Want to Invest In Real Estate? Here Are Some Trends to Keep In Mind

Real estate investors are ready to put 2022 in the rearview mirror. While the fundamentals of the market remain strong, recent economic volatility and rapid drops in home pricing have many investors feeling like they’ve been on an extended roller coaster ride. Since 2023 is just around the corner, let’s look at current real estate trends for investors and how you can be sure you’re ready when the right property comes along.

Investors have three basic tasks to set themselves up for a good year:

• Carefully analyze the local market
• Use reliable data
• Stay on top of a changing landscape and forecasts

Let’s be more specific. In late October 2022, rates on a 30-year fixed mortgage topped 7% for the first time in literally decades. From data from early September, that 30-year benchmark was 5.05%—a two percent jump in eight weeks. You’re a smart investor and can do the math—you know how much more money costs these days.

Moreover, sales of not-new homes dropped 1.5% from August to September to a seasonally-adjusted rate of just under 5 million units per month—the slowest market since 2012.

How Rising Interest Rates and Inflation Have Impacted Real Estate Investing

Inflation is real, and it probably isn’t going away anytime soon. That said, we have been living in an unsustainable economy from an inflation standpoint for a few years now, so it’s possible that this is the front end of a correction. However, for real estate, recent overall economic trends show that GDP is growing, unemployment remains low, and wages are rising. All of which indicates that inflation is just part of a growing economy. 

Since interest rates rise as a counter to inflation, your overall buying power is less than it was early in the year. However, rising rates correlate to a drop in demand, which in turn forces prices to drop. So while technically you can’t spend as much, realistically, you don’t have to. 

The Rental Market Remains Strong for Single and Multi-Family Properties

Here’s the good news—the USC Casden Forecast projects rising rents through 2023, occasionally by hundreds of dollars per month. Los Angeles County’s increase is projected to be about 10%, from an average of $2,100 to $2,352. In Ventura County, the increase could be as much as $310, while in Orange County, it’s over a $400 increase per month. 

Director of USC’s Lusk Center for Real Estate, Richard Green, says while vacancy rates in urban areas are falling, suburban areas are maintaining low rates, so investors are getting higher rents. The question, he says, is whether that urban exodus continues and whether additional multi-family construction increases, relieving some of the pressure on housing in the cities. 

Housing prices will continue to fall

In the US, housing prices are forecast to go into a freefall—10% below 2022 levels in California, according to Lawrence Yun, chief economist for the National Association of Realtors (NAR), balanced against a 7% fall in overall sales. Yun also says that housing affordability in the US is declining and is at the lowest level since 2006. 

Robert Dietz, chief economist for the National Association of Homebuilders, has even grimmer news for potential home buyers. More than 10% of new builds in 2023 are for the rental market, with an even split between homes being built as rentals and the other half being investor purchases. 

What this means for real estate trends is inventory is there, prices are dropping, and the tenant pool is more likely to afford higher rents as buying becomes more prohibitive. 

“As mortgage rates rise, the affordability gap widens, increasing the barriers of entry for home buyers and subsequently pushing them towards renting,” he says. “This shift will provide a strong rental market allowing rental rate growth to outpace inflation.”

Investor Strategies

Your own strategies for investing in 2023 depend on your long-term goals. 

Rehabs

If you’re handy, consider taking on a rehab project if the scope of work isn’t too much. You could still fix and flip, but with housing prices falling, generating passive rental income is a better route for both cash flow and net worth. It’s real estate 101—don’t sell low if you can lease high. 

Rollovers

If you have more than one rental property, leverage your equity in those properties and buy more, especially as prices decline. Rolling over profits increases your cash flow, reduces taxes, and helps grow your overall wealth. 

Multi-family

Some real estate investors are leery of investing in multi-family properties. Still, this asset class typically outperforms other asset classes, including single-family homes. 

Multi-family properties are a less risky investment than single-family residences. When you lose a tenant in a house or condo, you also lose rent while searching for a new tenant. You’re also incurring carrying and marketing costs, and usually, there are some repairs you’ll need to complete before you can advertise the property. 

If you have several tenants, the risk is spread out. When you have a tenant leave, you’re still receiving income while you wait for the new lease to begin. 

Offercity Makes Investing Easy

Our streamlined approach to purchasing rental investment properties makes it easier to start building wealth with real estate. Once you’re in our system, you’ll get daily notifications for new properties on the market, and you can even bid online. Our online offerings let you immerse yourself in the Southern California real estate trends and market to analyze possible deals at your convenience. Contact us to learn more about our state-of-the-art approach to guiding you in building wealth through real estate.