Typically, real estate markets are a bumpy but predictable ride – akin to driving through small peaks and valleys.
But over the last few years, starting with the pandemic and moving through various inflation-curbing measures, the markets have felt more like a roller coaster: dizzying highs, drops, bends, and jolts.
As such, it’s challenging to make short-term predictions for real estate. Compounded with regional variation in market conditions, the prospect of making hard, blanketed forecasts is outright impossible. Nevertheless, you can get a good sense of how the winds are moving by analyzing big-picture events and current statistics.
This article doesn’t claim to be a crystal ball. Instead, let’s survey where real estate markets might head in the coming year by looking at three major spaces: the residential real estate market (tied to rate hikes), the rise of real estate technology, and the transformation of commercial real estate. By analyzing these spaces, we can come close to gaining a firm foothold on future events.
Despite a Cooling Market, Home Prices Remain Up in the Air
During the pandemic (especially its latter stages around 2021/2022), real estate markets across North America were white hot. Interest rates sunk to near-unprecedented lows, spurring on-the-fence homebuyers toward a buying frenzy.
Additionally, the markets witnessed a fresh influx of buyers – mainly millennials, sitting on a nest egg of savings from the pandemic, eager to enter their dream homes and grow their money.
Then, as most know, the government clamped down. Hoping to avoid a recession, governments attempted to curb inflation by implementing significant rate hikes.
And as always happens, these rate hikes sent a ripple effect through the real estate industry. Prospective buyers shied away from borrowing at high rates. And supply started to keep pace with demand in most markets.
Fast forward to the present day, and you’ll find experts arguing over what comes next. Some remain optimistic that the government will hit the brakes on rate hikes, signaling a return to strong markets (even if they don’t reach those dizzying 2022 highs).
CREA reports that “National home sales rose 2.3% month-over-month in February,” with major cities leading the gains. Meanwhile, CMHC reports that “Lower house prices and less supply projected for 2023,” although they add that they “anticipate growth in prices, sales and starts for the 2023 – 24 and 2024 – 25 periods.”
Whatever side of the transactional divide you sit on, this can be good news. The markets don’t look to be going wild, which might irk some sellers who wish they had cashed out a couple of years ago. But the return to balance strikes a cordial equilibrium between buyer and seller interests. And the steady price growth is enough to appease both sides.
Real Estate Technology Continues to Flourish, Disrupt
It’s impossible to have a modern conversation about real estate in 2023 without noting tech’s influence. Real estate technology is no longer a passive tool on the sideline of real estate transactions – it’s a driving force in decision-making. And you can expect its influence to grow even greater as fast-rising companies continue to flourish and disrupt.
For instance, Deloitte named Nobul one of the fastest-growing companies in 2022. The real estate digital marketplace, led by innovator Regan McGee, is reshaping how consumers find real estate agents. And its decidedly pro-consumer agenda appears to be creating a hospitable environment for new buyers, even amid some frightening ups and downs with mortgage rates.
The “proptech” company (short for property technology) introduces transparency and accountability to the consumer side of real estate by democratizing information on agent sales histories, commission rates, verified reviews etc.
Nobul’s proprietary algorithm matches consumers to their ideal agent, and agents can then compete for a buyer or seller’s business by offering lower rates and more attractive terms. The idea has proved disruptive in an industry traditionally defined by old-fashioned gatekeeping and opacity.
Nobul and other companies like it should have a positive effect on the industry’s overall ability to rebound.
What to Do with All of That Commercial Real Estate?
The last head-scratcher for many real estate practitioners and investors post-pandemic is ‘what to do with commercial real estate?’ It’s no secret that a sizable portion of the workforce converted to WFH (work from home) during the pandemic.
Commercial real estate (CRE) onlookers were optimistic that this was a passing trend, but it wasn’t. Several workers who “got a taste” for working from home continue to do so – at least for a portion of the work week. And companies eager to pinch a dollar are all too happy to part with their costly brick-and-mortar real estate if it means diverting funds elsewhere.
What does this mean for the real estate industry? According to major financial services network pwc, “between 10 and 20 percent of the office real estate stock needs to be removed or repurposed.” Removing these offices could pave the way for different commercial applications, especially in urban centers clamoring for density and walkable amenities.
Proponents of the 15-minute city, for instance, should be looking at the dip in CRE as a golden opportunity. Meanwhile, repurposing CRE as residential spaces could flood the market with new homes. Granted, this is a slow process, which shouldn’t shock the markets.
Without a crystal ball, it’s tough to tell what CRE’s slow transformation will mean for the real estate industry. But right now, optimism is an acceptable position – especially if you’re a residential real estate consumer.
It’s anyone’s guess how the markets will look this time next year. Still, early reports indicate a cool market that’s slowly rising to its feet. Consumer-centric tech companies are helping facilitate a return to form, aiding first-time buyers on their real estate journey.
And the pandemic’s dent in office-based CRE might even make urban centers more liveable.
These are rosy prognostications, but they’re firmly within the realm of possibility. At this juncture in time, maybe optimism is the way to go.
