What can real estate investors expect from the market in 2022?
The past two years have proven to be some of the best on record for real estate investors. What trends and factors should investors be watching as we move through 2022 and beyond?
House Prices
House prices set new record gains through 2020 and 2021. Yet, there appeared to be some moderation beginning in April 2021 as pending home sales declined from their historic pace and closings began to grow more slowly. At least on a nationwide basis.
With limited supply, and a minimal amount of distressed properties coming onto the market the supply and demand balance should remain strong, supporting recent price levels.
Though we could continue to see a divergence in markets, with those which have been underpriced for years continuing to soar at double digits, and long inflated markets like Manhattan seeing prices continuing to deflate.
Note that this is different from commercial real estate. Expect a correction in office space and perhaps retail and hospitality as well. While multifamily apartments which derive most of their value from rents keep on growing.
Home Sales Volume
A variety of factors control home sales volume. Including interest rates, available inventory, and prices. Volume may remain moderate as these influencers adjust. Though any slack in the market on the retail homebuyer side is being more than made up for by institutional investors who are snapping up as many units as possible, including entire new home subdivisions to be used as rental communities.
Rents
Rental rate growth was incredibly strong in 2021. Many investors report being able to raise rents by 14% or more. Realtor Magazine says new movers have 15% more to spend on rent than existing tenants, which could easily lead to more rental rate growth through 2022. Quite a few markets have even seen rents up by close to 20% through summer 2021.
Foreclosure & Eviction Moratoriums
While there may be little hard evidence of the need for these policies, and they may have even been ruled unconstitutional, there appears little reason to believe current policymakers will change their stances on them by next year. The bulk of evictions and foreclosures have been effectively regulated out one way or another until 2022.
No one wants to see a tsunami of evictions. Though the real data seems to show that real rental and mortgage defaults remain at very moderate levels, and far below what we saw in 2008.
We can’t count on these rules going away immediately. Though savvy investors are finding ways to continue to keep up strong performance levels regardless of them.
Demand For Real Estate Investments
There continues to be an incredible appetite for new deals in the real estate investing community.
Any fluctuation in the state of the stock market or new disasters is only likely to fuel this demand even further in 2022.
In turn, this will keep up deal volumes and asset prices.
Interest Rates
While many intelligent investors and analysts see it wise to counteract recent rapid inflation, the current administration only seems to want more of it. They have not yet acted to raise interest rates. If they don’t, more cheap money could fuel a lot more inflation. While any serious rate hikes could make things expensive as well while causing a sprint in locking in new acquisitions and financing before rates go higher.
Summary
Overall it is reasonable to expect the real estate market to remain very strong through 2022. There are always wildcards that can cause unexpected changes. Though recent crises have only driven more demand for real estate and increases in prices and rents. Keep an eye on these factors to see how the market is evolving over the next year.
