Should Real Estate Investors (REIs) consider looking for more buy-and-hold long-term rentals as they build out their 2023 investment strategies? Many investors and industry professionals believe that the direction of home prices may lead to a focus on single-family long-term rentals as we enter a new year. According to National Mortgage News, “More fix and flip investors might consider converting their purchases to a single-family rental instead if the math works in their favor given current interest rates.”

Credit Availability

Both investors and homebuyers will likely face an overall reduction in credit availability, making finding a loan to purchase a flip property or a forever home more difficult to find. As liquidity starts to evaporate for some lenders, so will the volume at which they can lend. Finding a financial partner like Pivotal Capital Group, which is a direct lender, can help mitigate some of these hurdles REIs may face and help to secure funding. This will allow those REIs to take advantage of softening home prices as we continue into 2023. However, homebuyers will likely continue to face high-interest rates and affordability will continue to be an issue. This has edged many first-time or would-be homebuyers right out of the market, fueling the rental market, especially in California.

Single-family rental market

The single-family rental market in 2022 has already proven to be hot with demand at all-time highs. According to HousingWire “Monthly rent prices for SFR properties as of the end of the first half of 2022 increased at a double-digit pace year over year, even as new SFR listings jumped by nearly 58% over the same period, the report shows. “  Rents are expected to continue rising into 2023 and even if they remain steady or decline a little bit, economists do not expect us to see rents at pre-pandemic prices again.

Home sales in 2023

According to the most recent National Association of Realtors (NAR) report on existing home sales, specifically in the west, decreasing home sales have leveled off in the last 2 months. The report states, “Existing-home sales in the West were identical to last month at an annual rate of $880,000 in September, but down 31.3% from one year ago. The median price in the West was $595,400, a 7.1% increase from September 2021.”  As home sales have continued to decline this past year and have seemingly leveled off, or at least slowed, there are some indications that home prices are also likely to fall in California this upcoming year into 2023. Jordan Levine, the chief economist for the California Association of Realtors, claims that home prices in California are going to fall in 2023. The high mortgage rates, pushing many would-be home buyers out of the market and the high home prices have contributed to slowing demand for homes in California. Some sellers have responded by lowering home prices a bit. Rising rates slowed demand to buy, and potential job losses due to the upcoming recession are predictors of home prices coming back down. Specifically, Levine believes that Southern California will either decline with the rest of the state or at least stay flat for the next few years. However, economists still predict that the sellers will remain in control.

With all of these considerations taken into account, Real Estate Investors will have to consider their options and run the math as to what they can buy, sell or rent potential investment properties for. If you are an investor building out your 2023 business plan, Give Pivotal Capital Group a call if you want to discuss your next project and what loan type might be right for your business.