Blackstone Limits Withdrawals From Funds as Housing Market Feels Pressure

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  • Blackstone is limiting redemption requests after a flood of investors tried to pull out of one of its real estate investment trusts.
  • It's a sign that the real estate market could be taking a turn for the ugly.

It's clear that investors want out of the real estate market, and fast.

Will there be a real estate crash in 2023? That's a big question on the minds of buyers, sellers, and real estate investors alike. And recent events in the investment world may be giving us a clue.

This week, Blackstone has to limit requests to withdraw from its Real Estate Income Trust. Now that itself isn't all that significant. Real Estate Income Trust is a private real estate investment trust (meaning, it's not publicly traded, so you can't buy shares in your brokerage account), and these funds commonly place limits on redemptions.

Rather, what makes this a big deal is that investors are clearly not so enthusiastic about the state of the real estate market. Quite the contrary -- an uptick in redemption requests sends the message that investors are worried about real estate losing value in the near term.

Now to be fair, Real Estate Income Trust is focused on commercial real estate. So an investor pullback doesn't automatically signal trouble for the residential real estate market. But still, it's something buyers and sellers should be aware of as we head into interesting economic times.

Could residential real estate cool off in 2023?

For several years now, home prices have been elevated as buyer demand has exceeded the supply of available housing units. But things seem to be changing in the residential market.

First, mortgage rates rose sharply in 2022, reaching their highest level in decades. And while there's reason to believe they won't continue to climb substantially in 2023, there's also reason to assume they won't drop significantly any time soon.

The combination of sky-high home prices and mortgage rates, however, is causing a real affordability crunch for buyers. And it's already forced many to pull out of the market.

As a result, home price gains have slowed down during the latter part of 2022. And that trend could very well continue into 2023. Of course, slowing gains are a good thing for buyers. For sellers, not so much.

Should we be worried about a housing market crash?

There's already talk that the commercial real estate market could be in for a world of upheaval in 2023. But does that mean doom and gloom for residential real estate too? Not necessarily.

Even if home prices drop from their current levels, sellers still stand to profit nicely in 2023. And also, a decline in home prices won't necessarily spur a crisis that leaves a massive number of homeowners underwater on their mortgages. Home equity levels are still very high right now, so there's lots of room for them to drop without leaving property owners with negative equity.

Also, a lot of homeowners refinanced their home loans in 2020 when mortgage rates plunged to record lows. Those same homeowners are now looking at more affordable monthly housing payments, so it's unlikely that we're going to see a huge number of homes flood the market as property owners seek to get out.

All told, there's no need to assume the worst when it comes to both commercial and residential real estate in 2023. But investors, buyers, and sellers should of course keep tabs on the market and be prepared to act if real estate values start dropping at a more rapid pace than anticipated.

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