Find out where the biggest investing opportunities will be in real estate investing in 2023, plus a simple but powerful market analysis so you will know what to expect in the coming year.
Real Estate Market Analysis
Market Trends: The housing market in the U.S. was crazy in 2022! Prices began to skyrocket at the beginning of the year and they continued to climb until about the end of May, early June when there was an abrupt change. That’s when prices began to fall in some markets, although they didn't go as low as January prices. In some markets that decline wasn’t as steep, and in other markets prices continued to climb ever so slightly. Then as we went through summer and into fall, most markets began to level off.
But what was the cause of the sudden shift in late May, early June? Well, the rising interest rates caused buyers to move quickly, buy a home and lock in the lowest rate they could. Once we get to May and early June, all those transactions have cleared out, and that's where the abrupt change comes from. However, what’s interesting about the market trend is that as the interest rate climbed to a high of 7% in early November, the market began to level off. That seems unexpected. There were a lot of experts predicting that the real estate market was going to totally collapse, but it didn’t. Why not? The answer isn’t complicated, the answer is low inventory level.
Market Anchor: Inventory levels are still extremely low. When inventory levels are high, buyers have more options and therefore they can negotiate with sellers. The sellers will either drop their price or provide other incentives. But when inventory levels are low, buyers don't have the upper hand in negotiations and sellers can stick to their price. And that's why even though the interest rates have continued to climb, the market has leveled off. Low inventory is the anchor that keeps real estate markets strong and that's why in 2023 it will remain strong.
Why Are Inventory Levels Low?
Builders Aren’t Keeping Up with Demand: This has been the trend in new builds for years. It is practically impossible to build a new subdivision these days due to governments regulations and long-term residents that file lawsuits. It is just made worse right now because of skyrocketing material costs, inflated land costs, and a shortage of quality, affordable labor. And all these issues are compounded by high interest rates; it costs more to borrow money for their projects and it's harder to sell properties at the price they need to make a profit.
Homeowners Aren’t Selling: There are a lot of homeowners who could sell right now and reap huge profits, despite the price dip in the market. But they aren’t cashing in right now because inventory is low, prices are high, and interest rates are double. So a lot of homeowners are staying put and not selling. And with the markets leveling off, and in some cases climbing back up, we can expect this trend to continue.
These two factors are important because they are keeping inventory levels low. When you bring all this together, what you see is even though interest rates have climbed and prices did drop in some markets, as we go into 2023 inventory levels will remain incredibly low. There may be a few fluctuations in some markets, but overall low inventory will be the anchor that stabilizes the market.
Creative Real Estate Investing in 2023
2023 will be a creative real estate investors dream. In creative real estate investing you purchase properties off market directly from the seller, which allows you to structure non-conventional financing. These creative financing options include subject to or owner financing, lease options and land contracts. Another benefit of creative financing is it enables you to buy properties if you have bad credit or with no money down. These creative real estate investing strategies are ideal for the real estate market in 2023.
Here are 5 reasons why 2023 will be a creative real estate investors dream:
Price Prediction Confidence: Since 2023 is going to be a more stable market, investors can be confident when predicting the final sales price. Predicting the final sales price is the skill of determining what a property will sell for when you put it on the market. This is the skill that can make or break a real estate investor's career. When the market is fluctuating like in 2022, it becomes more difficult to predict the final sales price. With a more stable market in 2023 it will be much easier to predict the final sales price which means you can be confident in your predictions, and that's the dream of a creative real estate investor.
For more training on how to master this skill, check out my video: Predicting Final Sales Price.
Rent to Own: Rental rates are strong because it’s more difficult for buyer to get a loan - interest rates are high, prices are up and down payment requirements are more. Even the people who want to be homeowners can't because they have limited buying power. With rent-to-own, you can provide that opportunity for would be buyers. And if you can take over loans subject to at ultra-low interest rates and combine it with rent-to-own, it's an absolute dream for a creative investor.
Subject To Low Interest Rate Loans: Most sellers aren’t selling a property that they just acquired recently. Usually, they've owned it for one to seven years which means they have a lower interest rate locked in than the interest rates right now. Subject To is a key strategy for creative investors that is fantastic. There are also situations where regrettably someone's passed away and the interest rate was 3%, and we can take that over Subject To as well. It doesn't affect anybody because the borrower's passed, and it's literally half of what the rates are right now. So that’s another dream of creative real estate investors.
Steady Deal Flow: Even when inventory levels are low, our business of reaching sellers directly remains consistent. We have had steady deal flow year after year because we're dealing with the 1 to 2% of sellers in any marketplace that need to sell for a personal reasons. Their motives for selling have nothing to do with macroeconomic changes or interest rates. It has everything to do with the fact that they need to sell, and this is why our deal flow remains consistent and isn’t impacted by fluctuations in inventory.
Less Competition: There's less competition in the marketplace because the grifters that came into the market to capitalize on rising pricing in 2020 – 2022, got flushed out in the second half of 2022. Not only that, but iBuyers are struggling as well. Redfin disappeared and Opendoor and Offerpad are on life support. We're also seeing that marketing costs for sellers has dropped dramatically, and that is also evidence of the less competition. This is good news because less competition is exactly what we want as creative real estate investors.
Another Difficult Year for Traditional Investors
Creative residential real estate investors will be living the dream in 2023, but it will be another tough year for traditional investors.
High Prices: Traditional investors will still have high market prices to contend with.
Low Inventory: Low inventory levels only make it traditional investing more difficult. This is going to be another tough year finding on market inventory.
High Interest Rates: Traditional investors must close on a property, and then they fix it up and resell it. Due to climbing interest rates it will cost more to borrow money.
Low Foreclosure Rates: They were predicting that after the moratorium had expired, foreclosure rates would go up. Unfortunately for traditional investors, that hasn’t happened. In fact, foreclosure rates are still lower than they were pre-pandemic. That makes it more difficult for traditional investors because typical inventory sources like auctions or bank owned properties aren’t as available.