Looking Ahead to Multifamily in 2023

The Economic Outlook for 2023: What We Can Expect

The economic forecast for 2023 is a topic that's on everyone's mind. With the COVID-19 pandemic still underway and the U.S. economy in recovery mode, it can be difficult to predict what will happen over the next few years. Fortunately, Landmarks platform has been able to provide some insight into what we can expect in terms of inflation, interest rates, and rent growth over the coming year.

Recession Likely Before October 2023

Industry machine-learning models predict a nearly 100% chance of recession before October 2023. This prediction is based on several economic indicators such as jobless claims, consumer spending, and manufacturing output. While these indicators have improved since their lows during the pandemic, they are still far below their pre-pandemic levels, suggesting that further economic contraction may be in store in the near future.

Inflation and Interest Rates on the Rise

The Federal Reserve (Fed) has indicated that it will keep interest rates low through at least 2023; however, with inflation expected to reach 4.5%, experts suggest that this could lead to an increase in interest rates as well as mortgage rates beyond their current levels of 4%. This could present an issue for overeager buyers who took on high amounts of debt prior to rate hikes, making their loans more expensive than anticipated. 

Negative Rent Growth Predicted Across Many Markets in 2023

Rising interest rates and higher inflation could also cause rent growth to cool down significantly across many markets by the end of 2023 according to Landmarks underwriting platform. Areas affected by rent growth cooling down include New York City, San Francisco Bay Area, Boston, Seattle/Tacoma, Los Angeles County/Orange County/San Diego County and Miami/Ft Lauderdale/West Palm Beach areas in Florida.  A decrease in rent growth would likely have a negative impact on real estate investments located within those markets.    

In summary, it looks like we can expect a recession before October 2023 along with increasing inflation and interest rates which could potentially lead to negative rent growth across many markets by the end of the year. It is important for investors and business owners alike to keep an eye on these developments so they can make informed decisions about their investments going forward into 2024 and beyond. With careful planning and staying up-to-date with changing economic conditions, investors should be able to weather any storms that may come their way in the coming year.

Something Else to Consider

In 2022, the economy experienced an event that had not been seen in decades—inflation hitting a 40-year high. The increased costs of goods and services pushed up wages and consumers could feel the strain on their wallets. This inflation was further compounded by multiple interest rate increases that wreaked havoc on the lending environment. Many banks could no longer give loans to businesses, leaving them without options for growth or development. With fewer options available, consumers had to contend with higher prices and poorer services at essential stores and services. It took some time for 2022's inflation to be brought under control, but thanks to effective economic management it did eventually stabilize and life returned to normalcy for many people. Understanding that Landmark has weathered a historic storm once again should bring great assurance that we are here to stay and will manage risks diligently and effectively.