Living in a post-pandemic world and an economic recession does strange things to an already-struggling housing market. Investment property owners and entrepreneurs hoping to enter the market are looking toward 2023’s most recent data to determine how rentals will look moving into the rest of the year and onward.

As supply and demand shift across the nation and here in Florida, you’ll notice market trends may also change subtly this year. Take a look at these important considerations before buying or selling any new properties.

Location

The pandemic encouraged a trend of moving out of cities and into more rural and suburban areas, with people looking for ways to reduce their exposure and expenses. Even now, families are flocking to the country to pursue the slower lifestyle they became accustomed to during the shutdowns. Remote work is also still high, with 35% of workers whose job can be done from home doing so full-time — up from just 7% in the pre-pandemic world. The freedom to work from anywhere means more employees can leave the city.

These trends have a significant impact on the real estate market. Investors will need to focus less on popular metropolitan areas and tourist destinations in favor of up-and-coming rural and suburban towns. 

Type of Property

Current market trends may also dictate the type of investment property you ultimately decide to prioritize. The economic downturn lowered most families’ discretionary income, meaning they’ll likely be traveling less. In fact, of the people not going on a vacation this year, 58% say it’s because they can’t afford to, which is up 10% over last year. Instead, families and singles are saving their money for necessary living expenses like rent. 

Landlords investing in long-term rental units may have an easier time making a profit this year and into the near future. Short-term rentals may struggle to secure consistent bookings, depending on the location and available property amenities. Airbnb-style offerings must rise well above the competition to stay afloat. Focus on finding ways to stand out and improve these properties.

Size of Residence

With the looming recession affecting everyone’s housing budgets, more people are ditching their single-bedroom residences to find roommates or live with family. Small apartments are looking less desirable since fewer people can afford them with their current income. Across the nation, rental occupancy rates are down as the demand reached its lowest level in 13 years at the end of 2022.

Getting into investment properties is still possible for those willing to think outside the box. Apartments with multiple bedrooms and single-family homes are more likely to see a good return on investment. You’ll need to improve your amenities and offer competitive rates to draw in good renters. High-speed Wi-Fi is a must, and potential occupants will be looking for extras like smart doorbells and upgraded kitchens.

Housing Costs and Mortgage Rates

After 131 months of record-increasing median prices, housing costs are finally starting to adjust downward. However, home sale rates are also starting to fall despite the still competitive nature of the current market. The supply of homes is still low, and the economic downturn and continuing high mortgage rates are making purchasing and renting more expensive.

Experts across the board are uncertain how these factors will play into one another as the year progresses, with some more optimistic than others. Now more than ever, the market is location dependent. Local laws and regulations on rental units and household movement trends will determine the volatility and your chances of success in a given area.

In Florida, tourism is still booming despite trends in other areas of the country. It’s reaching record-high levels, with 137.6 million people visiting last year. The current numbers reflect a 12.9% increase since 2021 and 5% from the pre-pandemic levels in 2019. Plus, Florida cities currently claim half of the top 10 metropolitan areas seeing an influx of new residents. 

Forecast for Long-Term Rentals

With fewer people able to afford to buy homes, an ever-increasing number are turning to long-term rentals. In fact, in a recent survey, only 43.3% of current renters feel they’ll ever be able to own their own home. This year marks the first time the statistic has dropped below 50% since 2014. 

If you already own rental properties or have the capital to do so, you can likely turn a steady profit. The increased demand for these units means you can get a steady stream of applicants and find great renters for the right price. 

Changes to Short-Term Rental Market 

The short-term rental market is seeing significant changes that will affect the future of this investment type. Many entrepreneurs have seen what a lucrative chance these homes afford and eagerly jumped into the game.

However, the economic downturn and people still being leary of travel have created a demand issue that can’t keep up with the ever-increasing supply. Despite monetary and safety setbacks, the total short-term rental industry is at an all-time high for occupancy and revenue overall. Unfortunately, these resources are spread over far more businesses. The short-term rental industry is doing well, but many individual owners are suffering from the competition. 

As with long-term rentals, success will hinge on purchasing properties in the right areas for the right price and offering amenities and unique experiences to make you stand out from the rest of the pack.

New local and state laws are also impacting short-term rentals. Lawmakers nationwide have differing opinions on the benefits of allowing these short-term vacation homes. The high guest turnover rates and consistent influx of people make some nervous, feeling they're losing their city to tourists. However, others see the income these tourists bring as essential to the local and state economy. 

You’ll likely see several shifts in attitude over the coming years, so watch your intended locations carefully and get active in local politics to ensure your investment success. 

Is Investment Property Worth the Risk in 2023?

Most people who want to get into long or short-term rental properties watch the market for a time when mortgage rates and prices are low. This situation offers the best opportunity to turn a solid profit. 

However, waiting and watching can take forever — your “right” moment may never come. The real estate market is tricky to predict. For example, 2020 brought hurdles no one could have predicted. Some states, like Florida, were in a real estate boom, while metropolitan cities like New York and San Francisco suffered. As with stocks and other investments, time in the market tends to be a better strategy than timing the market.