Everyone meet Kevin Here It's another long day in the office and we just got a report from Redfin about their housing market predictions for 2023. I've already done the Deep diving for you I've got some comments to add to the highlights I've added to the report. so without even a single pitch, let's just get into the video. The most likely scenario is what Redfin is going to present in this.

Although it is possible that we end up having a better than expected inflation report coming soon and maybe even better than expected inflation for the coming months and that could actually improve the results of this report. Although I'm skeptical with some of the results of the report and I'll provide you what I think. Prediction number One reference cites that home sales are likely to fall to their lowest level since 2011.. Now note: this is not home prices.

this is home sales. They're expecting 16 fewer home sales in 2023 than in 2022 and 2022 already saw a large decline from 2021, and Redfin believes that people will ultimately only move if they need to. That's because a lot of folks who own homes already have locked in really low interest rates today, where rates are at about six and a half percent. 95 percent of people would not benefit from a refinance.

That means their rate is lower than what they could get in the open market today. Now they talk about how we might see not only the lowest home sales since 2011, but also the lowest housing turnover rate since the 1980s with just 32 out of every 1 000 homes selling in 2023. And later in the report, they talk about how this could actually potentially turn into a remodeling. Boom for homeowners who stay put now.

I'm skeptical that we'll have a remodeling boom during a potential recession. Sure, there might be more well-off individuals who will choose to remodel rather than move, but I believe there's a larger likelihood that more people are going to stay put and do nothing and save money though you just never know. So uh, going back over here. The Redfin report believes that mortgage rates will probably stay strong, averaging about 6.1 percent all the way through 2023 and ending the year slightly around 5.8 percent.

Because remember, this is the 2023 housing report, not the 2022 housing report. Now, this is actually way above my expectations. I Would have thought that come the middle of next year, we would have potentially seen mortgage rates fall to closer to five percent. So the fact that Redfin thinks rates are going to stay close to six percent through the end of next year, in my opinion, is actually going to be substantially more damaging to home prices than what they're going to estimate in their predictions here.

Keep in mind: Morgan Stanley is calling for a 15 drop in home prices in 2023? Not considering a recession. If we enter a recession, that 15 could be worse and is more likely to align with what my belief is a 15 to 25 percent home price decline. Do keep in mind, obviously we've had a big bull run since the pandemic with a lot of home prices going up 50. So hey, look, if you had a hundred dollar house that's now worth 150 and then you have a 25 decline off of 150, that still puts you at 112.

still puts you above where we were uh, right before the pandemic. But getting close to those 2019 levels or at least in line with 2019 levels is my belief of where we're heading. But I'll show you what Redfin thinks as well. Redfin says that you're purchasing power at a six and a half percent rate with a twenty five hundred dollar a month budget gets you into about a 383 000 home.

and if rates fall to 5.8 which is their prediction. by the end of 2023, you could potentially afford up to a four hundred and six thousand dollar home. They also mentioned that if inflation proves stubborn, it's possible that rates could stay elevated even higher and longer, but they're still guiding for around six percent. now.

they do think that home prices will post their first year-over-year decline in a decade. I Think this cat. this is already like solidified at this point. I Think once we get to March April and we look at year over year comparisons, we're going to be negative, probably somewhere between six to 12 percent.

and I think more pain is coming. Uh, now it's possible that some of the loss in prices Redfin might be assigning to 2022 because they think that prices will fall four percent in 2023 in addition to the contraction that we've already seen in 2022. They actually suggest that home prices are, in their opinion, likely to decline in the first quarter and then Bottom by the summer Q2 Q3 and then slowly start Rising again and into the end of the year. I Think this is wildly optimistic and if they actually think rates are going to stay around 5.8 percent I think this is potentially too Rosy of a scenario here.

I Would be more cautious about this, however. I have also with my real estate startup house Hack, been considering shopping for Real Estate starting about the middle of 2023. Now, what I do think is interesting is the markets that they think are actually going to hold up quite well and we're going to talk about those next year they do. Which I actually agree with.

Think that a housing foreclosure wave is relatively unlikely. Completely agree. Look at this: the Midwest and Northeast and East Coast metros, especially Connecticut Upstate New York and the Chicago area are likely to hold up well even as the housing market cools. They make this argument that there is not going to be another Austin and even Austin's not going to be Austin that areas like Boise and Austin in Tampa Florida that were hot during the pandemic probably won't actually be hot as hot at least during the next housing boom and that there could be better opportunities basically trying to you know, promote home values and and people moving to areas like Illinois or Connecticut for Genziers and individuals who can work from home and work remotely which they think is going to be a big part of the next decade.

I Found this very interesting because they find these areas have a good balance of affordability. they missed out on that pandemic run up and that crazy boom time during the pandemic, but I also noticed that MO most of these areas are in much cooler areas they're actually not in the Sun Belt or in the south. In fact, they're all basically above the cooler areas or warmer areas they're in cooler areas Lake County Illinois Chicago Illinois Milwaukee Wisconsin Albany New York Baltimore Maryland Elgin Illinois Rochester New York Pittsburgh Pennsylvania and New Haven Connecticut as well as Hartford Connecticut Actually thought this was very, very insightful and personally I'm actually interested in traveling to all of these markets to explore them for myself to see what my thoughts are on these markets. so we'll see on the other end of the spectrum.

They say here we expect prices to fall the most in pandemic migration hot spots like Austin Boise Phoenix and of course other areas. They also say that expensive West Coast cities are likely to be see outsized price declines because of stumbling tech stocks and a shift to remote work pricing people out of these markets I Thought that was very interesting. Rents they do believe will fall as well as construction will become. uh, you know where construction will fall for single families, but we'll focus more on rental units leading rents to fall as well as the potential that fewer renters will become buyers next year.

Although that should keep up the housing. Supply or I'm sorry, that should keep up housing demand for rentals. They actually believe that people might become reluctant to sell their homes, even homes that they've moved out of, and instead homeowners may just rent out their homes rather than sell because they don't want to lose the low interest rate they have. This is a very interesting argument.

It could actually bode well for airbnbers, and there is a potential fear that you end up having an Airbnb bust if there are too many people renting out properties on Airbnb at two low evaluations to where it doesn't make sense to do Airbnb rentals anymore. This is a big Trend that I'm paying attention to and falling rents is a big deal because it affects real estate valuations and cap rates. They do say here we expect rents. We expect to see rents fall soon in places where Apartment Supply is growing rapidly including Boise Phoenix Charlotte and Raleigh North Carolina.

Now this I think is also very interesting, so you have to be careful because you've got an overlap. here. you've got some areas that were housing pandemic boom towns like Boise and those areas are now not only expected to see potentially larger price declines, but also rent declines. So potential hot potatoes when it comes to investing? Very important things to pay attention to.

Certainly things we're taking into account at househack. Keep in mind I Also, do real estate analysis anytime somebody submits a deal that they've submitted for Real Estate analysis because they've written an offer or they're under contract on a property in my Zero to Millionaire Real Estate Investing course. If you want all of my experiences, make sure to use coupon code PP which expires December 9th at midnight and you're going to get the best price possible. On the Zero to Millionaire Real Estate Investing course, join that link down below you get lifetime access to all new content that's added.

The lecture drops coming in December and the live streams where I do fundamental analysis including on real estate. So then we also have uh, this idea that potentially some Gen Zeers and young Millennials who have saved up money to buy a home might actually wait for either prices or rates to come down or just delay home ownership. Uh, while they invest in stocks instead. And this is actually in my opinion, not necessarily the worst idea because I kind of think the stock market actually, when I say I Kind of think I strongly believe the stock market is going to bottom well before the real estate market bottoms.

I believe that. So I think there's this potential to sort of ride the stock market up once we start getting lifted out of the recession. Uh, or or at least the recession begins and the stock market starts leading us to a close and then real estate. It will potentially bottom maybe a year or two after that, We'll see it could take a lot longer for the real estate market to bottom than what Redfin is projecting here.

I Don't know that we're going to see as shallow as a dip as Redfin is expecting here, but we'll see we'll be paying attention to it closely. Builders are likely to focus on multi-family rentals, construction spending might shift to remodeling. We talked about that a little bit. They do make a prediction here that investor activity will bottom out in the spring and then rebound.

However, we're likely to see fewer institutional buyers for a while, especially since Redfin is stopping their eye buying. Open Door is cutting back a lot I think Open Door is probably going to go bankrupt. In fact, there's speculation and rumors that they're basically already looking for bailout partners because they're they're collapsing. Uh, it sounds to me like they just need better management.

They need to handle much better what they're doing than what they are doing but whatever. uh. They also say here that investors will likely start buying more homes in the second half of the Year taking advantage of slightly lower home prices I Expect that to be lower home prices, not slightly lower home prices. but I Agree with that.

That's kind of what we're targeting with House Hack. My real estate startup roughly the the third and fourth quarter of 2023 listing activity from investors is likely to be lower than a year before, though some will need to offload inventory because of the buying sprees that they've had over the last couple years. This is true. Jen's ears will prioritize affordability, lifestyle, weather, and proximity to family, and they target areas like Tucson Arizona or Savannah Georgia for mid-sized moderately priced places.

I Do think there is a likelihood that, uh, mid-price to lower price properties will see less of a drop than other markets though usually the entire real estate market moves together over time. it just they move in different phases, right? Austin might collapse first and Boise might collapse in parts of Florida might collapse, but then you might actually see that end up just spreading everywhere. That's because of the principle of substitution. They also talk about how Insurance costs are changing, especially in California our beachfront real estate in Florida because of hurricane and earthquake costs and that these risky areas could actually be very expensive to invest in.

Definitely something that we're keeping in mind, especially with insurance premiums increasing 33 percent year over year in 2022 and expect it to rise even more. Some cities are following the yes in my backyard approach of more denser housing, getting rid of the single-family zoning allowing a single family to turn into duplex or Triplex this is not with accessory dwelling units known as Adus. This is not working very well in California But that's because California Politics and building departments are saddled with the most disastrous bureaucracy I've ever seen in my life. But in areas like Portland Oregon or Minneapolis maybe you have a little bit of a better opportunity to see some conversions from single families to multifamily and those could actually create opportunities for cash flow.

Think about it, if you could get a really good wedge deal on a single family home in, let's say Minneapolis and then you're able to turn the garage into an Adu you could substantially increase the cash flow that you're getting per the investment that you're making. So uh, some real opportunities there. so you better have really good Architects And know that law in the building and safety departments like the back of your hand. And personally, I recommend you buy a place.

you renovate it. You rent it out while you rent it out. That's when you submit building plans to see if you can turn something into an Adu. That way you don't have a vacant property waiting for the city.

Instead, you have a project that's under review while you already have income coming in. Redfin Goes on to suggest that buyer agent commissions will actually likely rise slightly as potentially thousands of real estate agents leave the industry in 2023. I Expect this to happen I Expect this to hurt companies like Redfin and Expi companies that potentially have a little bit more of of a discount reputation to them and you're going to see more of that sort of full service premium real estate broker become very valuable in this environment. So these are some of my thoughts.

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