5% in 2023. Though, it isn’t clear when or if rates will return to the record-breaking lows of 2020. Though these rates are higher than they have been, the market is expected to stabilize around this point, allowing for an economy that is slightly more predictable than the whiplash we have experienced in the past three years.

Investing Remains Popular

For 2023, it seems the trend of investors buying and flipping affordable real estate will continue at large, especially as mortgage rates decrease. As economic circumstances have been drastic and pressing, investors seem keen to swipe up commercial real estate especially. As of 2021, around 15% of the housing stock was comprised of multi-family housing. Single family housing, on the other hand, continues to sit at just over 80% of the real estate market.

Though from the outside it may seem like a bad time to invest, the opposite has proven true, looking at data from 2008. Despite the recession, investors continued to buy property and retain high rental prices. Between October of 2019 and 2022, rental costs rose by nearly 24%, negating any income gains that came with the pandemic.

So, as we keep an eye on where investors turn their attention in 2023, keep in mind that – despite economic challenges – investors will continue to thrive by taking advantage of affordable markets. Affordable markets and a pattern of investments are the perfect formula for real estate development trends.

Movement to More Affordable Cities

It’s no secret that high real estate prices have affected every market. Skyrocketing prices in the most popular real estate markets have driven investors and buyers to shift focus to second-tier cities, like Raleigh, Denver, Miami, Austin, Atlanta, and others. Companies also have begun making similar moves, paving the way for economic growth in these cities that are more affordable and developing.

This move means a couple of things: first, that the markets in those cities will grow, and bring new booming real estate markets to the table. Second, it means the capitalization rates in both first- and second-tier markets will likely equalize.

Millennial Homebuyers & Internet House Hunting

Predictably, the market will continue to see a younger demographic of homebuyers, with Millennials making up a whopping 43% of the market. The NAR has found that millennial homebuyers are leading the industry trends as they progressively take over the real estate market.

For all home buyers under the age of 57, the main driver is:

desire to own a home of their own

Among buyers over 57 years old, the main influences for homebuying are:

desire to be closer to friends and family
desire for a smaller home

Millennials differ from previous generations, also, because the financial burden of homebuying is significantly higher for this generation. 27% of millennials cited that saving for the down payment on a home is the most challenging step, compared to 1% of baby boomers. And nearly 30% of millennial homebuyers received financial assistance with their down payment from a relative.

This means that in an already tough market, houses are an even harder sell for this growing demographic of potential buyers. It's important for agents to understand the issues that face this demographic so they can better cater to their clients, and guide them through the buying process in a way that helps them tackle this challenge.

And the biggest trend? The internet, of course.

Today, 97% of all home buyers use the internet in some part of their home search. This doesn’t undermine the need for real estate agents in the buying and selling process, however, as millennial homebuyers are also the most likely group to use an agent.

So, What Should We Do Now?

Though the market may continue to feel unreliable and unstable at the beginning of 2023, real estate economic trends can allow for more foresight on what’s to come. Mortgage rates will lower and even out, ushering stability where there has been little predictability in the past three years. There are lots of opportunities for agents to take advantage of while these changes occur. Here are some ideas to take charge of 2023:

Complete your CE courses
Network with potential clients and other agents, MLOs, inspectors, and appraisers
Innovate business strategies to target developing cities and younger buyers
Refresh social media marketing
Become educated on local programs and resources available for financing
Run educational seminars on available resources

Times might be tough as an agent, but even more intimidating for buyers and sellers who don't know the ins and outs of the market. This is your opportunity to connect with them, as an insider, and help your clients and potential clients feel comfortable and informed so they know who to go to when they're ready!