2023: A CHALLENGING YEAR AHEAD
High interest rates and recession will make 2023 a challenging year for the real estate world.
U.S. inflation slowed at the end of 2022 and reached the lowest rate in January 2023, dropping to 6.4%, its lowest in more than a year.
The Fed will continue to raise rates until it sees a marked reduction in inflation closer to its 2% target. Weakening fundamentals and the higher cost of capital will generally reduce asset values.
RECESSION WILL NOT BE DEEP
Corporate finances are in good shape and employers will avoid excessive layoffs to avoid losing employees in a tight market for skilled labor.
While consumer confidence is very weak, average household debt is low compared to the start of previous recessions.
These factors suggest a moderate slowdown, with little likelihood that unemployment will rise above the 6% level.
Inflation will be significantly lower by the second half of 2023, setting the stage for falling interest rates and the beginning of a NEW CYCLE that will last into the 2030s.
Despite the economic obstacles, the pace of change will not slow down.
The growth of the digital economy will continue to affect real estate demand.
Hybrid work offers many benefits for companies and employees, but companies and the office sector will have to evolve.
Cities will also need to adapt to new commuting patterns and reduced demand for office space.
The resurgent retail sector is only now reaping the benefits of a long period of change, which is attracting strong investor interest.
Data centers and commercial real estate are likely to be the most resilient sectors and the housing shortage will benefit the residential sector.
The hotel sector’s recovery from pandemic constraints will continue, but life sciences activity, which was boosted by Covid, will decline for a while as venture capital becomes scarcer.
GROWTH OF THE REAL ESTATE MARKET
According to the Federal Housing Finance Agency’s Home Price Index (FHFA HPI), U.S . residential property values increased 17% from the second quarter of 2021 to the same period in 2022. In addition, compared to the first quarter of 2022, a 4% increase in home prices has been reported.
Florida is the state where homes increased the fastest in the last year, as a 29.8% increase in residential property values was reported there. It is followed by Arizona at 25.5%, North Carolina at 25.2%, Montana at 24.9% and Tennessee at 24.3%.
WHAT DOES 2023 HOLD FOR THE FLORIDA REAL ESTATE MARKET?
The state is the 4th largest economy in the US, is investing in infrastructure, has diversified its economy and has relocated many large employers and invested in its entrepreneurial ecosystem. Vacancy rates in residential and multifamily properties are below the national average, outperforming most major markets in the country. By GDP, according to the Entrepreneurship Index, Florida would be 8th out of the Fortune 100*. By 2023 , Florida’s growth is forecast to be DOUBLE that of the entire U.S. and continued steady employment growth.
If you have any questions about how these trends may affect your real estate strategy, please contact us.
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*2022 Fortune Media IP Limited
