Real estate investors, home sellers, and home buyers have been through a rollercoaster of a real estate market in the U.S. this year. The major headlines have revolved around higher-than-ever interest rates and rising home values, which has a lot of people asking: what’s happening with the real estate market?

In this article, we’ll highlight the main trends that will contribute to what happens in the real estate market over the coming months. This includes general economic volatility, financial regulations, home values, employment data, and rental market dynamics.

The future of the real estate market may be uncertain, but with the right knowledge, real estate investors can feel more confident in their decision-making as they navigate this complex landscape.

Market Volatility and Uncertainty

As a real estate investor (and, let’s be honest, as a living human), you’re likely already aware of the overall economic volatility and uncertainty weighing on the public in the U.S. post-pandemic. With fluctuating inflation rates, stagnating unemployment rates, and ongoing talk of recession in 2023, this can be a difficult time to make predictions about the housing market.

Still, a few things are keeping consistent with overall trends. Demand typically goes up in the summer, and while housing inventory is still much more limited than we’ve seen in previous years, this summer and fall, we’re expected to see more properties hit the market than we’ve seen earlier in the year.

There’s also a marked increase in existing home sales in the North and East, with a decrease in the Northeast and Midwest, as of May 2023. The median sales price, according to the National Association of Realtors, is down 3.1% year over year, currently coming in at $396,100.

Homebuyers and real estate investors take note: now it’s more important than ever to do extra research on potential purchases before making a decision. It may seem counterintuitive to be patient due to the limited inventory, but it’s best to avoid making a long-term mistake on a short-term assumption that the market will continue on this trajectory. This is especially important if you rely on financing for your investment strategy, which we’ll get to in the next section. 

Interest Rates and Financing

Changing interest rates in our current housing market is a hot topic for both investors and homeowners. Whereas 2020-2021 interest rates were the lowest they’d been in three decades, we started to see a spike again in 2022 that only seems to be rising as 2023 progresses.

This increase means higher mortgage payments, which may make first-time homeownership more difficult. It may also make current homeowners more hesitant to list or refinance their homes, contributing further to limited inventory.

Finally, credit conditions also make financing harder to come by — or more expensive when you do find it. If you’re financing a residential or commercial property, whether with a conventional, FHA, VA, or other loan, be aware that it may be more difficult to get approved in a volatile market. However, if your credit is good and you’re unperturbed by potentially higher rates, financing isn’t impossible by any means.

Fluctuating Property Valuations

Home price growth is estimated by CoreLogic to grow about 4% this year, in part due to the ongoing limited inventory available. This obviously marks an opportunity for potential sellers and house flippers, who can profit from the temporary inflation in home values. At the same time, we’re not exactly seeing an overheated market, as home prices aren’t rising as quickly or dramatically as they did last year. And if the bubble is soon to burst, experts are predicting that home prices won’t suddenly drop dramatically.

Rental Market Dynamics

Since the rental market closely mirrors the overall real estate market, it’s essential that investors keep tabs on what’s happening here, too. Much of what’s happening in the rental market is a direct result of our post-pandemic economy. Increased inflation, real estate prices, home maintenance, repair costs, and more directly result in higher rent charged to tenants — which turns around and increases inflation more. 

Inflation and rent are directly correlated, but rent has been rising disproportionately in relation to inflation over the past decade. And in the short term, asking rent prices have increased by 0.6% from April to May. However, compared to very steep and sudden rent hikes last year, this increase seems much more reasonable (and reassuring for renters) as we go into the rest of this year. Still, it’s a difficult and potentially expensive time for renters and landlords alike.

However, there are clear trends that may benefit savvy investors, including an increase in demand for smaller properties and lower rent increases in specific cities (including Miami, Portland, Atlanta, New Orleans, and L.A.) If you’re an investor, consider investing in multiple markets to spread risk across different areas. 

The Job Market

The job market can significantly impact real estate investments. Economic downturns or significant job losses affect rental demand, property values, and overall investment returns. And post-pandemic, we’re still facing a culture shift in how and where we work, with hybrid work models retaining their appeal to both workers and employers.

The labor market has been showing signs of recovery all year. Overall employment, according to the Bureau of Labor Statistics, has grown continuously for 26 months. And though the news may have you believe people are quitting at a higher rate than ever, this isn’t the whole picture: the “net hire” rate in the U.S. is keeping consistent with data from 2016-2019, meaning that though many may be quitting, they’re often leaving their employers for better opportunities elsewhere.

What does this mean for the real estate market? As always, real estate prices and demand will be higher in places with strong job markets. What has changed in recent years is where those job markets exist. While they used to be in larger cities, as of May 2023, the hottest job markets are Austin, Nashville, Raleigh, Salt Lake City, and Jacksonville. Real estate markets also tend to be stronger in college towns and tech hubs.