If you’re not yet aware of recent market news, home prices are cooling down. As a result, homebuilders expect a similar market slowdown in 2023.
According to a report from Forbes, 98 out of 100 major real estate markets saw prices take a nosedive in September from peak levels in 2022. The same report anticipates that the trend will soon find its way into other cities and smaller housing markets. It is expected that in 2023, real estate markets will shift into buyers’ markets if home prices continue to go down.
Homebuilders are anticipating a sharper downturn when 2023 rolls in. They are bracing themselves for further price drops as interest rates continue to go up. It is a cause for alarm among homebuilders and developers because the housing cooldown is happening at a very fast rate. They expect new orders to dry up as the new year approaches.
Housing starts for single-family units went down to nearly 19% year-over-year in September 2022. According to PulteGroup, one of the largest homebuilders in the country, its cancellation rate went up to 24% in Q3 2022 from 15% in the previous quarter.
And while most public homebuilders showed very strong earning results over the past year, they mostly came from the backlog of homes that went under contract last spring. It was way before mortgage rates went beyond 6%.
Gene Myers, chairman of Thrive Home Builders in Denver, says that he’s expecting a cliff to happen in January 2023. While he claims that his company of homebuilders enjoys a strong balance sheet now due to all the backlogs of homes sold at higher prices, things will get ugly in January.
Related: Rent Inflation Stays High But May Not Sustain Itself
What Does This Mean for Real Estate Investors?
According to Myers, the previous housing market crash in the mid-to-late 2000s took a slower turn compared to what’s taking place right now. He said:
“I think we’re seeing the most abrupt change in the market in my career, and I’ve been around a while.”
One of the main factors behind the sudden real estate market price drop is the rising mortgage rates. The Federal Reserve recently announced that it would raise interest rates by 0.75% again, the fourth consecutive 0.75% increase and sixth straight hike this year.
The Fed’s latest move is meant to contain the surging costs that are impacting households all over the world.
What Can Investors Expect in 2023?
What a difference a year makes in the world of real estate. From record-low interest rates and high market prices from a year ago, we’re now seeing the opposite. As of November 2, 2022, mortgage rates for a 30-year fixed loan are already at 7.32%, up 15 basis points from the previous week.
Real estate investors are put in a very tight and delicate position as the housing price drops are balanced by higher mortgage rates.
Investors and once-frenzied homebuyers are now nearly frozen and worrying about potential investments, as well as the economy’s overall health. Even with the significant drop in home prices, the rising interest rates are discouraging potential investors from pulling the trigger on a potential investment property purchase.
To get into real estate investing at this time, you will need some serious financial backup to maintain and operate your rental property investment. Those who are thinking about starting a rental property business should make sure to perform thorough research on the market of their choice.
Related: How to Find Profitable Rental Investment Properties for Sale
How Can Investors Cope With the Real Estate Market in 2023?
At the very least, with the way things are going, investors should take due diligence a lot more seriously going into 2023. The fact that homebuilders are bracing themselves for the worst is a telltale sign that things will be quite challenging for the industry in 2023.
At this point, entry-level investors are clearly struggling with the current mortgage rates despite the decrease in property prices. Sherry Palmer, the CEO of homebuilders company Taylor Morrison from Arizona, says that even higher-end buyers are turning their heels and not flooding through their doors anymore. In an interview on CNBC’s Mad Money, Palmer also shared:
“When we look at our move-up and our resort lifestyle buyers, they absolutely can still afford to buy, but emotionally, you need to have the confidence.”
Just because buyers can afford it doesn’t mean they possess the emotional confidence to take the risk. Such a lack of confidence is significantly affecting new orders coming in for homebuilders and developers to build new homes.
Homebuilders all over the country are feeling it, with sales for newly-built homes falling to below pre-pandemic levels in September. According to the National Association of Home Builders, cancellations more than doubled from the same period last year. Robert Dietz, the chief economist of the homebuilders association, said:
“This will be the first year since 2011 to see a decline for single-family starts.”
Detz goes on to add that while most analysts see today’s market as more balanced, from the perspective of homebuilders, they foresee homeownership rates going down in the next few quarters.
Real Estate Investing in 2023
As a real estate investor, you will need to take into account all of the things going on in the industry. Just because home prices are cooling doesn’t mean that you should go out on a buying spree.
You need to consider the current mortgage rates and where they will go in the next few months. Additionally, you should also find out the market conditions of whatever location it is you’re considering investing in. Do not go blindly into it. The deeper the insight into a market, the more confident you will be in investing.
Making it happen requires you to do your homework. Due diligence is never to be taken lightly. It will spell the difference between investing success and failure. You can do it easily with the help of real estate website Mashvisor.
Mashvisor can help investors find the best possible deals that line up with their investment needs regardless of the season. Users are given access to valuable information and highly accurate market data that allows them to conduct a proper and more realistic investment property analysis.
To learn more about how we will help you make faster and smarter real estate investment decisions, click here.
Top 10 Affordable Housing Markets for Real Estate Investing in 2023
We combed through Mashvisor’s data from October 30, 2022 to find out the real estate markets with the most affordable homes with excellent income-earning potential. The lists have been ranked from the most affordable median property prices to the highest.
Related: 20 Best Markets for Real Estate Investing in 2023
5 Most Affordable Markets for Long Term Rental Property Investing in 2023
The following list of markets with affordable housing was filtered using the following criteria:
- Each location should have a median price of no more than $1,000,000
- Each location should have at least 100 active listings
- Each location should have a minimum monthly rental income of $2,000
- Each location should have a 2.00% cash on cash return or higher
- Each location should have a price to rent ratio of 20 and above
That said, here are five of the most affordable and most profitable locations for long term rental investing:
1. Waxahachie, TX
- Median Property Price: $478,607
- Average Price per Square Foot: $200
- Days on Market: 77
- Number of Long Term Rental Listings: 174
- Monthly Long Term Rental Income: $2,016
- Long Term Rental Cash on Cash Return: 2.23%
- Long Term Rental Cap Rate: 2.28%
- Price to Rent Ratio: 20
- Walk Score: 65
2. Melbourne, FL
- Median Property Price: $496,841
- Average Price per Square Foot: $257
- Days on Market: 64
- Number of Long Term Rental Listings: 581
- Monthly Long Term Rental Income: $2,054
- Long Term Rental Cash on Cash Return: 3.18%
- Long Term Rental Cap Rate: 3.26%
- Price to Rent Ratio: 20
- Walk Score: 73
3. Morrisville, NC
- Median Property Price: $498,183
- Average Price per Square Foot: $244
- Days on Market: 48
- Number of Long Term Rental Listings: 227
- Monthly Long Term Rental Income: $2,006
- Long Term Rental Cash on Cash Return: 2.57%
- Long Term Rental Cap Rate: 2.59%
- Price to Rent Ratio: 21
- Walk Score: 41
4. Buckeye, AZ
- Median Property Price: $500,110
- Average Price per Square Foot: $249
- Days on Market: 61
- Number of Long Term Rental Listings: 204
- Monthly Long Term Rental Income: $2,067
- Long Term Rental Cash on Cash Return: 2.93%
- Long Term Rental Cap Rate: 2.97%
- Price to Rent Ratio: 20
- Walk Score: 72
5. Palm Harbor, FL
- Median Property Price: $502,088
- Average Price per Square Foot: $301
- Days on Market: 55
- Number of Long Term Rental Listings: 193
- Monthly Long Term Rental Income: $2,116
- Long Term Rental Cash on Cash Return: 2.46%
- Long Term Rental Cap Rate: 2.50%
- Price to Rent Ratio: 20
- Walk Score: 64
To find the most profitable long term rental properties in any zip code of your choice, click here.
You can use Mashvisor to find the most profitable long term and short term rental properties in your neighborhood or location.
5 Most Affordable Markets for Short Term Rental Property Investing in 2023
Just like the previous one, the following list of markets was filtered using the following criteria:
- Each location should have a median price of no more than $1,000,000
- Each location should have at least 100 active listings
- Each location should have a minimum monthly rental income of $2,000
- Each location should have a 2.00% cash on cash return or higher
- Each location should have a price to rent ratio of 20 and above
Here are the top five most affordable locations for short term rental investing with promising income-generating potential:
1. North College Hill, OH
- Median Property Price: $190,121
- Average Price per Square Foot: $135
- Days on Market: 47
- Number of Short Term Rental Listings: 124
- Monthly Short Term Rental Income: $2,296
- Short Term Rental Cash on Cash Return: 6.81%
- Short Term Rental Cap Rate: 7.18%
- Short Term Rental Daily Rate: $126
- Short Term Rental Occupancy Rate: 52%
- Walk Score: 74
2. Midway Park, NC
- Median Property Price: $201,800
- Average Price per Square Foot: $139
- Days on Market: 54
- Number of Short Term Rental Listings: 113
- Monthly Short Term Rental Income: $2,037
- Short Term Rental Cash on Cash Return: 5.64%
- Short Term Rental Cap Rate: 5.78%
- Short Term Rental Daily Rate: $106
- Short Term Rental Occupancy Rate: 51%
- Walk Score: 12
3. Rockford, IL
- Median Property Price: $204,660
- Average Price per Square Foot: $133
- Days on Market: 63
- Number of Short Term Rental Listings: 115
- Monthly Short Term Rental Income: $2,350
- Short Term Rental Cash on Cash Return: 5.42%
- Short Term Rental Cap Rate: 5.67%
- Short Term Rental Daily Rate: $104
- Short Term Rental Occupancy Rate: 57%
- Walk Score: 87
4. Syracuse, NY
- Median Property Price: $204,819
- Average Price per Square Foot: $113
- Days on Market: 75
- Number of Short Term Rental Listings: 203
- Monthly Short Term Rental Income: $2,564
- Short Term Rental Cash on Cash Return: 6.06%
- Short Term Rental Cap Rate: 6.24%
- Short Term Rental Daily Rate: $153
- Short Term Rental Occupancy Rate: 57%
- Walk Score: 53
5. Rochester, NY
- Median Property Price: $209,408
- Average Price per Square Foot: $140
- Days on Market: 54
- Number of Short Term Rental Listings: 423
- Monthly Short Term Rental Income: $2,532
- Short Term Rental Cash on Cash Return: 5.46%
- Short Term Rental Cap Rate: 5.61%
- Short Term Rental Daily Rate: $139
- Short Term Rental Occupancy Rate: 56%
- Walk Score: 57
To find the most profitable short term rental properties in any zip code of your choice, click here.
Wrapping It Up
As homebuilders across the country prepare themselves for the worst, you should take heed of the things going on around you. Pay attention to the news and find out about current market conditions before making any final investment decisions.
With the help of Mashvisor, investing in rental properties can still be profitable despite the increasing mortgage rates and unstable real estate market movement.
To get access to our real estate investment tools, click here to sign up for a 7-day free trial of Mashvisor today, followed by 15% off for life.