2023 US Real Estate Market: Navigating High Mortgage Rates, Low Inventory, and Economic Shifts

The US real estate market in 2023 is navigating a complex landscape characterized by high mortgage rates, low inventory, and shifting economic conditions. Here's an overview:

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General Trends

  • Slow Sales Year: 2023 is on track to have the fewest home sales since the 2008 recession, primarily due to high mortgage rates and low inventory, which are deterring buyers​​.
  • Mortgage Rates Impact: The average daily mortgage rate reached 8%, the highest in 23 years, contributing to a significant drop in mortgage applications and Redfin’s Homebuyer Demand Index​​.
  • Sales of New Homes: Interestingly, sales of new-construction homes have been more robust than existing-home sales, partly because builders are not constrained by low rates and are more motivated to close deals​​.

Economic Context

  • Economic Growth and Recession Outlook: The economy is expected to slow down towards late 2023, leading into a moderate recession in early 2024. The GDP growth forecast for 2023 has been adjusted to 2.0%, with a reduction to 0.7% in 2024​​.
  • Interest Rate Trends: The federal funds rate is higher than initially expected, at a range of 5.25% to 5.5%, and is projected to remain stable for the rest of the year​​.
  • Investor Sentiment: Investors are cautious, with investment volume down significantly in 2023. The main challenges include rising interest rates, the potential recession, and limited credit availability​​.

Sector-Specific Insights

  • Office Market: The office sector is experiencing a delay in the peaking of overall vacancy and bottoming out of average rent, with a recovery expected once economic conditions stabilize​​.
  • Industrial & Logistics: This sector exceeded expectations in leasing activity and is on course for significant rent growth, though vacancy rates are rising due to new construction completions outpacing tenant requirements​​​​​​​​.
  • Multifamily Housing: New construction and absorption levels in the multifamily sector have surpassed forecasts, but annual rent growth expectations have been revised downward​​​​​​.
  • Retail Market: CBRE’s predictions for the retail market have been largely accurate, with some adjustments in rent growth forecasts​​.
  • Hotel Sector: The forecast for hotel RevPAR growth has been lowered due to less inbound international travel than expected​​.

Market Projections

  • Cap Rates: Cap rates have increased for most property types, with stabilization expected by early 2024, except for office assets​​.
  • Investment Volume: Investment volume is expected to decline by 37% year-over-year in 2023, with a recovery projected in 2024​​.

This overview reflects the dynamic and multifaceted nature of the US real estate market in 2023, influenced by broader economic trends and sector-specific developments. 

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