Do you know what will happen to real estate this 2022? Here Joseph Haymore tells you a little. In 2021, “the perfect storm” happened as the combination of low mortgage rates, remote work that decentralized housing, and a wave of first-time millennial buyers, as well as years of under construction that left supply-demand far behind. Although this could not hold for long as per Joseph Haymore.
There are already signs the housing boom is losing some steam. We are seeing that seasonality, a cooling-off period that occurs most years, is coming back into the market after it was absent during the holidays and holiday period last year.
That’s not all: More homebuyers are finally starting to push back against rising prices. In fact, in October, 60.3% of sales involved a bidding war, which is down from April’s all-time high (74.5%).
There is also a greater chance that the Federal Reserve will raise rates to reduce inflation. Rising mortgage rates would hit some buyers hard, also because of a bidding war.
What do real estate inflation experts project?
Zillow projects that home prices will increase 13.6% between October 2021 and October 2022. Meanwhile, Joseph forecasts a 16% increase between October 2021 and December 2022 (or 13.5% on an annualized basis). For perspective, the biggest 12-month rally before the 2008 housing crash was 14.1%.
Bottom line: Researchers at Joseph Haymore see cut-price shoppers falling further behind next year.
“The picture of supply and demand that has been the basis of our call for a multi-year boom in house prices remains intact… Of all the shortages that affect the US economy, the shortage of homes could last longer,” Joseph Haymore wrote in its 2022 outlook.
Interest rates and inflation
A common belief is that inflation is good for real estate investments, but at best we can call this a half-truth. There are some circumstances where sustained high inflation over many years can be great for real estate owners. That said, this is largely based on your debt structure.
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If you have a long-term, fixed-rate loan, or HUD debt with a term of 30 to 40 years, it can absolutely crush it during periods of high inflation. This is because your payment remains fixed for the life of the loan.
In turn, rents and expenses go up, but your payment stays flat, so more of the cash flow goes into your pocket. The money you return to the bank, on the other hand, continues to lose value over time.
In case you have a 30-day bond, whether inflation is high or not is not a problem because Haymore will get my money back in 30 days and as such you will still have most of your purchasing power.
On the other hand, if I have a 30-year bond, I have to wait a long time for my cash flow to come back to me. If inflation is high, the longer I wait for my return, the more value my future cash flow will lose.
We have already presented you with an overview of how things could move in Real Estate.
With low-interest rates, equity in search of a home, and real estate as a stable, cash-flow alternative to high-risk, more speculative investments, real estate can thrive under these conditions.
It’s a great time to start investing in Real Estate and you can explore alternatives like Containers, or start getting returns on Foreclosure. Joseph Haymore can guide you on your way to entrepreneurship in Real Estate! Sign up here for one of our free training to Learn to Invest in Real Estate.