The Azucena Take: What to Expect Going Into 2023
As we kick-off 2023, many are wondering what to expect going into the new year. Nobody could say with solid accuracy what 2023 is going to look like (anyone who says otherwise is misleading you). Instead, an investor should focus on several factors and metrics to see how the market is doing.
Right now concerns about inflation and interest rates are the dominating topics among investors. Is there a chance inflation will settle and how likely is the Federal Reserve to raise interest rates in 2023? Looking at some numbers will give a good idea of what we could expect.
The Inflation Numbers
As of December 2022; the inflation numbers are trending downward. The consumer price index (CPI) peaked at 9% in June and has since been dropping. Core CPI (which excludes fuel costs) also peaked in June at 6.7% and has since been coming down. Core personal consumption expenditures have also seen the same trend in 2022.
Here is where inflation sits as of November / December 2022:
CPI: 7.1%
Core CPI: 6.0%
Core PCE: 4.7%
Looking at the current state of the supply chains shows a sense of stability returning to the market. From the cost of raw materials to the price of shipping, it appears everything is settling or going back to the pre-pandemic days.
These are the prices as of November / December 2022:
Shipping: $1,400 per container
Gasoline: $4 Gallon
Crude Oil: $80 Barrel
Lumber: $300 TBF
Steel: $500 per Ton
Interest Rates in 2023
Inflation may be coming down but it's still higher than what the Federal Reserve target. That is why many anticipate interest rates to go up in February.
How much is debatable?
A raise of 25 BPS would be more welcoming by investors. This is because it will signal that they will be easing up on the rate hikes going forward. At the same time, it will allow the gap between buyers and sellers to narrow in most markets. Thus, everything will return to normal.
What it Means for Investors
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 and buyers will be able to underwrite assets more effectively.
That being said; don't use the time now until February to do nothing. Time will never be on an investor's side and if you see an opportunity, absolutely start taking action. The first step is always to speak with an expert who understands the market.
The Azucena Take provides an inside look into the investment real estate market using the research done and data collected by Marcus & Millichap