Real Estate prices have been booming in 2020 and 2021. This article will highlight the five most important real estate trends in 2022.
It is important to understand these in advance so that you have time to prepare to financially benefit.
The housing market is always changing – following the laws of supply & demand, demographics and economic shifts, and the technological advancements. With the last couple of years being incredibly profitable for real-estate investors, people want to know: what real estate trends can I expect to see in 2022?
Don’t feel like reading? Watch the video instead:
1) The millennial housing market will grow
The millennials (born between 1980 and 2000) make up 30% of the US population, and they are projected to make up 50% by 2030. It stands to reason that this demographic group will be purchasing more homes than other generations in the coming years, which will grow demand for housing. There is a greater percentage of millennials who are getting married and having children than previous generations and this group will look for a place to live.
This means more borrowing, more remodeling, more repairs, and potentially higher property prices overall. Of course, real estate is local, so some areas will bode better than others and investors must continue to monitor population migration. For example, we’ve seen individuals move out of expensive cities and state en masse and as they say in trading, “the trend is your friend until the end” and at the moment, we do not see the end quite yet.
Remote working condition are still strong and growing which allows the young population to seek locations that are more affordable, more closely aligned with their desires and beliefs and are in or near by areas that have fun things to do. So sure, Orlando, FL (for example) is no New York City but weather is nicer year round, home prices are much lower, political and regulatory environment is more supportive, taxes are much lower, and there is still a ton of things one can do to entertain oneself. It is no wonder why folks are opting to move and we predict this trend to continue in 2022, especially if North East gets a gnarly winter.
2) Strong rental markets will continue
Rental market has been extremely good for the property owners in 2021. Rents have gone up as much as 27% in just one year. In many areas around the USA, supply has been extremely low and demand is continuously rising creating a perfect storm of continuous and highly competitive rental markets and we expect to see this trend continue into 2022.
There is a shortage of new construction relative to demand for rental units. In order to satisfy demand the supply must rise to meet it and that will take a while. While, of course, builders will likely jump on the bandwagon and start building, one can expect 12-18 months of delays (if not longer) before the equilibrium will be reached. As such, we predict that most rentals will continue to do incredibly well in the upcoming year (which can easily boost the value and the price of real estate in the next 12 months).
As the prices continue to rise on real estate less people can afford it and if there is any tightening within the economy or the world of finance (covered in next section), rentals will become even more popular.
Landlords have become stricter with credit requirements for tenants and many are demanding higher security deposits in order to protect their downside of tenants not paying on time. The upcoming eviction moratorium end will likely create a bit of supply in the upcoming months, but due to strong demand, we predict this will be a short term relief for the increasing rent prices and we expect it to happen in late spring to mid summer.
3) Inflation is here to stay, at least for a little while longer
Inflation has traditionally been an issue when economies are growing quickly and too much money is being created. This leads to more competition for goods which ultimately leads to higher prices.
Many economists, myself included, have correctly called what will be the result of the Fed’s helicopter money, higher inflation. With trillions of dollars being printed and gifted to millions of people the market had gone to dizzying heights. Soon after, thanks to global supply chain challenges, the supply of goods has gone down which of course pushed the prices higher. As a result, we’ve seen some crazy price increases for every day items, food, utilities, gas, as well as the rise in asset prices. And while it was shared as a “transitory” event, it appears that even the Fed Chair is now saying it is not. It’s here to stay for a while.
What is Inflation?
Inflation is an economic condition where prices of goods and services are rising. Generally, when prices rise, the value of the currency falls compared to other currencies (although, interestingly enough, USD has been on a rise in relation to other currencies) and the purchasing power (what you can buy) goes down. Inflation has been steadily rising in 2021, reaching well over 6% for October 2021 all while the wages have been falling or staying relatively flat. This has begun to create a huge problem for the individuals and will continue to be an even stronger trend after the holidays are over. January is going to be painful for many.
In the last month or so, we’ve seen many individuals use credit cards once again to purchase goods. Even though the infamous Black Friday did not bring nearly as much revenue as in the years past, the consumers have gone out and made purchases with bills to arrive in January. This will, in my opinion, create a bit of lull in purchasing at the beginning of the year and I expect that this will have an impact on real estate prices as well.
2022 Real Estate Expectations
In the first quarter, specifically January and February, I expect that the real estate prices will fall. This will be partially due to seasonality and partially due to the above stated reasons: higher debt, more payments and lower income (relative to other things). This will also potentially make for a perfect time to purchase real estate, as not only will the prices soften and competition will fall down, but also because the interest rates will likely remain low.
Currently, the 30-year fixed mortgage is 3.5% on average. With inflation rate being above 6% it means that borrowing money today would yield a negative interest rate (it’s sort of like getting paid to borrow). If the loan is for income producing asset, like rental real estate, it might make sense to consider making an investment (please consult your legal and financial adviser and do proper research as this may not work for everyone, nor is this a recommendation).
The impact of higher inflation is indeed frightening for many, however there are strategies that one can employ to protect their wealth and win massively with higher inflation. One of the ways is through real estate investing. To learn how, consider enrolling in our Real Estate on The Cheap Challenge.
4) Home sharing (also known as home hacking) will continue
Home sharing will continue because of these reasons:
– More people are living longer and we are seeing multiple generations sharing the same roof. Rise in health care and retirement communities is also on the rise, causing kids to live with parents well after college and often well after being partnered and with children. This means that larger units are in demand and multi-family properties are highly coveted.
– Property owners with multiple units (or bedrooms) are making decent cash flow from long and short-term rentals and individuals are still looking for places to vacation and celebrate (or just live), making home hacking a very profitable option for individuals.
– The internet has made it easier for people to find other like minded individuals who want to share their home. This combined with higher prices and lower income is creating environment where roommate shares are on the rise. It is not uncommon to see flats in London, for example, being rented by a room. This trend is now spreading to the USA.
– Aside from the larger units going to larger families and being used in rent-by-the-room strategies, we are seeing that smaller units that are lower priced, are also going extremely quickly. Only a few years back, a studio or one bedroom apartment was very challenging to rent out. Today, these units are true money makers, fetching much higher prices per square foot than a 3 or 4 bedroom properties.
5) Technological advancements real estate trends
Technology is truly eating the world and real estate is not immune from it. Advancements in internet of things (IOT) is making headways to create more intelligent homes. We’ve seen some of this already in the smart thermostat market, for example, but this is just the start. Soon enough, we’ll have many other electronic devices that will make our homes smart. These technologies, combined with artificial intelligence (AI), “Hey Alexa, dim the lights!” are making our home living more comfortable and it’s also making home finding much simpler and more intuitive.
Speaking of “smart” we should not discount the growth of blockchain development in the last couple of years. Yes, 2021 was the year of DeFi, yield farming and the NFT craze. But this technology can do so much more and we are barely scratching the surface of what’s possible.
Did you know that you could upload your house on a blockchain right now with a click of a button? That’s right, Tsaishen Crypto House offers any property owner to easily upload their house onto the blockchain and even has a 1-button market listing (whenever you’re ready to sell) and 1-button purchase (if you’re looking to buy) options, making it super easy to access the technology and benefit from it.
All these technologies will make home buying, renting, selling, and liquidity access much easier and simpler in 2022 and beyond. As this technology is developing rapidly stay tuned in as we continue our coverage on it.
Overall, real estate market looks really good for 2022, pending no major changes or additional black swans. Here is the summary of expectations by quarter:
– Q1: higher inflation, slightly softer prices, strong rental, mortgage rates to continue to soften
– Q2: home prices on a rise, rentals market continues to remain strong and higher foot traffic for new leases, inflation will likely continue to stay higher than normal, mortgages may go up some
– Q3: home prices staying strong, rental market staying strong, inflation strong. The Fed may attempt to raise rates in Q2 or Q3 in order to slow down inflation. This will hike up mortgage rates and lower the prices. However, I expect this to be short term only.
– Q4: depending on what happens with the Fed and rate hiking the mortgage rates and prices may shift. If the Fed increases interest rate we can see mortgage rates go into the 4’s and home prices may fall.
For owners of income producing properties 2022 should be a good year overall. Many owners may take advantage of the price appreciation and lower rates for cash-out refinancing. Intelligent investors will likely look to purchase additional properties.
So, what real estate trends to you expect to see in 2022?