As an agent, you know that real estate is one of the most lucrative industries in the world, but it's not without its challenges.
But what is the biggest threat to real estate?
As you think about the rest of your 2023, what are the biggest threats facing the industry, and how can players stay ahead of the curve?
The real estate market constantly evolves, and new threats emerge each year – from economic downturns to natural disasters. Predicting the industry's future is never easy, but it's essential for those who want to succeed in this competitive field.
According to experts, several critical threats could impact the real estate market in 2023, ranging from governmental regulations to changing consumer behavior.
By understanding these threats and taking proactive steps to mitigate them, real estate professionals can maximize their chances of success in the years to come. So, what are the top five most significant threats facing real estate in 2023?
There are a variety of issues that may impact the real estate market in 2023, but let’s limit it to the top-5. First, of course, every challenge presents an opportunity if you’re willing to look at the problem in a different light.
Let's take a closer look at the top-5 threats to the real estate market in 2023.
1. Interest Rates
When I think about what is the biggest threat to real estate, I think of interest rates. More than almost every other factor, rising interest rates have a major influence on the economy, particularly for those in the real estate industry.
As interest rates continue to rise, it's creating an environment where people need help securing funding and have a decreased demand for residential and commercial property with higher mortgage rates.
The other problem is that value appreciation is diminishing in many markets with residential property, further decreasing interest.
This seemingly unavoidable situation brings potential challenges and opportunities for real estate agents.
On the one hand, it can be challenging to entice potential customers when they realize homes may be less affordable or increase in value than hoped.
On the other hand, experts don't anticipate any immediate drop in interest rates anytime soon, so you can convince buyers that now is their best chance if they want to secure these current rates before it gets too late.
As a real estate agent, you should prepare for the changes ahead by taking advantage of lower-priced listings and revising marketing strategies according to the new market conditions.
2. Affordability
If you talk to any of your clients, there’s probably one common issue in today's housing market: affordability.
With our incredible gains in real estate since 2020, affordability is an alarming issue for many potential home buyers.
Low wages, rising interest rates, low supply, and high demand have created a situation where land prices are higher than ever before, but incomes have yet to keep pace.
Because of those factors, for those who can still afford homes, the competition in many areas has driven up the cost of real estate far beyond its historical highs.
For those looking to purchase a home or condo, it is essential to correctly assess their budget to get reliable mortgages that they can afford without stretching themselves too thin financially.
Buyers should also understand all available financing options, such as Federal Housing Administration loans, and look into grants available from special nonprofit organizations which exist specifically to assist unsubsidized first-time buyers in covering down payments.
As an agent, you can gain a considerable advantage over your competitors if you help educate your buyers on various assistance programs available, especially for new buyers.
Additionally, adding a stable of preferred lenders that you can direct your buyers to that will educate your buyers is a good offering.
These lenders will help your clients identify which streets, buildings, and neighborhoods offer maximum value versus cost when considering purchasing real estate is another great way to add value as an agent.
3. Technology
You’re probably aware of iBuyers like RedFin and Zillow, and since real estate is an ever-evolving business model, it's no surprise that new technologies are beginning to have an impact.
Opportunities exist for businesses to use the digital platform more efficiently and effectively, from e-commerce in the retail sector to the more recently-developed digital mortgage.
And in most cases, these changes allow buyers and sellers to transact business faster, easier, and with greater transparency.
Despite the advantages of these new technologies, there are still risks involved in adopting them, especially since they may be unfamiliar or even untested.
This is why your potential sellers and investors need to take their time when it comes to implementing technology.
They need to decide which tools are most appropriate for their business needs and objectives rather than simply jumping into solutions out of fear of being left behind by market trends.
For example, I like to send out video text messages daily to my sphere to prospect, and I use video to win listings before I arrive.
Of course, this doesn't mean you should ignore technological advancements altogether. Instead, you must exercise caution when making technology decisions that could affect your bottom line and long-term financial outlook.
One of the significant changes in the real estate sector is the adoption of digital mortgage companies streamlining processes like closing costs and asset verification, which is both a benefit and a potential risk.
For example, since 2019, with the increased use of digital tools, real estate professionals have been exposed to potential threats such as cyber security concerns and changing regulations related to technological advances.
By being proactive about understanding these issues sooner rather than later, owners can prepare for any potential risks before
Recessionary Impacts On The Real Estate Market In 2023
A recession in 2023 could significantly impact the real estate market.
As businesses and people cut back on spending and tighten their budgets, demand for new homes and commercial properties could decrease.
The good news is that this could lead to lower prices but a decrease in the number of properties being sold.
Existing property owners may need help finding buyers and be forced to lower their asking prices. In addition, the availability of credit could become tighter, making it more difficult for first-time buyers to get a mortgage.
Overall, a recession could lead to a sluggish real estate market and decreased investment opportunities in the industry.
But the good news is that since World War II, recessions have lasted, on average, 11 months, so if you prepare yourself and educate your clients ahead of time, you can position your business to come out on top when things bounce back.
Governmental Politics And Global Events
When it comes to real estate, politics often play a significant role in how the market is affected, and for foreign events, if it happens there, it impacts here.
Any changes or decisions governments make worldwide will have a ripple effect on real estate markets in that country and sometimes beyond.
Tax reforms, for instance, are usually used to balance trade with other countries. This could eventually trickle down to people living in that country, affecting jobs, incomes, and properties.
Furthermore, government decisions directly related to real estate can also be seen.
For example, as economic downturns are more likely, new bank policy changes could occur, like relaxing Dodd-Frank Act requirements or regulating community banks. These decisions can directly affect those who work in the industry, such as real estate agents.
Another possible change is that with affordable housing being more challenging to come by, local and state governments are finding incentives and other programs to entice more building, which can flatten existing home prices but provides ample new opportunities as an agent.
Also, sometimes global events can have a chain reaction in the markets, lending, and supply chain issues, so following some of the current events can help you understand where the markets may be in 3-6 months and beyond.
Overall, real estate is a tremendous long-term hedge against many of these forces, especially if you know what to look for and how to plan ahead.
By understanding the biggest threat to real estate, you can position yourself as the go-to expert by helping educate your potential clients about their opportunities and options when things look challenging.
Table of Contents
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