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What’s ROI going to look like in 2023?

One of my favorite parts of new buyer meetings is when I go over a rent versus own and show them the amortization and appreciation gains over the next 9 years – because what other asset class will give them that kind of ROI in just 9 years?! On a $350k home with 10% down, the ROI is often over $100k after 9 years even after taking into account the costs of maintenance over that time and the cost to sell.

ROI on your investments in 2023

But right now, the data makes the ROI for the first two years dip RED. Yikes. How do we answer our clients who are smart enough to ask, “What will my return on investment be on this property over the next 5, 10 and 15 years?

Well, seeing as how the market is literally completely changing every week, I’m not going to be able to predict the next 5 years for you right now. Actually if we put jokes aside, I’d say we can pretty safely predict homes will be higher in value 5 years from now than they are now. But, let’s stay focused here and look at what could happen to prices this year.

This first quarter of the year is likely to be the hardest as affordability is not a friendly issue – like at all. Wage growth has not kept up with inflation. Prices are not low. They are less, but certainly not what someone would describe as cheap. And interest rates are also not low. Those are the three factors that drive affordability – wages, prices and rates.

However, as the fears of a global recession mount, it’s likely mortgage rates will continue to fall. If we couple that with modest price declines, affordability gets much better for the second half of our year. Then prices go back up and we start a new cycle. This is what NAR Chief Economist Lawrence Yun predicts – the national aggregate of home prices rises by 1%. That’s not the 20% we saw in 2020 and 2021 but it’s something, something that isn’t negative! He thinks by 2024, price growth returns at 5%. A normal healthy market appreciates at 3% year over year. The condition for Yun’s predictions is that mortgage rates stay at 7% or lower, which I think is likely.

The problem is only 16% of Americans think it’s a good time to buy. Most likely because they think that the return on investment wouldn’t be good; they think prices are going to plummet. It’s important to combat that rumor because even the most conservative economists and investors are predicting a small price dip - not a crash or plummet.

Nevertheless, if people don’t want to buy, and selling behavior is also lukewarm – it doesn’t make for a hot housing market.

Here is the most important piece of today’s message though. These are all national predictions, national estimates, national averages. As local real estate advisors, we must get hyper local about the data in our specific market. I live in Reno and I’ve heard real estate professionals here say that we are a highly reactive market. Meaning when things are good nationwide, they’re extra good here and when they are bad, they are worse here. On the other hand, the data supports Reno being somewhat of an island during a recession. Our unemployment rate is in line with the national average because we’ve diversified jobs. During the 2008 recession, the only thing driving our local economy was tourism. Flash forward to the pandemic when the casinos closed, there were job postings all over the place for tech jobs or manufacturing and warehouse jobs.

I saw a realtor here in Carson – Summer – share a meme this week that said looking at the national weather forecast doesn’t do shit for you in planning your outfits for the day. You have to check the local forecast. I truly believe the same applies for housing. I’ll continue to do my best to put together a “local forecast” for you.


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