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Real Estate Investment Outlook and Outlook 2023

For most people, real estate remains a critical part of personal net worth. Despite the stock market’s recovery, the average American household’s net worth is down about 25% due to declining real estate and investment asset values.

Summary of Market Trends – Focus on Boston

While still suffering from continued turmoil in the anchor employment areas of Financial Services, Insurance, Real Estate (FIRE), there have been signs of stability in and near major metropolitan areas such as Boston. Although the employment picture remains bleak, the Boston Metropolitan Statistical Area (MSA) showed the strongest gains in property values ​​during 2009 according to a report recently released by Zillow Real Estate Market Reports.

Even with strong benefits helped by the federal government’s first-time home buyer credit and persistently low mortgage interest rates, there remain nearly 25% of homes that are “upside down” on their mortgages. .

High unemployment continues as companies continue to announce layoffs or delay hiring. And given the expected wave of creative mortgage products like Alt-A loans, interest-only loans and adjustable-rate “fix one payment” mortgages that reset to higher rates putting pressure on homeowners who aren’t able to refinance due to lack of jobs or shortages. worth, there is likely to be an increase in the number of liabilities.

According to research reported by HousingPredictor.com, major U.S. metropolitan areas likely won’t see a boom in real estate until after 2020. With more than 7 million people unemployed and another 20 million listed as underemployed , it could be 2017 or 2020 when these workers are absorbed. And real estate sales depend on those who have jobs.

Real estate booms have typically occurred in seven- to 10-year cycles, with some external trigger triggering a crisis that burst the bubble. The current situation is unlikely to be any different.

Implications for investors

Apartment vacancy rates are expected to increase during 2010 to around 7% to 10%. The continued decline in confidence about jobs hinders family formation as individuals may delay marriage or move back in with parents or relatives or double up with friends.

As foreclosures increase, there is likely to be greater demand for replacement housing, so vacancy rates may fall. And as workers try to keep their options open to accommodate the move for employment opportunities, rental demand is likely to increase as well. The caveat is that there will also be a number of supply options that will put pressure on rents. And as a result of continued poor economic conditions, landlords can expect the credit quality of tenants to erode.

Apartments will have to compete with a growing supply of single-family homes. Currently, single-family homes available for rent are up about 10% compared to the long-term average of 4.5%. And a policy change by mortgage servicer Fannie Mae will allow renters living in homes or apartments where landlords have foreclosed to no longer be evicted. This likely means that the largest single-family rental landlord in the US will be a quasi-governmental entity.

Sales volume in the multifamily market is very low and likely to continue. Potential buyers continue to wait for prices to stabilize. There will continue to be an upward shift in capital rates by 1% to 2% approaching the 2002 cap rates (8.2%) which will directly contribute to downward pressure on prices in the 10% to 20% range. %.

And given the stricter underwriting criteria, such as higher down payment requirements, the number of investors able to purchase a property is likely to be limited. But there will be opportunities for those investors with equity and credit to buy when prices stabilize.

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