The COVID pandemic impacted several aspects of the housing market in the US. Mortgage rates plunged to record lows, and the price of homes increased dramatically. As a result, Americans bought larger homes in record numbers.
In a post-pandemic world, the housing market could cool off significantly following record-breaking conditions in 2020 and 2021. As always, please do your research, but in this post, we examine the top 15 trends that we believe will affect the real estate industry.
People were relocating to suburbs from big cities even before COVID, the pandemic, however, accelerated this process. In many instances, people could do jobs remotely, increasing a trend away from inner-city living.
The pandemic is a good example of circumstances coming together to push housing market prices to historical highs, and they’ve remained elevated without any indication of a drop.
However, while it’s notable that stock investors frequently experience significant price trends up and down, housing market crashes are less common, but they do happen.
While swing trading can help protect stock investors from price falls, hedging against a housing market crash is more difficult.
Trends to Expect in the Housing Market
While my swing trading course might interest stock investors, and there may be no signs of a housing market crash, this post will look at some of the significant trends to expect in the housing market over the coming months.
1) Mortgage Rates to Increase
It is not only gas prices that are rising. Although the war in Ukraine briefly lowered interest rates, other factors are pushing the rates higher.
In January of last year, mortgage experts had predicted that rates would continue to rise from the all-time low of 2.93 percent. They plunged in 2020, but this year, almost everyone worldwide is expecting the rates to increase on mortgages.
Mortgage rates are rising due to consumer spending and rising inflation, as per Sam Khater, chief economist of Freddie Mac.
Undoubtedly, record-low mortgage rates contributed to the housing boom of 2021 and 2020, and many believe it contributed the most to the growth.
However, interest rates will rise this year. According to the Mortgage Bankers Association, a 30-year mortgage will have an average interest rate of 4 percent by 2022. What impact will that have on home prices and sales? There is no definitive answer to this question.
However, there have past instances when housing markets grew, even when interest rates rose.
Americans continued to purchase homes despite mortgage rates soaring to 18% in the 1980s. Rates of 8% to 9% were typical in the 1990s, and Americans continued to purchase homes in record numbers.
At the housing bubble’s height, mortgage rates were much higher than they are now.
2) Decelerating Price Appreciation
Since March 2020, the pandemic’s start, the median price of homes sold by Realtors has increased by 29 percent, from $280,700 to $362,800. The price has remained steady at $350,000 since then.
Lawrence Yun, the National Association of Realtors’ chief economist, predicts a temporary drop in home sales after a spectacular year for housing in 2021 and 2020. The association forecasts that home prices will appreciate by 2.8 % in 2022, compared to 14.7% in 2021.
This slowdown has many benefits. If appreciation slows, Americans won’t fear that their home values will outpace their future pay raises, and many first home buyers will feel relieved. Furthermore, there will be fewer bidding wars among buyers.
As per a realtor in North Carolina, it’s easier for buyers when the situation isn’t so chaotic. A more tranquil real estate market is welcomed by most in the industry, and few anticipate a decrease in prices.
Many in the sector believe that prices cannot continue to increase by 20% per year. The situation is unsustainable, but at the same time, there is no argument that prices will decline, and there does not seem to be anything that will cause the market to shift dramatically.
3) Reasonable Housing to Remain Out of Reach for Many
The COVID pandemic has worsened housing affordability by taking money from Americans’ paychecks and causing a housing shortage. As a countertrend to the crisis, mortgage rates have sunk to record lows, softening the blow for buyers.
The National Home Association expects the average price of new and existing homes sold in the United States to rise from $320,000 in the third quarter of 2021 to $355,000 by the summer of 2022.
The skyrocketing housing costs make it increasingly difficult for young, first-time buyers to purchase a home. During the third quarter of 2021, only 56.6% of homes sold were inexpensive for typical-income families.
California is experiencing a particularly acute affordability squeeze, where home prices have skyrocketed far beyond the means of most workers.
4) Declining Rental Market
Among the principal causes of the decline in the rental market in big cities was the shift of people from cities to suburbs.
In the future, rental properties will continue to trend downward in the larger cities, as those who can afford it will likely buy a home, while those who cannot save money or pay their rent will opt for other alternatives.
After giving up their apartments, many young professionals moved back into their parents’ homes last year. According to research by PEW, young adults aged 18 to 29 lived with their parents more often in 2021 than they had in the past.
Due to the migration of residents away from big cities, apartment vacancies have reached their highest levels since 2010, and rental prices have declined.
While the number of vacancies on the rental market in large metropolitan areas is increasing, the demand for rental properties has increased in many mid-sized and smaller cities due to higher supply.
Real estate investment opportunities have arisen due to the rental market’s downturn. As a result, investors can buy rental properties that need repairs to prepare for when renters return to major cities following the end of the COVID pandemic.
Investors can also make the most of vacated commercial properties in 2022, including retail properties and vacant hotels, by converting them into residential units.
4) Putin’s War Could be a Blow to the Housing Market
Ukraine’s crisis is having a ripple effect on the global economy. The housing market in the United States is not immune to the impact. Can United States homebuyers anticipate similar shocks to those roiled global financial markets?
In the immediate aftermath of Russia’s invasion of Ukraine, markets worldwide were sparked into a violent frenzy, resulting in increased insecurity and the possibility of reduced consumer spending.
However, it remains to be seen whether the conflict in Ukraine will increase the home prices in the United States.
Prospective homebuyers have faced many challenges in 2022’s early months – just as they did throughout 2021. The combination of low inventory and record demand has caused prices to increase.
Some key ingredients for new home construction, like timber, are reaching record prices, and experts predict a 22% increase in home prices this spring.
Since news of the Ukrainian invasion broke, energy prices have risen sharply. On both the demand and supply sides, energy prices are certainly a harbinger of future changes in the US housing market.
If the conflict continues and the energy prices remain high for a long time, that could hurt the housing market. The cost of energy has skyrocketed since the invasion began.
One week after the conflict started, oil reached over $110 per barrel, making essential services like home heating or driving significantly more expensive for the average person.
5) Millennials Will Drive the Housing Market Higher
According to Realtor.com’s 2022 Housing Forecast, more than 45 million Millennials between the ages of 26 and 35 will plan to buy their first homes in 2022. Despite increasing the number of available homes, millennial demand is likely to keep prices high.
On a national basis, we may expect a 6.6 percent home sales increase in 2022, representing 16-year highs for sales across the country and in several metro areas.
Housing demand will likely remain robust in 2022, with more than 45 million millennials in the critical first-time home-buying age range of 26 to 35.
A strong economy and reducing unemployment will boost income growth by 3.3 percent by the end of the year, maintaining sales levels high despite rising mortgage interest rates. Home sales will increase in most metro areas in 2022, following the national trend.
6) New Development and Construction
For years, new housing development has lagged behind the formation of new households, owing to zoning challenges and labor shortages that began during the Great Recession. The pandemic exacerbated material shortages, rising pricing, and supply chain delays.
As a result, construction is taking longer to pick up and alleviate housing demand. According to the National Association of Home Builders’ November builder confidence survey, builders feel more confident despite the continued challenges. Low home availability and high demand look to be the primary drivers of optimism for 2022.
While supply concerns will reduce over time, builders and developers are ready to begin construction with granted permits once available materials.
Construction isn’t simply for single-family residences; there will be a lot of building of multifamily rental housing.
According to the US Census Bureau, licenses have been granted for over 1.5 million privately-owned housing units, with many expected to be erected in 2022, barring unexpected obstacles.
While the new building is frequently at the higher end of local housing price and rent ranges, a wider range of price points is needed among newly available housing to fulfill existing demand better.
7) It Will be a Seller’s Market
Although the outlook for purchasers is improving, it is still a seller’s market. According to experts, inventory will remain tight, and 2022 will remain a seller’s market.
However, according to Realtor.com, the market will recover from its 2021 lows in 2022, with inventory increasing by 0.3 percent on average.
The number of days a home has been on the market is a valuable method for understanding the market. According to Housing Wire, properties are currently for sale for a median of 49 days, which is less than a typical winter month, when the market duration is 85 to 100 days.
The seller’s market will continue in mid-2022, but it will be less competitive for buyers than the previous spring. Compared to 2021, the number of properties for sale should grow, although it will likely remain below normal levels.
Bidding wars will still occur, but not as frequently or intensely. Analysts foresee higher home price appreciation, with a single-digit home price rise expected, which would be substantially slower than the previous year.
Sellers should plan for any repairs or upgrades they want to make before putting their home on the market, especially if the work isn’t something they can perform themselves.
Due to supply chain challenges and workforce limitations, upgrades and repairs must now be arranged much further in advance than before.
8) The Sun Belt’s Popularity Is Increasing
The Sun Belt is one destination for Americans moving out of big cities. The pandemic only added to the Sun Belt’s growing appeal and is likely to continue for the foreseeable future.
The Sun Belt states have accounted for around 75% of the country’s population growth during the last ten years.
Aside from its appeal to retirees, the region is increasingly appealing to younger professionals due to lower taxes and more inexpensive home costs and rent.
Furthermore, even the largest Sun Belt cities have more space than top US urban areas like New York.
The Sun Belt’s real estate markets have benefited from increased relocation and population growth. The expansion has extended beyond single-family residences to include multifamily dwellings and commercial real estate.
Dallas and Tampa, two significant Sun Belt metro regions, are among the top ten US cities with the most real estate potential.
Zillow expects the city of Austin to witness the most real estate growth in the United States in 2021, followed by Phoenix and Nashville.
Major cities such as New York, Philadelphia, and San Francisco, on the other hand, were among the worst real estate markets in the country in 2021.
9) House Hunting Goes Digital
The pandemic has hastened digitization in all industries, and the real estate market is no different.
Due to the epidemic and the competitive property market in 2020, some customers bought properties without seeing them. Virtual capabilities, such as 3D Tours, Drone recordings, and Virtual staging, allowed many to tour the property virtually.
Online searches for “virtual staging,” which had been rising before the epidemic, spiked in 2020, while demand is likely to drop now the pandemic is behind us.
During covid, online real estate sites like Zillow allowed home sellers to explore properties, contact real estate agents, and research mortgage options.
3D home tours are also available through Zillow and other comparable companies. The home tour isn’t the only part of the home purchasing process that has gone digital.
Mortgage applications can also be made entirely online, and millennials, known for their attachment to social media, are using technology to learn more about their new surroundings.
Residents of a specific region can use websites like Nextdoor to stay in touch with other residents and keep up with neighborhood events.
10) Shift to Second-Tier Cities
Because of the high real estate prices in first-tier cities, real estate investors and buyers have been setting up shop in second-tier cities.
The money invested in these locations has increased dramatically, resulting in greater real estate values. Large corporations are also leaving first-tier cities for second-tier locales.
These financial flows can boost economic growth and increase housing market values in second-tier cities.
Experts predict that the influx of investments into second-tier cities will roughly balance capitalization rates in both markets, resulting in a rise in the real estate value in second-tier cities.
Even before the pandemic, the trend was significant, and the pattern is now becoming more pronounced. According to one survey, 15% to 28% of residents in large cities are likely to relocate. And, on average, more than 60% say the pandemic has influenced their intention to relocate.
As a result of this trend, real estate markets in both first- and second-tier markets are likely to equalize. The alignment will undoubtedly attract more investors to second-tier cities, boosting local real estate markets.
11) Use of New Technology
The real estate industry is no stranger to technological advancements.
The sector now has Smart home technology, online house selling platforms, and apps. An increase in the number of startups and high-tech enterprises serving the industry will make transactions quicker.
Artificial Intelligence (AI) will also play a role in real estate, with possible applications in building organization, design, and management.
Machine learning is also being used more and more in public spaces for property design and urban planning. Even the construction of workplace spaces has benefited from AI.
Furthermore, many property owners have begun to embrace the best facility management technologies to assist them in managing their facilities.
Consumers are also going digital, according to 2020 data. A significant 44 percent of new homeowners seek homes for sale online initially. In addition, 12 percent used the internet to learn about the home-buying process.
Also noteworthy is that a tiny 1% of new homeowners used print resources such as periodicals and books to locate properties and learn about the purchase process.
12) Use of Amenities to Attract Customers
Property owners, landlords, and even builders focus on amenities to attract new tenants. The standard gym and parking access, anticipated in most houses, appear to be less critical.
Property owners are now considering giving unique features such as shared gardens and movie theatres, among other things.
Since the epidemic, the multifamily sector has placed a greater emphasis on creating outdoor amenities.
Smart homes are also on the rise, thanks to astute real estate investors.
The desire of investors to give amenities may indicate a need to select facilities that will add value to their homes.
Arguably, they should reconsider their marketing techniques, as amenities alone are insufficient to entice tenants, including informing existing tenants of any upcoming improvements.
Some clever real estate owners are already ahead of the game: starting with Internet of Things (IoT) sensors, about 49% perceive the value in sharing data with their renters to figure out the best amenities and improve the overall customer experience.
13) Millennials as Home Buyers
Believe it or not, Millennials are the most common buyers of residential real estate. Members of this generation have secured stable employment, with average household incomes of $88,200. Millennials, who make up 38% of the market, prefer middle and upper homes.
So, how should vendors take advantage of this growing market? One thing is sure: take advantage of the internet. Before making a purchase, millennials will conduct research online.
Sellers should also provide environmentally friendly homes and have a lot of usable areas.
Some young millennials have taken advantage of the pandemic by consolidating debt and lowering rent costs by moving in with family.
While young buyers use new electronic tools, they also use real estate brokers at a higher rate than other purchasers to help them select the ideal home and negotiate the conditions of the sale.
14) More Listings for Luxury Homes
The high-end real estate inventory is likely to continue to expand. Traditionally, more luxury properties are thought to be available because of the incentives that high housing prices provide to sellers.
With the epidemic, though, we are in unusual times. It also contributes significantly to the rising demand for luxury residences.
The price of high-end residential real estate may rise again.
However, prices may fall to lower levels once the pandemic is over. The law of supply and demand governs the market, with high inventory levels driving luxury house prices.
Lower prices might be good news for investors looking to profit from undervalued luxury residences.
The luxury real estate buying spree which started in 2020 and escalated in 2021. Insatiable demand depleted availability across the United States, driving up costs. Three key factors fueled the real estate boom:
- Changing consumer values as a result of the Covid-19 pandemic.
- Record wealth gains due to bitcoin gains, soaring stock markets, rising housing prices, and increased savings.
- The concept of home and personal space became crucial.
People desired bigger and better living surroundings as they looked for safe locations to invest their money and re-envisioned ‘home’ as multi-functional spaces for work, recreation, and sanctuary.
Final Thoughts On Housing Market
The threat of rising energy prices may make consumers even less likely to make large purchases in an economy where consumer sentiment has already plummeted to record lows.
American consumers are likely to experience higher transportation and commuting costs due to higher gasoline prices.
The increase in gas prices coincides with higher inflation overall, which means that families are paying more for clothing, food, health care, and vehicles. Increasing energy costs make it harder for many families to meet their financial obligations.
Most experts believe that the demand for single-family homes will remain strong as long as mortgage rates remain low. The impact of the Russia-Ukraine conflict is unpredictable as it could affect the housing market in several ways.
It will be interesting to see which factors will affect the housing market in the coming months.
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Disclosure: The author is not a licensed or registered investment adviser or broker/dealer. They are not providing you with individual investment advice. Please consult with a licensed investment professional before you invest your money.
Learn how to diversify and hedge your long-only stock portfolio. We’ve partnered with Tim Thomas to give you the opportunity to sign up for a free insight into the Swing Trading 101 program. The progame has been developed over thousands of hours of trading over hundreds of thousands of dollars across stock, commodities, options, and cryptocurrencies. It’s designed to empower you to take a unique but strategic approach to the markets. Learn more about swing trading.
Tim Thomas has a real estate portfolio.
This was produced and syndicated by Wealthy Living.
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