This post is part of a series sponsored by SWBC.
In the last two years, real estate investors They have experienced a global pandemic, a nationwide housing boom, migration from urban centers, inflation reaching 40-year highs, and steep interest rate increases that are now beginning to cool the housing market.
Taken together, this has been one of the most disruptive periods the rental property market has seen since the housing market crash of 2008. Today, her property investor clients are focused on protecting their bottom line while continuing to grow their portfolios.
As your clients’ trusted insurance broker, it’s critical to understand the changing market and the challenges that come with it so that you can provide the most valuable support when they come to you with questions or referral requests.
In this article, I would like to share valuable insights from SWBC’s Chief Economist, blake hastingsabout the current state of the real estate market and the prospects for investors in 2023.
Housing costs, inflation and interest rates in the fourth quarter of 2022
Housing costs, which account for about 30% of inflation rates, remain high and are likely to continue for at least another year.
Due to technical reasons for how inflation is calculated, rising home prices are reflected in rents and measures related to the cost of housing with a significant 12-18 month lag.
With home prices appearing to have peaked in September and turning slightly negative across the country, we may still be a year away from peak rents. The chart on the next page shows your estimate of rent and the homeowners’ equivalent rent portion of the consumer price index.
Meanwhile, interest rates for all CREs are increasing:
Supply and demand of the housing sector in the fourth quarter of 2022
Both supply and demand are cooling in the housing sector. Home prices are expected to remain stable.
US Real Estate Outlook 2023
Single Family Residential
- This real estate sector will remain weak with some price deterioration of around 5-7%.
- Both demand and supply are declining, which should limit the fall in prices.
multifamily
- This sector will see rental rates slow, but will continue to grow by 4-5%.
- Cap rates are still declining despite higher interest rates, but the trend should reverse in Q4 2022 or Q1 2023.
- Higher cap and interest rates will delay new development in 2023 and 2024.
Industrial (Warehouse)
- This real estate sector will hold up well as the continued move from just-in-time inventory management to just-in-time inventory management will maintain demand.
- Rents will hold steady up to maybe 1-2%.
- Higher capitalization and interest rates will delay new construction.
Retail sale
- This sector is likely to slow down. As retail sales continue to be challenged by inflation, fringe retailers will struggle
- Rents should be stable at 3-4% less.
- The new development will be very smooth.
Office
- This sector remains the biggest question mark. Hybrid and work-from-home arrangements are likely to reduce demand by 15% per worker by 2023.
- Rents will probably be around 5-7%.
- The new development will be challenged for years to come.
When your clients partner with SWBC for their Insurance for real estate investors needs, they will get top-notch service from a company that has been serving this market for nearly 30 years. We uphold our reputation for providing a consultative approach to addressing the needs of your REI clients and recognizing any gaps in existing insurance coverage they may already have, while keeping cost in mind.
Visit our website Learn more.
The most important insurance news, delivered to your inbox every business day.
Get the insurance industry trusted newsletter
