The Housing Market and the Investment Real Estate Market

2023 has seen the biggest disruption to the housing market since the 2008 Crash. The average 30-year mortgage rate has jumped from 3.2% in 2021 to 8% in 2023. Combine that with the limited number of homes on the market and a 10% price jump have resulted in home sales dropping by 35% since September 2021. 

A disruption of this magnitude is going to affect every sector of the investment real estate market. That is why an investor needs to understand how the current housing shortage and the state of the housing market will impact them. 

Housing and the Economy

To understand how vital this market is to the economy, housing sales have contributed 4.5% to America's GDP growth in the last 25 years. It also helps fuel the local economy as for every $1 spent on the house, $0.05 is invested in renovations. When home sales decline, other businesses will feel the effects. In 2023; furniture sales were down by 9% while the sale of building materials was down by 7%. Services that cater to the home renovation market have also taken a hit and this will impact industrial and retail properties.  

At the same time, it has contributed to the hit to office space. When companies shifted to a work from home model back in 2020, many people bought homes in more affordable areas. By 2023; many have settled into their new lives and are hesitant to move back or close to the office. This has contributed to the decline in office space. 

The property most impacted by this has been multifamily as it has seen a spike in demand. The average monthly mortgage payment has jumped from $1,989 in 2021 to $3,115 in 2023. Meanwhile, the average apartment rent has jumped from $1,586 in 2021 to $1,824 in 2023. This has also been reflected by vacancy rates as the national average continues to hoover between 3% to 9%. 

What it Means for Investors

Depending on the market, investors are either feeling the hit or seeing growth brought on by the drop in housing sales. Regardless, one should speak to a market expert on how to navigate this economic climate. An investor should always be ready for what is coming. 

The Azucena Take provides an inside look into the investment real estate market using the research done by Marcus & Millichap.