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Monday, January 30, 2023

Why The 2023 Housing Market Slowdown Is A Good Thing

In a session called “Your Inside Look Into the 2023 Housing Market,” panelists at Inman Connect New York said real estate companies and consumers are “adjusting to the new reality.”

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The 2023 housing market will turn out better than expected, panelists at Inman Connect New York predicted Tuesday.

Panelists Tamir Poleg, CEO of brokerage Real; Nate Levin, managing director of proptech venture capital firm Parker89; and Chen Zhao, senior manager of economics at Redfin, spoke in a session called “Your Inside Look Into the 2023 Housing Market.”

Poleg argued that the current housing market slowdown is a “good thing” after the frenzied pace of sales in 2021 and the first half of 2022.

“This is the market correcting itself because the way the market behaved in 2021 and 2022 is just not sustainable,” Poleg said.

“So I think that this is a natural thing that happens to the market every now and then.”

The uncertainty in the economy makes 2023 “one of the most difficult years to predict,” according to Poleg.

Still, “I think that 2023 is probably going to be much better than what we all think and much better than what the media is telling us,” he said.

“We’ll probably see psychological effects of consumers adjusting to the new reality which started in 2022. Every time the [mortgage] rates go up, buyers take a pause, and then they go back into the market.”

Zhao said she was “cautiously optimistic” about the housing market due to inflation and mortgage rates declining and home sales beginning to pick up.

Nonetheless, “recession is something we should be thinking about,” she said. “It won’t be anything like 2008, but it’s still a risk.”

The economy is basically dealing with the effects of the pandemic, she noted.

“I don’t see any reason fundamentally why the U.S. economy should be in a period of prolonged slowdown,” Zhao said.

Even though she described the Federal Reserve’s interest rate increases as “a sledgehammer to the economy,” the effects have been “very positive,” according to Zhao.

“If we were to write a script for the so-called soft landing in the fall that script would … look like what we are experiencing right now.”

Levin noted that the hot real estate market had created an environment in which many companies “were able to grow really quickly and build a ton of momentum really fast” but now companies are “soul searching” and asking themselves what is the real value they’re creating for buyers, sellers and agents in order to compete.

“From a VC standpoint, we saw $7 billion still going to proptech companies last year,” Levin said.

“There’s a lot of ability for companies to still do things and we’ll see how that shakes out.”

“There’s way more money going into that in this country than there is anywhere else in the world,” he added.

Poleg stressed that “tough times push people to innovate” — something he indicated was sorely needed given that buyers and sellers are still more or less having the same transaction experience as they were a decade ago.

“We have to be upfront and ask ourselves, did we really create anything meaningful for buyers and sellers?” Poleg said.

“Consumers are not really happy with the service that all of us provide. They expect more transparency, more control, more convenience and we are still not providing them that.”

He said he was starting to see innovation on the mortgage front toward a more seamless and end-to-end experience.

Still, Levin predicted it would take years for technology to advance enough to “move the needle.”

Panel moderator Clelia Peters, managing partner of Era Ventures, pointed out that the funding coming into real estate in recent years had accustomed agents to “perks” that incumbent brokerages had to “cut to the bone” to provide but that are now going away.

Levin anticipated a “reset” in that regard due to the market easing.

“I think this is good, because you’re providing more natural competition,” Levin said.

“There is still $600 billion of dry powder sitting in VCs pockets somewhere. There’s still going to be a bit of a rush to get that capital, but overall I think the pressure should ease a bit.”

Email Andrea V. Brambila.

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