Doug Bibby, president of the National Multifamily Housing Council: Over the coming year, we expect rents to continue to decrease from the heights of the last couple of years, but that demand for apartment homes to remain strong. Indeed, we can be reasonably confident, as research commissioned by NMHC and the National Apartment Association found that as a country we need to build 4.3 million new apartments by 2035. And that, of those 4.3 million apartment homes needed, we already are facing an existing 600,000 apartment home deficit because of underbuilding due in large part to the 2008 financial crisis. Even more worrisome, the number of affordable units (those with rents less than $1,000 per month) declined by 4.7 million from 2015 to 2020. A recent NMHC survey found that while market conditions may be beginning to normalize, the cost of construction and labor, and delays due to permitting and regulations, continue to impede the creation of badly needed housing. Simply put, over the course of 2023 and beyond we need to build and renovate more housing of all types and at all price points in communities across the country.
One trend of particular concern that will unfortunately continue is that lawmakers at the city, state and even federal levels continue to pursue failed policies like rent control to deal with housing affordability challenges. Again and again, rent control has been shown to actually hurt housing affordability – not improve it. As Swedish economist Assar Lindbeck described it, “In many cases rent control appears to be the most efficient technique presently known to destroy a city—except for bombing.” Looking ahead, we need real solutions that will actually lower housing costs and spread opportunity. That starts with expanding housing supply. NMHC was encouraged when the White House announced their Housing Supply Action Plan earlier this year and we look forward to continuing to work with the Biden administration and lawmakers in both parties in Congress to implement policies that allow for the development of desperately needed housing.
Rick Goldberg, vice president of sales at Arize: Over the last few years, the multifamily industry has seen record demand and surging rental rates. In a recent survey conducted by Yardi Matrix, the average asking rent rose 7% year-over-year, while the national occupancy rate remained strong at 95.6% this past October. There is no doubt that multifamily investors and employees are facing ongoing pressures including but not limited to record-breaking inflation, ongoing supply chain constraints, interest rates increasing and resident concerns.
Steven Shores, chairman and CEO of RangeWater Real Estate: The increase in mortgage rates from 3 to 7 percent has dramatically slowed home buying. As a result, RangeWater anticipates the demand of rental housing to rise. Both conventional multifamily communities and build-to-rent neighborhoods provide affordable options to meet the needs of an underserved population. As a nation, we are under-housed by 3+ million homes, which even at full production, is a difficult gap to close.
While demand for rental housing should remain robust in the medium to long term, our industry is facing significant headwinds including rising interest rates, inflated construction costs and a slowing economy. For all these reasons, I anticipate 2023 to be a challenging year, but anticipate improvements in late 2023 leading into continuous improvement throughout 2024 into 2025.
Lucas Haldeman, founder and CEO of SmartRent: As the housing market continues to decline in 2023 and mortgage rates are spiking, the demand for housing construction will remain low. Subsequently, employment demand will suffer for home builders. In order to remain competitive, we’ll see home builders offering additional incentives– like rate buydowns, rate locks, and upgrades on kitchen appliances. It’s likely there will also be a rise in spec home offerings in the attempt to increase buyer demand, due to the shortened move-in process in the wake of rates continuing to rise.
Leasing and maintenance teams within the multifamily industry have always had high employee turnover, and in this past year, we’ve continued to see that spike, even reaching all-time highs. This is due to labor shortages and a lack of resources for employees. Proptech will be crucial in employee retention going into 2023, as it allows for the centralization of operations– allowing employees to manage multiple properties by using fewer systems to streamline processes and creating new career paths for existing associates.
Ward Morrison, president and CEO, Motto Franchising, LLC: 2022 ushered in massive changes in the mortgage market. The Federal Reserve upped interest rates which impacted the 10-Year Treasury, rapidly increasing interest rates changed the dynamics of the market, and refis seemingly disappeared overnight shifting the industry to a purchase focus. Looking ahead to 2023, we are already starting to see compression in interest rates. This is due to the spread on the 10-Year Treasury versus consumer rates beginning to shrink and overall lower market risk. As the Federal Reserve tapers and improves consumer confidence in how they are addressing and reducing inflation, the risk premium will likely decrease, and we will have the potential to see rates come down towards the end of 2023.
While supply and demand of home inventory is still off balance, we are beginning to see inventory rise which is putting buyers in a more favorable position than they were in the 2022 seller’s market. In 2023 ,I anticipate we will see a shift to a buyer’s market where sellers will be more apt to work with a buyer to see the purchase through to the finish line. Sellers won’t necessarily want to lower the cost of the home, but they may be willing to offer incentives or seller credits the make the deal more attractive or work with you on products like 3-2-1 or 2-1 Buydowns, or ARMS that meet the needs of your current financial situation. The thing to always keep in mind when shopping for a home is that the market is volatile and “Black Swan” events such as economic, political, and geo-political happenings can change things quickly. Ultimately, the key to home buying success is finding a trusted real estate and mortgage advisor that is prepared to support you in what could be the most complex transaction of your lifetime.
Sean Grzebin, Head of Originations at Chase Home Lending: We’ve seen notable shifts in the market over the last year. While the market may seem daunting right now, it could still be the right time for buyers who are well-prepared financially to take on homeownership. Recent data indicates that we may be headed toward a buyers’ market as inventory increases and prices decline. We expect to see buyers who are financially ready enter the market and become homeowners in 2023. We also anticipate that Black and Hispanic buyers, Millennials and Gen Z, and single women will continue to become more dominant forces in the housing market.
It’s clear that homeownership remains a priority and we expect buyers will make significant efforts to prepare themselves financially. According to our 2022 First-Time Homebuyer Study, 58% of consumers said that they are likely to purchase in the next 12 months and 70% still see homeownership as an important step to building wealth. Forty-four percent of survey respondents indicated they are confident that they will be financially ready to purchase in the coming year, up 12% year-over-year. Many are making lifestyle changes to help them afford homeownership. As an example, we found that two-in-five future homeowners plan to move in with family to help save money, up from one-in-five last year.
Steven Abrahams, head of strategy for Amherst Pierpont Securities – a Santander company: Nominal home prices next year look likely to run flat to slightly positive. But that is well above consensus. The rise in home prices since 2020 and the rise in mortgage rates in 2022 has cut affordability and led to wide expectations that nominal home prices will drop nationally. Estimates vary but commonly range between -5% and -15%. But those expectations miss a unique element of the housing market: nominal prices tend to be sticky to the downside. Homeowners that cannot get their target price often stay in the home, take it off the market or even rent it and wait for a buyer. Supply drops as fast if not faster than demand.
The only circumstance where that does not happen is when the homeowner loses the ability to stay in the home—often due to unemployment, a higher rate on an adjustable-rate mortgage or both sufficient to burn through available cash. But homeowners, with one notable exception, usually fund with fixed-rate debt. That helps explain why home prices nationally have run flat or higher in six out of the last seven recessions, through Fed hikes and wide swings in affordability. Home prices famously fell from 2006 and through 2012 after the U.S. adopted a wide range of creative adjustable-rate mortgages and recession pushed up unemployment. At the peak, distressed home sales made up 49% of the total. But the housing market today is funded with tightly underwritten fixed-rate debt. Distressed sellers are around 1% of sales. That should help the housing market avoid another price crash and squeak out a gain in 2023.