The burning question at the moment is: What’s the state of the US real estate housing market at the end of 2022 and what should we expect in 2023?
The last quarter of the year is the time to reflect on what happened in the real estate market over the past year and how far we came compared to what experts expected to happen. It’s also the time to start thinking about what we can expect in the coming year, whether it will be a good time to invest in real estate, and what steps we can take to be profitable.
In this article, we aim to answer all the above questions in order to allow even beginner long term and short term rental property investors to enter the market confidently. To do it, we interviewed a panel of 17 real estate experts from different US housing markets to get their insights on the current state of real estate, as well as expected trends.
In addition, we will show you how you can use the various data analytics and tools available on the Mashvisor platform to enhance your investment decisions in 2023 and beyond.
We know you are eager to learn all of them, so let’s get started!
Table of Contents
- Where the US Real Estate Housing Markets Stands at the End of 2022
- How the US Residential Real Estate Market Performed Against Forecasts
- What to Expect in the US Real Estate Housing Market in 2023
- How to Stay Ahead in the US Housing Market Next Year
Where the US Real Estate Housing Market Stands at the End of 2022
The residential market remained very dynamic in 2022, just as it was in 2020 and 2021. Exogenous factors continue to be the driving forces behind the current real estate trends. In addition to the lingering COVID-19 pandemic and the remote/hybrid work model, the war in Ukraine and inflation affected all aspects of the housing market.
It is what distinguishes the current situation from the bursting of the housing bubble during the Great Recession of 2008. Then, many negative factors were inherent to the real estate market and the mortgage finance industry.
That’s why despite the turmoil and the uncertainty, we are far from a real estate market crash, despite the prevailing uncertainty and turmoil. We are also far from a significant market correction happening any time soon.
But what did actually happen in the US real estate housing market in 2022 and where do we stand at the moment?
Let’s take a look at the seven most prominent trends in this year’s market:
Property Prices Hit Historically High Levels
At the end of September 2022, the median property price reached $357,810, according to Zillow. It marks a major increase of 8.9% since the beginning of the year and of 14.9% year-on-year.
While the October figure is significantly less than the increase of 19.6% in 2021, it still exceeds the average annual real estate appreciation rate of 5.3%. Also, it doesn’t allow us to really talk about an ongoing correction.
Josh Dotoli, Principal of Dotoli Group, attributes the historically high home values to a supply-and-demand problem. He explains the ongoing rises in residential real estate as follows:
“Despite interest rate spikes, there is still high demand for housing, but the number of homes available for sale is not keeping up with that demand. This has caused prices to rise and competition among buyers to increase. Unfortunately, this problem is not expected to go away anytime soon. The number of new homes is not keeping pace with population growth.”
The overall effect of this trend has been keeping many first-time homebuyers out of the market, which has somewhat lowered the pressure on real estate investors.
Mortgage Rates Reached Historic Heights Too
Another record-breaking real estate trend has been mortgage interest rates. Unlike property prices, which started climbing up in early 2020, mortgage rates lingered behind until the beginning of 2022, when they took on their upward journey. Since then, it’s been a steep incline all the way until the current moment.
Now, the 30-year fixed-rate mortgage interest rate stands at 6.94%, as reported by Freddie Mac. The figure is more than double the rate of January 2022 (3.22%) and 3.85 percentage points more than a year ago. Moreover, it is the highest interest rate on mortgages since April 2002, or more than 20 years ago.
Bruce Ailion, Realtor at RE/MAX Town & Country, explains one of the reasons for the increasing mortgage rates:
“Increases in the Fed Funds rate are a factor in mortgage rates, and most analysts do not believe the Fed has stopped increasing rates.”
This major rise in mortgage rates has pushed many home buyers out of the market—similar to the skyrocketing real estate prices—and forced investors to look for alternative financing.
Indeed, Matiah Fischer, Realtor and Founder of RetireBetterNow.com reports:
“Mortgage demand is at its lowest since 1997.”
Inventory Went Up
Some relief and a bit of correction were brought to the US real estate housing market by the increase in the residential inventory in 2022. Since May of this year, the number of active listings has been going up year-on-year. In September 2022, residential property listings were 26.9% above a year earlier, according to Realtor.com.
However, inventory is still not as high as demand. Ryan Ross, Realtor with JRR Partners at Keller Williams Metropolitan, says:
“There is still very low inventory, and quality houses continue to sell in 1-2 months.”
We Are Still in a Seller’s Market
Mostly as a result of the continuing low inventory and other factors, US housing still faces a seller’s market, where the demand for homes for sale is more than the listings supply. It is creating a particularly tough situation for first-time homeowners who have been largely priced out of the market due to a lack of major correction.
Conditions have been better for investors as they have access to more financing sources, including equity from previously purchased long term and short term rentals. Additionally, the exit of many homebuyers has somewhat reduced the competition for real estate investors.
Not to mention that most of them are not picky when it comes to buying income properties. As long as the numbers from the investment property analysis make sense, they are ready to move forward with the purchase regardless of the property type and amenities.
Rental Rates Increased
As a result of the high property prices and mortgage rates, many individuals had to opt for renting rather than buying a home, especially in hot markets with high price to rent ratios. It caused growth in rental rates across the US housing market.
In August and September of 2022, the average rental rate went up by 12.3% and 8.8% year-on-year, respectively, as reported by Rent.com. In 88.6% of US housing markets, rents increased compared to the same period in 2021. The states with the sharpest rent increases include Florida (25.5%), Delaware (23.9%), New Mexico (21.2%), and Oklahoma (20.8%).
Despite the rate rises, rental demand remains strong, mostly because renters don’t have much choice considering the general housing unaffordability. Chris Romany, President of House Solutions USA, shares:
“To give you an idea of how strong our local market is, we listed a house for rent last Friday, 21st October in East Orlando; within 48 hours, we had more than 100 enquiries from tenant applicants.”
Keep in mind that the Florida real estate market saw the largest rent spike, and demand from tenants is still through the roof.
This trend—high rental rents and strong demand—has made 2022 a particularly good year for investing in long term rental properties.
The Short Term Rental Industry Has Recovered
While the Airbnb market took a deep dip at the beginning of the pandemic, it started recovering as soon as some travel restrictions were lifted. Nearing the end of 2022, we can conclude that short term rentals have completely recovered and reemerged as the more profitable rental strategy.
Mashvisor’s nationwide rental market analysis shows that at the end of October 2022, the average cap rate for short term rentals across the US market is 4.58%. The comparative number for long term rentals is 3.29%, so the former offers significantly better ROI.
Note: Our analysis focuses on markets with median property prices below $1 million and more than 100 rental listings of the respective type. This assures affordability for investors along with strong rental demand.
Overall, the US Residential Real Estate Market Is Doing Well
All in all, we can say that 2022 was another strong year for the US housing market. The experts we’ve interviewed agree on this unanimously.
Boyd Rudy, Associate Broker at Dwellings Michigan, highlights:
“The residential market has remained strong despite current economic uncertainty, with record low inventory driving prices up and creating competitive buyer bidding situations. This runs counter to initial expectations that the pandemic would cool the market as people stayed home and hesitated to make significant financial commitments.”
Shri Ganeshram, CEO and Founder of Awning, sees some signs of a correction happening, but it’s far from a crash. According to him:
“The residential real estate market is currently softening but not in a free fall like everyone expected.”
Meanwhile, Joe Ortiz, CEO and Founder of Palmetto Land Buyers, goes far enough to talk about a boom in the housing market:
“The current residential market is booming. Home prices are soaring and there is high demand for properties. This is in contrast to expectations/forecasts which predicted a slowdown in the market.”
So, we can conclude that the US real estate housing market is about to close 2022 and start 2023 in good shape.
How the US Residential Real Estate Market Performed Against Forecasts
In mid-2021, we published a 2022 real estate market forecast to help beginner and experienced rental property investors prepare for the coming year. You can check out the full report here.
In the report, we focused on 10 real estate trends investors could expect to see in 2022. Taking a look back, we see that most of these predictions materialized. Meanwhile, any minor discrepancies between the forecast and the reality can be majorly attributed to unexpected global and national political developments.
Next, we will look at the five major trends that we predicted for this year:
1. Home Values Would Go Up
In mid-2021, we expected residential real estate prices to continue rising, at least in the first quarter of 2022. However, we also expected the double-digit appreciation of 2021 to slow down in 2022.
Our analysis shows that the above forecast was very much on the spot. While home prices in the US housing market continued to go up, growth was slower than in the previous year.
2. Mortgage Interest Rates Would Increase
Last year, Freddie Mac forecast that the 30-year fixed mortgage rate would increase to 3.8% in the fourth quarter of 2022. It is true that the interest rate on mortgages went up this year, but no one could’ve predicted the actual increase.
The current rate of 6.94% exceeds even the wildest predictions of real estate and finance experts.
3. There Would Be a Shift to Smaller Towns
Our US housing market forecast for 2022 also predicted a shift towards smaller markets, including secondary and tertiary markets, suburbs, and rural areas. The driver would be the search for affordability backed up by remote working policies.
The trend happened to a large extent. In 2022, individuals continued moving to more affordable locations as they took advantage of the freedom to work from home. Sacramento, Boise, Tacoma, Austin, and Phoenix all turned into pandemic boomtowns.
However, we’re already seeing a large trend reversal as employers start expecting employees to return to the office. In August of this year, Redfin reported that pandemic boomtowns are seeing some of the largest cooldowns at the moment.
4. Rental Rates Would Rise
Our forecast also included a rise in rental rates, which can be seen nationwide. While some markets experienced smaller growth in rent than others due to regional demand disparities, the average rate increased significantly across the US housing market.
5. Days on Market Would Be Up
The last major trend with a huge impact on both homebuyers and real estate investors that we predicted was a possible increase in days on market. Indeed, Realtor.com reports that in September 2022, the typical home listing spent 50 days on market across the US. It is seven days more than the median in 2021.
Nevertheless, at the end of 2022, residential listings in the US real estate housing market are expected to spend 18 days on market less than at the same time in 2017-2019.
What to Expect in the US Real Estate Housing Market in 2023
Evaluating how the US housing market performed over the course of last year is important, mostly because it reflects what trends we can expect in the coming year.
Some of the main questions on the mind of real estate investors at the moment include the following:
- Will there be a correction in the real estate market in 2023?
- Will the US residential market return to its regular cycles?
- Will the housing market crash in 2023?
- Will real estate prices go down?
- And most of all: Will 2023 be a good year to invest in real estate properties?
Next, we will respond to these and many other important questions.
Here are the seven key housing trends expected in 2023, backed up by our panel of experts:
1. Real Estate Prices Will Increase More Slowly
The recent spike in property prices was unsustainable—that’s clear. However, will real estate prices go down in 2023?
No, not really. Despite the differing forecasts from experts, the vast majority of them agree that home values will remain high and largely unaffordable for homebuyers, especially first-time ones.
Danny Marshall, Mortgage Broker, Real Estate Agent, and Founder of Mortgage Rate Guru, expects:
“We’re seeing strong demand from buyers, which is driving up prices. Prices are expected to continue to rise, although at a slower pace than we’ve seen in recent years.”
Of course, there will be regional disparities, as always in the real estate market.
Many investors are wondering: Will housing prices go down in 2023 in Florida?
Nick Polyushkin, Co-Founder of Ofirio, reports:
“Out-of-state buyers have increased demand for Miami real estate since the breakout of the pandemic. This spike in out-of-state buyer demand will drive up property prices through 2023.”
So, as an investor not bound by a specific location, you should search for the top long term and best short term rental markets for investing in 2023.
2. Mortgage Rates Will Remain High
Similarly, interest rates are expected to remain relatively high in 2023, though they will most likely not increase as sharply as this year.
Ismael Arjune, Principal Investor of Tristate Holdings 167, forecasts that:
“Mortgage interest rates may reach 8.5% or higher by Q2 of 2023.”
Josh Dudick, Real Estate Investor and Personal Finance Expert at Top Dollar, expects the same while also providing reasoning why:
“The Federal Reserve continues to show no signs of stopping interest rate hikes going into 2023. Expect mortgage rates to continue rising.”
The high mortgage rates will continue to drive homebuyers out of the market even though home prices will slow down and potentially even start to fall in some locations.
3. The US Real Estate Housing Market Will Move Towards a Buyer’s Market
The residential market will definitely move away from the hot seller’s market that it’s been since 2020. However, experts have varying opinions on whether the shift towards a buyer’s market will be completed.
Brett Rosenthal, Realtor and Team Leader with the Revolve Philly Group at Compass, says:
“In 2023, I expect to see all markets completely shifted from a seller’s market to a buyer’s market.”
Nick Castello, Founder and CEO of New Heights House Buyers, has a slightly more moderate outlook regarding this:
“As the housing market continues to shift toward a buyer’s market in 2023, conditions will be highly favorable to real estate investors.”
The good news for investors, as highlighted above, is that things will be looking better as some degree of correction is going to happen across the US residential real estate market. Even though a complete return to normal real estate cycles is not expected, neither is a crash in the housing market.
4. Alternative Financing Options Will Be on the Rise
While high mortgage rates will significantly affect homebuyers in 2023, the impact on real estate investors will be relatively less severe. The reason for this is that they have access to different borrowing options. After all, conventional mortgages are not the only type of available investment property loans.
The expected increase in interest in alternative financing options is supported by Nick Costello, a licensed realtor:
“Many retail buyers that rely on conventional financing will remain priced out of the market, but investors with cash or access to low-interest private money loans will find ample opportunities to buy properties at a significant discount to prices in 2021 and early 2022.”
Other creative financing alternatives include hard money lenders, syndication, partnerships, and crowdfunding.
5. Rental Demand and Rental Rates Will Remain Strong
Because of unaffordable home values and interest rates, experts expect renting to remain the only viable option for many individuals. It is a positive forecast for investors in long term rental properties.
David Tully, Realtor at eXp Realty Reno, Nevada, confirms:
“Landlords owning rental units would probably have a better clutch in the market than home sellers because national affordability has been dropping. With steep living expenses and mortgage rates, more people are expected to stick to renting.”
In addition, Jennifer Spinelli, Founder and CEO of Niche Home Buyer, shares her forecast on rental rates:
“Rental rates have also been rising in recent years, as the strong economy has led to more people moving to cities and renting instead of buying a home. The average rental rate is currently just under $2,000, but Zillow predicts it will rise to $2,200 by the end of 2022 and $2,400 by the end of 2023.”
The combined effect of higher rent prices and strong demand from tenants is expected to create the perfect conditions for investing in long term rentals in 2023.
6. Short Term Rentals Will Be an Excellent Investment Strategy
In 2023, we will no longer talk about the recovery of the Airbnb industry. Instead, we can expect the short term rental business to continue its growth.
Jennifer Spinelli’s forecast in this regard is very optimistic:
“According to a recent report from JPMorgan, the short-term rental market is expected to more than double in size by 2025. This growth is expected to be driven by a continued increase in urbanization and the rise of the sharing economy.”
Peter Abualzolof, CEO and Co-Founder of Mashvisor, also says:
“Our data is showing very positive developments in the short term rental strategy in 2022, and we have all the reasons to believe that this upward trend will continue in 2023. The continued growth of Airbnb will be driven by the renewed demand for travel and vacation as people are catching up for missed opportunities during the pandemic.”
Find out how much your property can earn as an Airbnb rental by using our free Airbnb calculator.
7. There Will Be a Return to Primary Markets
The last major trend that we can expect in the US real estate housing market in 2023 is the move back to large cities. A recent survey shows that 90% of US companies expect their employees to return to the office—at least partially—in 2023.
It means that many will need to leave the secondary and tertiary markets, where they moved during the pandemic and go back to the primary markets, where most jobs are. The trend is forecast to lead to property price increases and rental rate rises in top locations.
As an investor, it is a smart move to buy a rental property in the said markets now, before home values go up even further. In this way, you’ll be able to take advantage of rental rates once they increase.
How to Stay Ahead in the US Housing Market Next Year
Experts agree that 2023 will be a great year for investors for numerous reasons. The main ones include the gradual shift towards a buyer’s market, the slowdown in property price and mortgage rate increases, and less competition from homebuyers. As we expect some correction and no housing market crash, they can be considered another positive trend.
Nevertheless, real estate investors will face challenges posed by the high home values and interest rates. But there are ways to go around them.
Here are three real estate investment strategies to help out investors in 2023, especially beginners:
Search for Creative Financing Alternatives
As mortgage rates remain high, at least in the first half of 2023, investors can resort to other types of rental property loans in the US housing market. It is a major advantage for investors over homebuyers who generally have to stick to conventional mortgages.
Check out hard money loans, private money lenders, real estate syndication, FHA loans, VA loans, partnerships, and even crowdfunding. You can find much more favorable down payment and interest rate terms with some of these financing options.
Use Real Estate Investing Tools
In 2023, access to technology will be equivalent to access to power in the real estate investing world. Thus, investors should make sure to get the best real estate investment tools in order to outperform the competition in the US real estate housing market next year.
The Mashvisor real estate investing app is one of the must-have tools.
In brief, Mashvisor allows investors to do the following:
- Search for the best neighborhoods to buy long term and short term rentals for sale in any US city
- Conduct detailed neighborhood analysis in real estate
- Look for profitable traditional and vacation rentals for sale across the US housing market
- Perform comprehensive rental property analysis for both the long term and short term rental strategy
All in all, our platform has turned three months of real estate research and analysis into 15 minutes. It means that with a subscription to Mashvisor, investors will be able to find the top opportunities much faster than others. This happens through access to the most reliable long term and short term rental data in the US housing market.
Choose the Best Markets for Real Estate Investments
As we highlighted above, the US real estate housing market is highly local, which is expected to continue into 2023. Different markets will offer different opportunities for real estate investors.
Even if your local market is unaffordable and attracts low demand from tenants and Airbnb guests, you can always look into out of state real estate investing. After all, states and cities are expected to experience varying degrees of correction next year.
With the real estate heatmap and neighborhood analysis pages available on the Mashvisor platform, you can easily locate the top locations for buying short term and long term rentals.
Final Words on Real Estate Investing in 2023
2022 has been another eventful year for the US real estate housing market, to say the least. Many of the predictions materialized, leading to historically high property prices and mortgage rates, increasing rental rates and demand, and strong Airbnb demand.
And what about next year?
Experts all agree that the real estate housing market is headed towards some correction and cooling in 2023, but it is unreasonable to talk about a potential crash. Overall, home values and interest rates will remain high though they are forecast to climb less quickly. Rental demand and rates, on the other hand, will be as strong as ever.
The short term rental industry will resume its pre-pandemic growth path. Last but not least, real estate investors—unlike homeowners—will have access to alternative financing options.
It means that 2023 will be a great year for investing in real estate. As long as you have access to the top tools – like Mashvisor – for analyzing markets and properties, you should be all set to succeed in the 2023 housing market.
To access our real estate investment tools, click here to sign up for a 7-day free trial of Mashvisor today, followed by 15% off for life.