Amherst’s 2023 Market Outlook explores economic conditions and impacts on the real estate sector, namely:
Resilience in the housing market, despite softening home prices:
We believe home prices will only gradually decline due to counterbalancing upward pressures on prices, such as low inventory levels and strong employment and consumer spending. Interest rate hikes are dampening short-term demand for home ownership, while reinforcing the value proposition of single-family homes for lease.
Housing demand driven by significant deficit in quality homes:
We estimate the U.S. housing market is 1.6mn housing units short of what is needed for existing households, and we estimate a deficit of 3mn households relative to early/mid-2000s levels. The majority of this deficit is in single-family versus multifamily homes.
Mixed commercial real estate recovery:
While the commercial real estate sector rebounded forcefully following the pandemic, prices have been steadily declining since their peak in August 2022. Depressed workplace usage and gains in market share by e-commerce continue to put pressure on office and retail sectors. We believe residential real estate should hold up better, given that people are still spending more time at home than before the pandemic.
Opportunities in securitized MBS products:
MBS spreads are at the widest level of the past decade, except for a brief period at the beginning of the pandemic. We expect spreads to remain wide, given the elevated supply to the private market over the next two years, most of which will need to be absorbed by the most value-sensitive buyers.