As we get deeper into 2023, several factors continue to shape and impact the US economy and the rental market. Per usual, the industry is still rife with the never-ending speculation of a real estate bubble bursting from some corners. Others predict better prices and a significant shift from a possible bubble burst.
This is why real estate investors and property managers must get their market facts right to plan accordingly for the year. With the mixed economic signals in the first few weeks of 2023, it can be difficult to determine where the market is heading without guidance.
Here’s what you need to know.
Will the Market Favor Landlords or Tenants in 2023?
High mortgage rates are expected to slow home ownership in 2023.
A 30-year mortgage rate is expected to remain high at around 6.35%. This can make homeownership a far-fetched dream for many tenants.
Are Rents Expected to Go Up or Down?
Rental prices are also predicted to be on a persistent upward trend, albeit slower than the previous year.
Tenants who renewed their leases at the beginning of 2023 paid 3.5% less rent than six months ago. That means renters will feel a more subtle financial pinch in 2023. This can position landlords to win big as renters stay put due to high-interest rates and a slowdown in the rise of rental prices.
Is 2023 a Good Year for Landlords to Invest in Real Estate?
The most important factors to consider before investing in real estate in 2023 are supply and demand and market timing.
With the Fed Reserve interest rate currently at 4% and rising, it may be a good time to take on other investment options. Mortgage rates will increase to make it difficult for people to buy rather than rent.
Keep in mind that higher interest rates will mean a higher cost of borrowing for landlords who intend to invest in new rental units this year as well. The Federal Reserve hiked the interest rate by 0.25% and additional hikes are expected as the year progresses.
The risk of overall economic instability should not be underestimated. The uncertainty in 2023 means an unexpected economic contraction could lead to higher vacancy rates in rental spaces and lower profits for landlords.
It would be advisable for landlords to take careful considerations before investing in new real estate properties.
What Are the Best Markets?
When investing in real estate, doing an economic feasibility study is essential.
With a long-term investment, the location of a rental property should be informed by the long-term demand.
Some of the best markets for rental property investment in the US are:
- Orlando, FL
- Tampa, FL
- Jacksonville, FL
- Charlotte, NC
- Houston, TX
- San Antonio, TX
- Arlington, TX
- Cincinnati, OH
- Colorado Springs, CO
These cities give a promising outlook for real estate investors. They have recorded impressive growth in rent averaging $1,200, gross rent multiplier of at least 10%, year-on-year rent growth, and steady population growth.
Predictions That Could Encourage or Hinder Growth in the Rental Industry
Predictions of further interest rate hikes in 2023 and economic uncertainty with a 58% chance of a modest recession could stifle growth in the real estate industry in 2023.
On the other hand, slowing hikes in rental prices could encourage renters to keep renting space rather than buying, triggering higher demand for rental units and subsequent increases in occupancy rates.
Investing in real estate properties for rental purposes is among the top-rated investment ideas. However, market timing and the good old economics of supply vs demand are vital factors to research before jumping into the real estate business. In a nutshell, 2023 looks promising for landlords as the economic outlook seems to favor property renting over buying.
Amid the uncertain and challenging times for landlords, we at LandlordStation have a one-stop integrated platform offering a suite of solutions for landlords. The platform helps you streamline your property management by offering tenant screening, renters insurance, document management, and payment processing.
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