Although real estate is typically regarded as one of the most failsafe asset classes out there, it, like every other possible investment, is not totally insulated from broader market forces.
The general economic slump that has been occurring for nearly two years now has left its mark on this sector, with ongoing inflation and consequently high mortgage rates pricing many buyers out of the market and discouraging smaller investors from making big profits. As is generally the case during times like this, most investors are opting to take a more safe, defensive stance.
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While there is nothing wrong with this approach, it’s important to remember that there are always profits to be made if you know where to look. Moreover, even if you plan to play it safe for the time being, change always comes faster than we expect, so it is still important to plan for the future.
Whatever your approach, having a strong understanding of the trends currently shaping the market and the technologies poised to disrupt it will put you in the optimal position to make exceptional profits in the long run. Below are some of the major trends to take note of in 2023.
Signs Of A Cooldown?
One of the trends that will define the housing market this coming year is a reversal of one of the major trends of the past few years. The pandemic years saw a flight from states such as San Francisco and New York and a subsequent boom in the southern states, especially Texas and Florida.
However, many of these formerly hot markets are beginning to cool, and the landscape appears to be shifting more towards pre-pandemic territory.
This trend is largely fueled by the fact that the vast majority of companies–including the tech ones that were the first to embrace the remote work trend–have begun mandating that employees return to the office for at least a few days a week. This change will have a huge effect on the demographics of cities and suburbs, and real estate investors should definitely watch it closely.
It’s also important to remember to look beyond housing alone. Office vacancies have reached quite staggering numbers in San Francisco, as well as in many of the other major cities most impacted by the post-pandemic flight.
As more companies return to the office and begin to explore new trends such as shared offices/coworking spaces, investors with the right amount of capital (or the right partnerships) stand to benefit from incorporating these kinds of properties into their portfolios.
To Buy Or To Rent?
Another major trend to keep track of is the Fed’s ongoing attempts to curb inflation through ongoing interest rate hikes. These efforts have had far-reaching effects on the economy that are unlikely to be reversed anytime soon, especially within the year. It is important to take this factor into account when planning for this year and beyond.
With higher interest rates comes higher mortgage rates. Though there is reason to be optimistic about the hikes becoming a little less severe and prices lowering somewhat, there is still plenty of uncertainty in the market as a whole. We can reasonably expect many would-be home buyers–and especially first-time ones–to be much more cautious than usual.
For that reason, it’s a good idea to build your investment strategy on the assumption that prices will likely stay high. This means turning extra attention to the rental market, as many prospective homebuyers–especially Milennials and Gen Zers, who have less experience in the real estate sector–will likely opt to continue renting properties as they wait for the market to stabilize. For that reason, rental properties are likely to remain a relatively safe bet for investors.
Staying On Top Of Proptech
The least predictable and most exciting factor affecting the current real estate market is the ongoing boom of innovation in the proptech sector. No matter what the real estate market looks like over the next few years, it is undeniable that proptech will play a massive role both in shaping the market and in helping investors navigate it.
Though it’s tempting, during times like these, to want to focus entirely on the short term, looking at emerging tech and thinking about how it will shape the future is essential to turning the present difficulties into opportunities.
The integration of blockchain-based services into the real estate market is one of the major trends to keep track of. Although not commonly associated with real estate, blockchain promises to have profound effects on the way that we invest through processes such as investment fractionalization.
By using tokenization to represent the ownership of a property through a transparent and immutable record on the blockchain, investors can save on the reams of paperwork and costly intermediaries that normally come with a transfer of ownership.
What’s more, once the property has been tokenized, it can be fractionalized, allowing multiple investors to buy small pieces of the property and share in the profits. This will go a long way towards democratizing real estate by allowing smaller investors to get their foot in the door, creating a more open and thriving market.
The opportunities afforded by smart contracts make this prospect even more exciting. These contracts use blockchain technology to create and store contracts that execute a given function, such as transferring ownership of a property, as soon as certain stipulations are met or funds are transferred. Smart contracts further reduce the need for middlemen, increasing efficiency without sacrificing the security that comes with blockchain’s inalterability.
Moreover, the advent of blockchain-based smart contracts promises to vastly increase both the efficiency and the profitability of real estate transactions. These contracts are created and stored securely on the blockchain, and are coded to execute a particular function (e.g., transferring ownership of a property) as soon as specified criteria are met (e.g., a certain amount of money is paid).
Smart contracts therefore eliminate the need for third-party verification, saving time and money while leveraging the blockchain’s signature immutability and transparency to ensure maximum security.
New Year, New Housing Market?
As the new year approaches, we will see both important continuities and significant changes within the real estate market. It may feel like things have been moving slowly as of late, but there is no doubt that things will eventually begin to speed back up again. WIth the right preparation, you can ride that sudden wave to success rather than being taken by surprise.
