The Six Top Real Estate Trends of 2022
- Housing Prices will Continue To Rise
We are in the middle of a housing boom, and prices have continued to ascend over the past year. In 2021 the median price of single family homes increased by double digits in 78% of the 183 markets tracked by the National Association of Realtors.
The underlying reason is the shortage of supply and the increase in demand as more millennials enter the home buying stage of their life. According to mortgage giant Freddie Mac, the country is nearly 4 million homes short of demand, and the shortage is most acute in small, entry-level homes. Since the great housing crash of 2007, homebuilders never ramped back up to building sufficient housing necessary to meet the demands of the millennials that are now entering their prime house buying years. Also baby boomers are not selling their existing homes and downsizing in the numbers expected just a few years earlier. Add in the fact that the rapid rise in home building materials, land costs and labor costs means that it is more economic for builders to build high price homes with bigger profit markets than entry-level homes. In 1982, 40% of the country’s newly constructed homes were entry-level. By 2019, the annual share had fallen to 7%.
This all adds up to historically high demand meeting historically low supply. The result: Skyrocketing home prices with no end in sight.
2. Interest rates will Continue to be Historically Low
The Federal Reserve has kept short-term interest rates near zero since the onset of the pandemic, but has indicated it will raise rates at least three times next year starting in March, with 1/4 point rate hikes likely for the next 6 to 8 consecutive quarters in conjunction with a phasing out of its federal bond rebuybacks. But while interest rates are expected to go higher, they are still likely to stay low by historical standards..
While homebuying activity will cool somewhat compared with last years white hot pace, the continuation of the low interest rate environment may signal that the current boom will not end anytime soon.
3. The Sunbelt will Continue to Lead the Nation in Appreciation
There are three reasons why the cities in the southern third of the United States will continue to experience strong demand:
- Population Growth – According to the Census data, the Sunbelt is home to 10 of the 15 fastest-growing cities in the United States, much higher than in the Northeast and Midwest.
- Business-friendly local governments – real estate prices are highly correlated to the number of well-paid jobs that are available in the area. Sunbelt states like Tennessee, North Carolina, Texas and Georgia are business-friendly, and have attracted thousands of employers.
- Milder Climate – Besides the obvious appeal of warmth and sunshine, colder climates result in higher maintenance expenses than warmer climates.
4. Single Family Build-to-Rent Residential Real Estate will Continue to Rise
As entry level single family homes continue to become increasingly unaffordable, build-to-rent properties financed by private equity firms outlaying billions of dollars for individual projects will continue to rise in popularity. Single-family homes built-to-rent increased 30% between 2019 and 2020.
According to Real Estate Magazine, as of 2021 build-to-rent homes comprised 5% of the properties on the market, but that number is on the rise. 50,000 build-to rent homes were constructed in 2020 compared to a historical average of 41,000 per year,
5. Last-mile industrial real estate will continue its Hot Streak – Growth in on line shopping over the past two years has paved the way for more “last-mile” facilities such as warehouse. With e-commerce expected to continue on its present trajectory, these types of properties could prove quite lucrative in the years to come.
6. Rent Prices will Continue to Increase
Rent prices experienced major declines in some areas at the start of the pandemic, but rents have slowly returned to pre-pandemic levels in some markets and come soaring back in others. Realtor.com predicts the following trends in rents in 2022:
- Renting could become less affordable then homebuying – In July of 2021m first-time homebuying was more affordable than renting in almost half of the nation’s largest markets.
- Renters will be looking for larger Units- Rentcafe reported that 36% of US Cities are building larger apartments and 2021 Realtor.com data shows that larger unit rents have gained the most momentum towards pre-pandemic levels.
- Landlords May raise rents or sell to recoup Pandemic Losses – September 2021 data from Avail revealed that 23% of landlords surveyed were already pursuing an eviction.
- Real estate investors will continue to benefit
- Rising rents and low housing supply will hurt some renters recovering from the pandemic
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