The Azucena Take: Inflation and Rate Hike Impact on Investment Real Estate Going into 2023

Looks like 2022 is going to end with some unexpected good news and predictable bad news. The good news is that inflation continues to fall as we enter 2023. The bad news is that the Federal Reserve has raised the overnight rate again (but many were expecting this). 

That is why it helps to break it all down and see how it will impact the markets of early 2023.

Inflation

As of November 2022; CPI Inflation dropped to 7.1%. While high compared to the ideal target of 2%, it's better than the peak of 9% it was at during the Summer Season. This drop is due to a number of factors currently at play.

2. Price of Goods

These are how the price of consumer goods are doing of December 2022:

  • Used Cars: -7.8%

  • Homes: -4.4%

  • Average rent: -1%

  • Food: -10%

1. Price of Raw Materials

These are the average prices of raw materials as of December 2022:

  • Gasoline: Down to $4 Gallon

  • Crude Oil: Down to $80 Barrel

  • Lumber: Down to $300 TBF

  • Steel: Down to $500 per Ton

3. Supply Chain

Stability is finally coming back to the supply chains as China is easing its zero-COVID policy. This is should free up some of the busiest ports in the world. At the same time, several manufacturers have either found alternative sources of material or relocated part of their operations outside of China. 

Interest Rates

Despite inflation coming down, the Federal Reserve did raise interest rates. Thankfully it was by 50 BPS instead of 75 PBS. There is some expectation that interest rates will be raised again in February by 25 BPS. By March, we could see another 25 BPS increase while some are a little optimistic about it not being raised. 

What it Means for the 2023 Market

If inflation continues to fall and interest rates don't hike by so much, we could see a more active year. The gap between reality and expectations among investors will have settled. This will allow buyers will be able to underwrite assets more effectively. It's important to remember that investment real estate requires long-term planning and one should be looking forward by 3 to 5 years. 

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

Carlos Azucena