Maya Abood

Maya Abood, housing, planning, and economic analyst at the City of Los Angeles Housing Department

The housing-affordability crisis in Los Angeles is going to persist in the coming years. A top concern for California will be the need to address homelessness and affordability in the next 12 months, Abood told Insider.

A recession could exacerbate this need in hot housing markets like Los Angeles. 

“These problems are recession-proof,” Abood said. “Low-income communities are the most hard hit by recessions.”

The issue has existed forever, she said. But today there’s more attention on it, more political will, and more power given to tenants.

Matt Barnett

Matt Barnett, senior associate architect with LS3P 

In 2023, the Southeastern states are likely going to experience more growth than any other region in the country. But this growth will very likely continue beyond the next 12 months, Barnett, an architect focused on affordable housing and innovative development, told Insider. 

The influx of residents will force these quickly growing states — North Carolina, Georgia, and Florida, for example — to invest in spaces and places in a different way, he added. This means sustainability and equity are set to be at the forefront of development.

Additionally, the growing population in the South could lead to some unique challenges, he said. 

“The South has a lot of challenges that other areas of the country don’t necessarily have in terms of culture, politics, equity, and history with the Civil War,” he said. “All of these things are going to confluence in this population boom, and there’s going to be growing pains.”

Oxford Properties

Christie Chen, director of investments at Oxford Properties

Investors in commercial real estate who want to stay competitive next year will need to think outside the box and remain diligent in seeking good deals, Chen said. 

2022 was a brutal year for commercial real estate, with property values declining by more than 13%, according to data from Green Street, a firm that analyzes real-estate data. 

Popular commercial sectors like life sciences — a growing research field that touches on multiple industries, from academia to pharmaceuticals — saw a 33.6% decrease in investment activity in 2022, for instance. But the top-line figures don’t tell the whole story, Chen said. 

Chen told Insider she expected some interesting opportunities in the next six to 12 months for investors “willing to be creative and agile.” In other words, she is suggesting there may be some opportunities for developers and investors to work out deals with incentives or concessions should the market continue softening.

Markets like Raleigh-Durham, North Carolina, and San Diego could become the next big thing for institutional investors since they have a high concentration of academic-research institutions and highly skilled workers, according to a report by the commercial brokerage Newmark.

Gaurav Dhume

Gaurav Dhume, finance lead at Darwin Homes

Real-estate investors remain gripped by uncertainty after the fastest series of interest-rate hikes in recent history. Expect that uncertainty to continue through at least half of 2023, Dhume told Insider. Right now, institutional buyers of single-family homes are mostly on pause as a result, but Dhume said he expected them to bounce back at some point next year.

Today, large investors own about 3% of the roughly 20 million single-family rentals in the US, according to an estimate from Roofstock. As interest rates continue to rise, retail buyers who rely on debt will likely be pushed out of the market by higher borrowing costs. Cash buyers and institutional investors with access to cheaper debt will be the winners as a result, Dhume predicted.

Institutions are also poised to grow their single-family-rental market share over the coming years as the largest investors, such as pension funds, allocate more money to single-family rentals over other real-estate asset classes, such as office or retail, Dhume said. 

“With respect to SFR, the institutionalization of the space is going to continue,” Dhume said. “That’s not going to change.”

Open House Austin

Stephanie Douglass, cofounder of Open House Austin

Douglass, a cofounder of Open House Austin, a brokerage focused on first-time homebuyers, is optimistic about the 2023 housing ecosystem, as it will be the most “normal year” since 2019, she said.

Contrary to predictions from many economists, she foresees order returning to the housing market as the inflation rate is poised to cool. With less pressure on the economy, she said mortgage rates would likely retreat to about 5%, which she said was “doable for more buyers.

“I have a pretty hopeful and positive outlook for 2023,” she said. “I believe we’ll see a leveling out of mortgage rates, ideally lower than where they are now.”

With lower rates, homebuyers will return to the market, Douglass said, ultimately keeping home prices elevated. 

“I think home prices will stay steady in 2023, and we’ll either see a flat line of appreciation or a slight increase in prices,” she said. “I don’t see home prices falling nationwide.

“There will be cities that see prices fall — such as Austin, Raleigh, or Phoenix, cities that saw truly wild growth — but I don’t think we’ll see more than a 5 to 8% price decrease even in pandemic boom cities.”

John Andrew Entwistle

John Andrew Entwistle, founder and CEO of Wander

The venture-capital firm NFX said in September that proptech was on its third cycle: the ownership revolution. And Entwistle could not agree more.

The first iteration of proptech — the information stage — has passed with companies like Zillow essentially creating databases for homes. The second stage, which focused on transactions, birthed many companies promising a streamlined process for buying and selling a property. Now we could see the traditional homeowner change form in 2023.

“We’re starting to blur the lines between users and owners,” Entwistle told Insider. “I think when you can do that, you’re able to create community and really change real estate from these isolated fragmented assets into these larger pieces of a platform.”

Entwistle’s company, Wander, is joining what he calls a “revolution” in the ownership of property.

Wander — which owns a slate of luxury vacation-rental properties designed for remote workers and equipped with workstations and Teslas — now allows users the ability to co-own some of its vacation properties.

The relatively new model, called fractional ownership, allows people to buy shares or stakes in real estate for very reasonable prices — some for as little as $100. After that, co-owners can either visit the properties for a set length of time proportional to their ownership stake or reap a portion of rental revenue from being a co-landlord. At least 11 startups offer this kind of fractional investment opportunity, and Entwistle said he believes the model will remain popular through 2023.

“I think that it’s going to be extremely prevalent over the next few years,” he said.

Redfin

Daryl Fairweather, chief economist at Redfin

The biggest threat to the housing market in 2023 will be inflation, Fairweather told Insider.

“Buyers are not going to want to pay higher mortgage rates, and homeowners aren’t going to want to give up the marketplace,” she said. “So that means you have a decline in prices but a much larger decline in sales.”

She was describing a few interconnected themes where inflation could further harm the US housing market. High inflation would lead to high mortgage rates, making homes even more unaffordable for prospective buyers.

This then creates a lock-in effect for homeowners who don’t have the financial incentive to sell their homes. High inflation, high mortgage rates, and skittish sellers would be a triple whammy to already fatigued homebuyers. 

Fairweather said 2023 may be a “weak year” for home sales.

If inflation did pick back up — after easing somewhat in November and December — Fairweather said home sales could tank to the lowest level since 2011. But by the end of the year, she foresees the Federal Reserve getting inflation “under control,” which she said may lead to an uptick in buyer demand by year’s end and avoid a worst-case scenario for the housing market. 

Raja Ghawi

Raja Ghawi, partner at Era Ventures

“With macroeconomic conditions where they are right now, there’s going to be a lot of pressure on proptech companies that will act as a filter,” Ghawi told Insider.

“There’s a lot of pain ahead,” he added, suggesting there’s a higher likelihood that many businesses would fail next year as they faced more challenging economic conditions, tighter budgets, and new difficulty in fundraising.

“Whoever survives will have a strong business model that will be primed for success,” he said. “It’s like when you put pressure on coal — on the other end, we will get diamonds.” 

While some business models may be turbocharged by the challenging days again, others will need to find an out if their business is not doing well. Ghawi is watching closely to see how business consolidation happens in the proptech world. 

“I don’t think there will be a lot of mergers and acquisitions. Instead, it’ll be more like acqui-hires — when someone acquires a company to bring on executive talent from that company,” Ghawi said. “Everyone is trying to preserve cash, and buying with stock feels expensive, so why not wait another couple of quarters for people to be in a weaker position?”

Sayo Kamara

Sayo Kamara, senior associate with Cushman & Wakefield

“The pandemic has changed the way we work,” Kamara told Insider. “Most obviously, work from home has become mainstream and part of the majority of workplaces to varying degrees. But beyond where we work, it has also changed our relationship to work.”

Kamara, who has spent a large part of his short career selling the physical workplace to office tenants, believes that this trend will become more of the norm as workers’ relationship with the office shifts.

Employees, and businesses themselves, are starting to think differently about productivity. A recent study found the four-day workweek boosted employee performance and companies’ bottom lines.

Sean Kia

Sean Kia, cofounder of Tides Equities

For nearly two years, apartment buildings were a favorite real-estate asset class for institutional buyers — so much so that investors injected a record amount of cash into the sector in 2021, in part because debt was so cheap and demand for apartments was so high, Kia told Insider.

While the demand is still there, rates are at a 40-year high, and the darling of real estate is feeling the heat. Multifamily transactions slowed dramatically in summer as rising interest rates softened demand.

“The latter half of 2022 transactions were dead. They basically fell off the cliff,” Kia said.

Kia predicts the market won’t start really churning again until the Fed slows down these hikes — or stops hiking altogether — which could be well into 2023.

Minjee Kim

Minjee Kim, assistant professor at Florida State University

The real-estate market slowed considerably in the latter half of 2022, and Kim told Insider she expected that trend to continue next year.

With some experts forecasting national home prices to drop by as much as 20%, Kim said she’s most worried about the negative effects on homeownership and housing security for Black and brown families.

“When the economy hits a recession or times are hard, it is those families that are hit the hardest,” Kim said. “That’s my concern.”   

Research from the Urban Institute indicated that Black homeowners had the hardest time recovering from the Great Recession. In the first quarter of 2019, the Black-homeownership rate hit its lowest point on record, according to US Census data. Even though the figure has since risen, it’s still roughly 4 percentage points lower than it was in 2004, when 49.7% of Black households owned their homes.

Recently, when mortgage lenders tightened standards at the onset of the COVID-19 pandemic, denial rates increased for minority borrowers with the lowest credit ratings and Black and Hispanic borrowers in the middle credit tier, a study from Morgan Stanley found. By contrast, the percentage of white borrowers who were denied loans fell over the same period.

Sam Kroll

Sam Kroll, vice president at RET Ventures

“There’s an easy answer to what will happen to the real-estate market,” Kroll told Insider.

Interest rates are going up, which means cap rates — the formula that commercial-real-estate investors use to determine the value of a property deal — will expand “for the first time in a generation,” he said. Suddenly, landlords who had been flush with cash will have to focus on saving money on operating expenses like property management. 

“Technology will have to be the hedge,” Kroll said.

Technology will be an important way for landlords to “eke out that marginal 5 to 10% out of your portfolio,” he added. But only technology that makes money will be successful, he said. 

“The devil is in the details, and the tech that has a clear net operating income is what will do well,” he said. “You have to be able to prove it with the numbers.”

This will become more important if rent-growth stagnates or real-estate-debt default rates go up a little, which would push landlords to be more discerning on where they spend their tech dollars.

“The things that don’t have a tangible return on investment will be the first things getting cut,” he said.

Odeta Kushi

Odeta Kushi, deputy chief economist for First American 

Kushi told Insider that the housing market outlook for 2023 was heavily dependent on the trajectory of mortgage rates. 

“The biggest risk to the housing market next year is higher mortgage rates, which would likely be a result of ongoing or worsening inflationary pressures,” she said. “Higher mortgage rates have a dual impact on the housing market: pricing out buyers who lose purchasing power and keeping some potential sellers rate-locked in.”

Kushi said continued mortgage-rate hikes and high inflation could freeze an already fast-cooling housing market.

If Americans continue to sit on the sidelines, she believes that home prices in many metropolitan areas will see declines from their peaks — especially in areas where home prices soared earlier in the pandemic.

“The main trend to watch is whether mortgage rates will go any higher and, if so, by how much,” she said. “Once rates peak, home-sales volume and price declines will stabilize. That all depends on what the Fed chooses to do in the coming months and whether inflation begins to decline.”

Rise Modular

Christian Lawrence, CEO of Rise Modular

As the housing market cooled down in 2022, construction of single-family homes grinded to a near halt given the high interest rates and material costs that many new-home builders were facing, Lawrence, whose company focuses modular construction, said.

The slowdown in single-family construction also presented an opportunity for multifamily developers to capitalize on the demand for new homes, especially in Western states like Colorado, Arizona, and Nevada.

Data from the Federal Reserve Bank of Kansas City from the third quarter of 2022 shows these states are issuing multifamily building permits at a much higher rate than they are for single-family homes. For example, more than 80% of the permits issued in Colorado are for multifamily developments. 

“We’ve learned over the past two years that people don’t necessarily need a second home or an investment property, but everyone needs a place to live,” Lawrence said.

The threat of a recession also makes multifamily developments an attractive investment because they’re more resilient to economic shocks, Lawrence added.

Megan LeMense

Megan LeMense, senior director of marketing at Raise Commercial Real Estate

There’s no such thing as “one size fits all” when it comes to commercial real estate, LeMense told Insider.

Rising interest rates and fears of a recession have continued to add to the pain for the commercial-real-estate sector, but that overarching theme belies the wide variety of situations in which employers now find themselves.

Some companies are shedding space, yes, but others are still adding to their office portfolios. The murky outlook means companies will need to be in closer communication with their real-estate advisors than ever, LeMense said.

“I think I think 2023 is going to bring a lot of uncertainty,” LeMense said, “but I’m hopeful that this uncertain period is going to pass.”

Flexible office spaces, which allow businesses to scale up or down depending on their needs, are also here to stay, LeMense said. The majority of Raise’s clients have implemented some amount of flex space in their portfolios, LeMense said. 

“We’re excited to help clients understand how to weather the impending storm, if you will, and what changes will come for them individually,” LeMense said. “I’m optimistic, but we’ll see.”

Sanjana Sidra

Sanjana Sidhra, senior analyst at the Affordable Housing Institute

Housing could drive economic growth in 2023 and beyond as local governments put more effort into creating and preserving affordable housing for workers, Sidhra said. 

The motivation for this focus seems clearer now as housing prices remain elevated and the broader economy softens. The red-hot housing market that emerged earlier in the pandemic is starting to cool thanks to the Federal Reserve’s fight against inflation via aggressive interest-rate hikes, which make borrowing more expensive. 

At the same time, Sidhra said the prospect of a recession was threatening the economic well-being of many US households. Sidhra said the US housing market would likely see another slow year in 2023 as building costs remained high and homebuyers faced elevated mortgage rates. 

“Affordable housing is urban infrastructure,” Sidhra said. “It is where essential jobs go to sleep at night.”

To combat these issues, local governments should invest in housing-related development, Sidhra said, like adding multifamily units and increasing density. Doing so would give more workers an opportunity to live near their jobs in a tough economic climate.

Austin Lo

Austin Lo, cofounder and CEO of virtual-tour platform Peek

“A lot of tech and innovation in real estate in the last two years has been fancy forms of financial engineering,” Lo said.

He predicts that now is the time for traditional, or “traditional-looking,” companies that weren’t buzzy in the past to take center stage. We’re already seeing this change pushed by inflation and interest rates, he added. 

“Money is no longer free. So you can’t just borrow and financially engineer your way to something,” he told Insider. “When rates go up, the screws get turned on your income statement, and you need to look for more efficient ways to operate. You need to look for innovative ways to deploy technology.”

For example, he sees this innovation in the construction-tech space where there’s constant demand for new projects and therefore improved efficiency. 

“I do think that you’re going to see continued adoption of these construction-management platforms,” he said. “We are going to continue seeing a lot more innovation in construction tech and more efficient ways to really address this massive housing shortage that we have in the United States.”

Marina Malomud

Marina Malomud, partner and chief operating officer of Subtext

When it came to the macroenvironment of commercial real estate in 2022, deals were leaner, construction costs were still high, and capital markets were shy, Malomud told Insider. But she’s taking the optimistic approach and expects the environment to stabilize in 2023. This is simply because the market needs to.

“There is a national housing crisis,” she said. “The more pressure there is on real-estate development, it just means that fewer projects are going to move forward and that the crisis is going to be exacerbated.”

In other words, more development will only help alleviate housing concerns. She believes that the fundamentals for multifamily and student housing (her area of expertise) are there — it’s just a matter of the market stabilizing so more developing can take place in 2023. 

“The macroenvironment indicators suggest that next year should be more stable than this year,” she said. “So I’m optimistic that deals will continue to move forward next year.”

Kashee Ramalingum

Kashee Ramalingum, head of business development for Germany, Austria, Switzerland, and France, LifeX

In 2022, more startups blended the worlds of real estate and technology. Ramalingum believes there will be more of this in 2023, and perhaps more startups fully leaning into the technology side of the industry.

“I do believe that next year people will see more impact on technology integrating the real-estate world,” she told Insider. 

Instead of real-estate companies finding use for existing tools, technology companies will be creating more tools specifically for real estate, Ramalingum said.

“There’s been so many startups that have now started creating tools and platforms for the real-estate industry,” she said. “And I think that these tools will become more and more present and change the way the real-estate world operates on an administrative level.”

David Marlow

Riley Warwick, 30, cofounder of Saslove & Warwick

Warwick may specialize in Aspen, Colorado’s luxury real estate, which is often purchased without a traditional mortgage, but the broker has a prediction for how mortgage rates will affect the market across the country.

“Mortgage rates are going to continue to have a really strong impact on the average homebuyer,” he told Insider. “As for first-time homebuyers or people that have sold over the last two years to capitalize on making a little bit of money on the appreciation, I think they’re going to continue to rent.” 

The reason is this: Warwick believes that rents will rise to meet mortgage payments, which have been driven higher by rate increases in the past year.

“Mortgage payments right now are much higher than renting, but I think that there will be a time over the next year where rental payments will meet, or hang just below, mortgage payments,” he said, adding that he thought that would cause the number of real-estate transactions to slow across the country.

Lev

Yaakov Zar, CEO and cofounder of Lev Capital

“The market discrepancies that exist right now are the greatest I’ve seen in my short career so far and some of the greatest in recent history,” Zar told Insider. 

Zar said he thought the real-estate industry would have to get “more creative” and “more aggressive” to continue to find ways to profit. Investors and business leaders will have to find new “creative advantages,” such as alternative property asset classes to invest in or new financing partners. 

“Typically in a segment that’s displaced, marketplace-software providers are able to come out with a value offering that helps set people up to deal with that marketplace displacement,” he said, adding that he hoped his firm could become that player. Though he thinks the problem is much bigger than just his company.

“The trend of digital tools for transactions is going to accelerate,” he said. “It has to happen and it’s happened across every other industry.”