ANAHEIM, Calif. — Residential for-sale housing has moved into a downturn, real estate professionals said, as rising mortgage rates and economic uncertainty loom in the industry.
A national survey of real estate professionals believes that a recession is coming in the next two years, affecting the real estate industry as a whole, and most said it would occur in 2023.
RCLCO Real Estate Consulting's Real Estate Market Sentiment Index gathers the perspectives of anonymous professionals from a swath of real estate industries about the current and future market and measures sentiment on a 100-point scale. The professionals include those that work as developers, builders, investors, capital allocators, architects, nonprofits and the public sector.
According to the survey released Monday, sentiment has decreased to a low of 8.5, a nearly 27-point drop in six months and 80.6 point dive since its peak of 89.1 in mid-2021.
"This puts the index solidly into a period of real estate market distress/recession and is in line with the level experienced in the first months of the COVID-19 pandemic in 2020," RCLCO officials said in the report.
The survey comes as the real estate industry, for-sale residential and commercial, brace for a possible recession and economic downturn.
Inflation, rising interest rates, lingering supply chain issues, Russia's invasion of Ukraine and general economic uncertainty leading to jittery investors have hampered the industry heading into the new year.
The survey reveals that sentiment.
RCLCO officials said most survey respondents expect a downturn to hit all facets of the real estate industry.
"The outlook for the upcoming year predicts a continued decline," RCLCO officials said. "Approximately three-quarters of respondents predicted that national real estate market conditions would continue to get moderately or significantly worse in the next year."
While certain aspects of commercial real estate will get hit hard by a downturn, such as offices and retail, for-sale residential will be among the most impacted.
More than two-thirds of survey respondents believe the homeownership rate will fall in the coming year as younger, first-time homebuyers continue to be left out of the market due to higher mortgage rates, skyrocketing home prices and low inventory.
According to several reports, the median age of a homebuyer has increased from 45 to 53.
"Despite relatively strong labor markets and moderating energy prices and inflation, continuing aggressive Fed action is likely to curb demand in the near term," RCLCO officials said. "This together with weaker global growth, will negatively impact the U.S. economy, and to lead to a mild recession in the near-term."
However, there is some optimism among survey respondents.
Nearly half expect inflation to decrease in the coming year.
The RCLCO report states that last quarter, the GDP rebounded to a healthy 2.9% after falling in the year's first half.
Despite hiring freezes and layoffs by major tech and media firms, job growth is still relatively healthy, although slowing. And retail sales were up 1.6% in October and 8.3% higher than a year ago.
"On the other hand, borrowing for housing and commercial real estate has become both more expensive and harder to obtain over the past six months," the authors said in the report.
RCLCO authors said they expect a mild recession to come in 2023.
"Persistent inflation, high interest rates and weaker global growth will negatively impact the U.S. economy," the authors said. "Real estate will not escape the negative impacts of the looming recession, and while there will be some buying opportunities, RCLCO does not expect widespread distress."