Investors Will Find Real Estate Deals In 2023 If They Pay Attention To These Indicators

It’s been a crazy two volatile years in the commercial and residential real estate markets. 

Despite the potential of a looming recession and elevated interest rates, there is a hopeful spirit heading into 2023, though barriers remain. 

The good news is that by all accounts, commercial real estate (CRE) and housing prices will finally stop climbing and drop from 10% to 30%, depending on who you talk to or which indicators you go by. There are also strong signs that the Federal Reserve may be done raising rates by the third quarter of 2023 and will only be hiking rates by 1.25 percentage points next year — one-fourth of the rate hikes seen in 2022. 

But there are definite indicators and trends investors need to be aware of heading into the New Year. 

• Conventional mortgages will continue to be expensive, with a 30-year, fixed-rate loan at 6.49% — the highest since April 2002. 

• Residential property prices, though predicted to drop in 2023, are still up 41% since the pandemic's beginning. 

• Liquidity is still an issue, as high-interest rates are forcing banks to use unregulated secondary lenders to compensate for the lack of cash. This, too, is driving some inflated interest rates of late. 

• Location, location, location. On the CRE front, some areas are being targeted by investors as good buys, such as Philadelphia, those in the northeast corridor and the Midwest. Those investors looking at factory and manufacturing buildings are doing their due diligence to ensure a workforce is available to fill the needed employment spots. 

• According to a report from Resume Builder, office lease rates will continue to plummet as many employers, though demanding workers come back, are settling for hybrid schedules and are shrinking space as leases end. 

“You had all these large tech companies signing big new leases, which was getting the market comfortable with the idea that the office sector was going to recover over the longer term,” Greg Handler, head of mortgage and consumer credit at Western Asset Management, told Marketwatch.

One word to sum up what’s ahead for real estate investors in 2023 is volatile. That also was the key word in 2021 and 2022, but one thing that has changed is investors are doing their homework and making more informed decisions, which could eventually lead to a profitable new year for many.

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