We engage 2023 with mixed signals. On one hand, the economy seems to have been more resilient than expected with Q3 and Q4 jobs and GDP numbers looking good, and inflation possibly starting to ease. On the other hand, the real estate market has been hammered, consumer debt is rising quickly, and layoffs are starting to be noticeable. What does 2023 have in store for us? Here are a few predictions that I promise to revisit a year from now to see how I did.
The National Association of Realtors: Big Losses
In December 2022, the National Association of Realtors (NAR) had 1,580,971 members, which is the most ever. I predict a rapid decline of 20% of its members this year. In most market shifts, the membership roster pulls back, but somewhat slowly over the course of a few years. This shift has been rapid and in many markets, sales volume has been down by 50%. Few Realtors can hold on with that decline or have what it takes to survive and thrive in the market we’re in now. The numbers will begin to prove that.
Commercial office real estate continues to be hammered
During the pandemic, we all predicted commercial offices would be hit hard, but because of the complex capital structures often associated with that asset class, it has taken a while to work to the surface. This year, we’ll see record bankruptcies in commercial office real estate which will lead to restructuring those assets to more usable real estate that reflects the way we now work and live. This will be an important step in revitalizing our downtowns, so while painful for those who hold the assets, it’s critical for the economy overall.
Investors re-enter the market
While 2022 could be characterized as the wait-and-see market for investors, 2023 will be the market to pounce. Values have come down and there are now some good deals to be had. Those who parked cash on the side will come back to the market in 2023 and enjoy some profitable purchases and prove once again, Warren Buffett is right – buy when there is blood in the streets. I’m particularly bullish on boutique hospitality real estate. The market is expected to grow substantially in the coming years as travelers prefer to spend their valuable personal or corporate dollars on unique experiences.
Inflation is not over. Not even close.
Conventional wisdom seems to be forming around the idea that inflation has waned and will continue to fall in 2023. I’m not so sure. We’ve seen three phases of inflation: energy inflation, consumer goods inflation, and now wage inflation. Have you tried to hire anyone lately? If so, you know the third phase is alive and well. So, while the abrupt change in the real estate market is having a positive effect on inflation (as intended), there remain a number of complex factors affecting inflation, including the war in Europe. I just don’t see how all these elements stabilize early enough in 2023 to bring inflation down anywhere close to the fed’s target of 2% by year’s end.
Start-ups win
Shifts favor start-ups because they are not saddled with legacy debt, out-of-date thinking, and complex and bloated staffing structures. This makes start-ups more nimble and more likely to be on the pulse of what the market wants. Therefore, I predict 2023 will be a record year for new business formation and we will see some of the biggest players in the next decade, across all industries, start this year.
Apple enters the car market via a purchase of Tesla
Tesla used to be a class of its own. Not anymore. Ford, Kia, Chevrolet, Hyundai, and many more are now chipping away at Tesla’s market share. Not to mention Mercedes and Lexus who most would argue make better cars. Not a great time then to have the CEO so distracted by his recent purchase of Twitter. The market competition, plus the CEO’s change of focus, leaves the company vulnerable. Who better to buy it than Apple, who has been threatening to enter the car market for years. In 2023, I predict they do just that as Tesla’s stock enters the $40 territory.
It’s up to you!
Now here is the good news in all of this. None of it matters to you. How your year will be is entirely up to how effective you are at focusing on and executing the most important activities that drive your business. Don’t forget that important point as the inevitable curve balls start flying.
