In 2023, the economy will show a range of results. Despite the fact that the underlying trend has slowed, this was entirely expected in last year’s surprisingly rapid rate of increase. This delay is mostly the result of the policy. In order to reduce excessive inflation, the Fed hiked rates, and fiscal policy is tightening. Fortunately, the economy is starting this new phase of growth, which should assist in lessening any negative effects. Even while economic growth will certainly slow down, a recession is not yet given.
So what does the real estate market have in store for 2023? Here are some real estate outlooks you should watch out for in 2023.
1. No rate reductions are anticipated until, latest, the end of 2023.
When inflation reached four-decade highs in 2022, the Fed acted decisively to bring it under control. The Fed started the year with a target zone for the Fed Funds rate of 0% to 0.25% before launching its most severe tightening program in four decades. The Fed started a series of 75 basis point (bps) increases in April after increasing by 50 bps in March, bringing the target Fed Funds rate to a band of 3.75% to 4.0%.
The Fed is not finished, however. We estimate the Fed to continue tightening until the first half of 2023, although at a less brisk pace, as long as inflation is expected to stay over the target in 2023.
2. In 2023, government policy is anticipated to tighten considerably further.
The scenario is set to change in 2023 after a phase of fiscal policy that was very stimulative and included trillions in government expenditure. With high inflation prevalent in 2022, the desire for very expansionary fiscal policies decreased across the political spectrum. However, it seems like things are about to get much more careful. Government spending is anticipated to become more divisive and difficult, with the Republicans regaining power in the House of Representatives. This essentially implies that the U.S. economy will slow down for the first time in decades without the aid of fiscal stimulus to lessen the shock.
3. The economy should be able to withstand the downturn if the labor market is strong.
The labor market is expected to remain tight through 2023. The demand for labor is still greater than the supply. Net employment creation that was slowing averaged 375 000 in 2022. A tight labor market, however, has both advantages and disadvantages. On the downside, the Fed will continue to observe how excessive demand fuels demand-side inflation. Much of 2022 saw an annual increase in wages of about 5%. With such significant employment growth, this made it possible for consumers to keep on spending, which in turn helped to some part, maintain inflation.
Private finance should continue to face difficulties, resulting in slower startup expansion. San Francisco is already feeling the effects, but Boston is seeing a worrying decline in demand in the life sciences sector as a result. Nevertheless, it is anticipated that this slowdown in operations would spur more M&A activity as existing companies hunt for transactions, focusing on businesses with strong intellectual property or growth prospects but without the cash or debt finance to keep the lights on.