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.