The Texas Real Estate Research Center’s (TRERC) research team has attempted to make predictions for the 2023 economy by utilizing their collective understanding of current economic and market conditions and analyzing past market trends. However, it is essential to note that making economic forecasts can be challenging due to the numerous state, national, and global variables that are in play. Additionally, unexpected events such as natural disasters can significantly impact the economy. TRERC’s research team has made educated guesses for 2023 based on the available information. Still, it is crucial to keep in mind that there may be unknown risks that could affect the accuracy of their predictions.

TRERC has acknowledged that there are known risks in the near term that may affect their forecast for 2023. The specific outcome of these scenarios will likely change their expectations. It is important to note that the direction and intensity of national and international factors such as China’s zero-COVID policy, Russia’s war against Ukraine, Europe’s energy situation, and the outcome of the Federal Reserve’s attempts to control inflation through higher interest rates, will have a significant impact on the Texas economy. These events can affect the global economy significantly and, in turn, the state’s economy. TRERC’s forecast for 2023 takes into consideration these known risks and is based on current conditions.

 

General Economy

TRERC forecasts that the state’s general economy will likely experience elevated inflation in 2023.

• The Federal Reserve will likely continue to raise interest rates to control inflation; however, the effects may not be immediately reflected even if successful.
• If a recession occurs, consumer prices may fall faster due to a lack of consumer demand caused by a loss of consumer income.
• Inflation could also be pushed higher if supply constraints come from China and Europe or if energy prices are higher than expected.

TRERC also forecasts that employment growth in the state will moderate.

• Employment has increased over the last 18 months due to the recovery from COVID-related shutdowns.
• Texas has more than recovered jobs lost during the pandemic and has returned to the long-term trend line of employment. In the future, the state is expected to return to the longer-term trend rate of growth.

Housing

TRERC forecasts that the annual average mortgage interest rate in 2023 will likely be higher than in 2022.

• The recent increase in mortgage interest rates has been driven by both high levels of inflation and increases in interest rates from the Federal Reserve to control inflation.
• Interest rates are expected to follow a similar path as inflation and will be impacted by similar forecast risk factors.

TRERC also predicts that the growth in existing single-family rent and prices will likely moderate, with the potential to turn negative on a year-over-year basis.

• The rapid pace of rent and purchase price appreciation over the last two years was not sustainable and would have slowed down even without other challenges.
• Home price growth was primarily supported by the fall in interest rates from 2019 through 2021. Still, an increase in the 30-year mortgage interest rate to 7 percent decreases the purchasing power of principal and interest payments by 40 percent. This decrease in purchasing power will likely lead to a reduction in existing-home sales in 2023, compared to 2022, due to elevated mortgage rates and asking prices.
• Texas builders and developers have faced similar supply constraints as the rest of the economy over the last few years, resulting in a backlog of under-construction homes that will continue to come to market.
• Existing-home sales will likely be lower in 2023 than they were in 2022. Elevated mortgage rates and asking prices will slow sales even as price growth moderates.

 

Commercial Real Estate

TRERC forecasts that the industrial market in Texas will pull back from the record highs of 2022 while vacancies remain low.

• The tightening of credit and slower consumer demand will result in many speculative distribution buildings being shelved.
• However, reshoring, foreign direct investment moves to establish a presence in the US, and regional population growth will drive continued manufacturing projects in the state.

The office market is also expected to see further segmentation, with newer buildings maintaining occupancy while older buildings lower rent to attract tenants.

• A new segmentation in Texas office markets will become pronounced in 2023. The latest Class A buildings and properties built in the last decade will enjoy high occupation rates even as firms stick with hybrid work policies.
• Vacancies will increase in older buildings, even those that would have been considered Class A before the pandemic. Many Class B buildings could see a significant decrease in occupancy.
• Many older properties will drop in value as a result of market forces. Refinancing deadlines will see creditors and debtors renegotiate deals.
• Significant rental rate drops are in line for many second-tier buildings to attract some tenant interest and generate at least some cash flow.

TRERC predicts that occupancy and rents will stabilize somewhat in brick-and-mortar retail.

• The pandemic’s booming online sales growth rates will fall back to the double-digit growth seen before.
• However, brick-and-mortar retail may not see much recovery if households pull back in the face of actual or expected income losses.
• Restaurants and “experience” submarkets with walkable synergies will continue to perform.

Better than some big-box mega centers.

• Expect more activity in the best traditional indoor malls as people restore long-neglected social habits.

It is also worth noting that the performance of the commercial real estate market will continue to be impacted by the ongoing pandemic and its effects on the economy. Factors such as consumer spending, business closures, and job losses will all play a role in determining the market’s health in the coming year. The ongoing global economic instability, including factors such as China’s zero-COVID policy, Russia’s war against Ukraine, and Europe’s energy situation, will all impact the Texas economy and the commercial real estate market.

 

Rural Land

TRERC forecasts that in 2023, there will be fewer rural land transactions than in 2022.

• Rising interest rates will continue to lower demand for rural land purchases.
• A recession would place further downward pressure on rural land transactions.

TRERC predicts that prices for lower-quality land will fall while prices for high-quality properties will remain steadier.

• The decrease in demand for lower-quality land will result in a price decline.
• However, high-quality properties will continue to be in demand, and prices will likely remain steady.

It’s worth noting that the performance of the rural land market will also be impacted by the ongoing pandemic and its effects on the economy. Factors such as consumer spending, business closures, and job losses will all play a role in determining the market’s health in the coming year. Additionally, the ongoing global economic instability, including factors such as China’s zero-COVID policy, Russia’s war against Ukraine, and Europe’s energy situation, will all impact the Texas economy and the rural land market.

 

Oil

TRERC forecasts that the average oil price in 2023 will likely be between $80 and $100 per barrel.

• Oil price is influenced by several factors, such as supply and demand, geopolitical tensions, and natural disasters, making it difficult to predict with certainty.
• However, TRERC’s research team has used their collective understanding of current economic and market conditions by looking at past market trends to make this educated guess.

Oil prices will be significantly influenced by the global response to Russia’s war on Ukraine and any OPEC decision.

• International sanctions and other actions taken in response to the war could significantly impact oil prices.
• Additionally, any decisions made by OPEC (Organization of the Petroleum Exporting Countries) regarding production levels will also play a role in determining oil prices.

A recession would place downward pressure on oil prices.

• In times of economic downturn, oil demand typically decreases, leading to lower prices.
• It’s also worth noting that oil price fluctuations can significantly impact the Texas economy and the energy industry.

Given the uncertainty and risks of making economic forecasts, individuals and businesses need a trusted and knowledgeable partner to navigate the real estate market. That’s where Austin Local Team comes in. Our team of experts is well-versed in the current market conditions and trends and is committed to helping our clients make informed decisions. Whether you’re looking to buy, sell, or invest in real estate, we are here to guide you every step of the way. Contact us today to schedule a consultation and see how we can help you make the most of the 2023 market. Or start your Austin home search today with our Austin Home Search Engine.