Housing Market Going through a Reset?

New housing construction across the US fell in 2022 and in 2023, it’s looking to fall even further.

And the mood has been gloomy across the housing market for a while, and buyers are ready for an expectation reset in 2023.  Reality seems less painful than depression. Sellers too might experience a restart this year in terms of price, willingness, and acceptance.

A restart clears the registers so to speak so that landlords, Realtors, investors and property managers can make the best of 2023.  Home buyers held the hope of lower prices and housing supply increases.  Rising interest rates, and high mortgage payments have dried up most buying opportunities (except perhaps some built to rent/modular home opportunities.

Many buyers and even renters have fled the big metros in search of states with lower home prices, property taxes and income taxes. Yet many are staying put.

NAR Shows House Sales Down while Rent Prices Rise

At last month’s NAR virtual economic and real estate summit, Lawrence Yun, NAR chief economist and senior vice president of research, predicted 4.78 million existing homes will be sold next year (down 6.8% from 5.13 million in 2022). He forecasts home prices will reach $385,800 – up slightly (0.3%) from $384,500 during 2022).

South east cities (Atlanta, Raleigh, Dallas, Fayetteville, Ark., and Greenville, S.C.) were among NAR’s top 10 housing markets for 2023. Yun forecasts that Atlanta will be one of the top real estate markets to watch in 2023 and beyond.

More prospective buyers, particularly millennials and Gen Z’s will be forced to stay in the rental market or enter it. Yun expects rent prices to grow only 5% during this year, after a 7% increase in 2022. He says foreclosure rates will remain at historically low levels in 2023, comprising less than 1% of all mortgages.

In terms of demand for homes, affordability remains the top factor, yet lower listings of resale homes, new construction (2023 housing starts are forecast to drop to 886,000 before rebounding back above 1 million in 2024) and high unemployment will end the pursuit for some buyers.

NAHB and New Construction Stats

NAHB’s Robert Dietz reported over the last 4 quarters, 68,000 single family built to rent homes began construction, which is a 42% increase compared to the 48,000 estimated SFBFR starts in the prior four quarters. Built for rent is said to be a major chunk of the new rental housing market.

The drop in construction is another signal to buyers that others won’t be buying in 2023 either. Permits dropped 7% from October alone, and starts are down 4% from October.

New housing construction declining. Screenshot courtesy of Census.gov.

Buyers Giving up on the Home Ownership Dream

A report on the Street.com suggests Americans are giving up on the home ownership dream. Those in Canada, Germany, UK and Australia are likely succumbing too, and are in the great reset period now. They cite a new study of buyers which suggests 94% are living in homes they can’t afford, and 51% believe homeownership is unattainable.

They now believe home ownership is just a lifestyle choice, and only 45% of renters plan to buy in the next 5 years.

We wonder how everyone feels about what is ahead for us beyond 5 years.

The big mental reset is due to unaffordability and that the outlook for purchases is worse for buyers for years. Affordability has sunk to its lowest level since the 2006 financial crisis. Although experts suggest interest rates will peak then retract to just below 6%, mortgage rates could become very high in states such as California.

Yun suggests home prices could fall about 15% potentially in California perhaps creating some opportunities there. Yet California home prices are leading the nation and affordability may be the number one issue there forever. Buyers in California may be fully resigned to the idea they will never buy in the state.

The focus is squarely on rental properties and investment to support the development of more rental properties.

What Drives the Great Reset of Buyer’s Outlook

The great 2023 expectation reset could involve realizing:

• home prices won’t drop much and are too far out of reach anyway
• some believe they may not even be able to afford to rent
• they will not be able to save for a home purchase (high rent and taxes, student loans, worsening economy)
• they are being delusional about eventually buying
• mortgage rates are up for a long time
• sellers don’t need to accept discounted bids
• government support of the housing market is weak
• government and business is dependent on real estate profits/fees
• builders won’t stick their necks out like they did last recession
• US GDP is weakening and unemployment is going to rise
• a housing crash might mean a job market crash too
• media reports showing how futile the dream has become

The Silver Lining

This big mental reset’s silver lining is that we’ll see better support for the rental market, and of course profitability is supported for residential real estate investors, landlords and property management companies.

While the real estate headlines have been dour for some time, it seems reality is adapting to that forecast. If you use a mortgage calculator, the numbers keep looking progressively worse for buyers and better for rental owners.

Many Americans may not understand the implications of building restrictions, high tax loads, and trillion dollar stimulus spending. The outcome is lasting and not temporary. Demand for apartments and rental houses will be solid.

This is why smart money should likely be invested in rental property to serve the real, actual needs of Americans. The great reset will generate clarity and allow everyone to adjust to what will be, for whatever length of time it lasts.

There won’t be any quick solutions for the US housing market, which is why we’re seeing migration to cheaper jurisdictions. That’s a clear sign people have gone through the reset and are just dealing with it.

What will happen after the reset? We’ll have greater acceptance of and support for the rental market and perhaps address the national housing supply crisis a little better.

Property Managers too are going through their great reset.  They realize one of their most important decisions to adopt new, modern property management software decisions, you should talk to us directly.  Arrange for your Software Demo right now.

Property Management | Comparison of Property Management Software | Property Management Apps | Property Management Software Pricing | Atlanta Housing Market | Property Management Accounting Software | Why Choose ManageCasa? | Modern Property Management | ManageCasa vs Quickbooks | Property Accounting Tips | What is Property Management? | Property Management Software