From a massive selloff in tech stocks to the Russia-Ukraine crisis, which has jolted oil supplies, there has been no shortage of market-moving events this year. With uncertainty looming over the market, it’s time to put your head back into work and do more research to avoid further panic. One of the best ways of doing it? Checking out the latest housing market predictions.
With the real estate sector being one of the most reliable indicators for predicting a recession or economic boom, it has become increasingly important to make sure you are on top of your game when analyzing the space.
So without further ado, let’s get into the five predictions you need to know about this year.
- Property Valuations Will Rise in the Short-Run
- People Are Moving to the Southern States
- Lodging and Commercial Real Estate Is Under Pressure
- Mortgage Interest Rates Will Drive Buyers Out of the Market
- REITs Will Remain an Outstanding Investment in Real Estate
Housing Market Predictions: Property Values Will Continue Rising in the Short-Term
Inflation is the key buzzword on both Wall Street and Main Street. Due to the Covid-19 pandemic, the Federal Reserve had to institute policies to stave off the possibilities of a recession. Meanwhile, the government had to issue massive stimulus payments to individuals and businesses to ensure there wasn’t enormous unemployment.
Eventually, the US economy recovered as America became the first G-7 country to recover all lost gross domestic product (GDP) fully. However, an unintended consequence was rampant inflation. That was because people had money to spend thanks to stimulus checks, and there were supply chain disruptions because of the virus.
The Fed is looking to tackle these issues by raising interest rates. However, the damage has been done. Due to high material costs and wages, houses being built are expensive. The trend is not expected to let up anytime soon. Hence, one can expect housing valuations to keep moving northward in the short-run, before interest rates and rising inventories cool the market.
Southern States Are Getting Massive Traction
One of the interesting things to come out of the pandemic is the changing attitudes towards work-life balance. Our workforce is now majority millennials, who see work-life balance in a more favorable way than baby boomers.
During the pandemic, part of them realized that they wanted to enjoy a fuller life with their families, away from the hustle and bustle of the big cities. Hence, we are seeing a massive increase in demand for property in southern states.
The southern states have several advantages, including shorter winters than other parts of the country and more affordability. Some of the markets with the most growth have been in Tennessee, Florida, and Texas.
Housing Market Predictions: Hotels and Commercial Properties Will Remain Under Pressure
One of the key trends that we saw during the pandemic was the struggle of hotels and commercial office buildings. Due to the nature of this crisis, people were traveling less and working from home. Both of these trends are unlikely to subside in the foreseeable future.
TSA data reveals that passengers are back, just not in the numbers they were before the pandemic. Meanwhile, home-working is on the rise as employers recognize how much time is saved, which can be redirected to other aspects of their business. Employees themselves also like working at home because they experience less stress and can continue working while running errands outside of the office.
Therefore, most companies have adopted some form of work-from-home in their policies. That means much more real estate is committed to single and multi-family homes instead of office space.
Mortgage Interest Rates Will Climb Pushing Buyers Out of the Market
One of the key issues this year that investors will have to tackle is rising interest rates. We have already seen the first of seven interest rate hikes this year. Mortgage Bankers Association statistics show that rates for a 30-year fixed-rate mortgage are expected to be around 4.5% by the end of this year.
It could push a large chunk of buyers outside of the market. We have already seen a huge rise in the prices of homes this year. It might get too much for many homebuyers when you couple that with interest rate increases. You can see that with some of the predictions that are cropping up. Zillow data, for example, indicates that home prices rose by 19.5% in 2021 and are expected to rise 11% in 2022.
Therefore, for the first half of the year, you will likely see the continuation of high housing prices. When inventory rises while mortgage rates rise, this will potentially cool the housing market in the late part of the year.
Housing Market Predictions: REITs Remain the Best Way to Invest in Real Estate
A REIT, also known as a Real Estate Investment Trust, is a company that owns and operates income-producing real estate.
REITs are companies that often own and operate commercial properties such as office buildings, shopping centers, and hotels. They pay out “90% of their taxable income” to shareholders every year.
The advantages of investing in REITs are:
– the investor has diversified exposure to the property market without having to manage the property themselves;
– they can get exposure to different property types in one investment;
– they provide liquidity through being traded on an exchange.
When investing in this area, the only thing you should look into is what kind of properties are doing well. For example, trends show that data centers will be going up in the future. The transformation occurring in the world has led to a more significant reliance on e-commerce. One major contributing factor is the rise in the importance of databases for e-commerce. Therefore, investing in data center REITs like Digital Realty Trust (NYSE:DLR) and CoreSite Realty (NYSE:COR) is a great way to diversify your portfolio and gain exposure to this growing trend to get a juicy dividend yield while you are at it.
Also worth investing in are single-family rental REITs. We see millennials settle into homes as they enter prime buying age and the previous generation retiring in massive numbers. All of these people are on the lookout for homes for the family. This is a secular shift that should benefit single-family rental REITs for some time.
On the publication date, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.