4 Real Estate Trends Smart Investors Are Watching for 2022
The past few years have been anything but ordinary for real estate investments. Last year, in response to the slowdown in the COVID-19 pandemic, the Federal Reserve cut interest rates to record lows, and mortgage rates followed. Many mortgage financiers felt the tailwind of these low interest rates, and customers responded by refinancing their mortgages at record speed.
Now accelerated inflation has caused the Fed to change course, which could have a significant impact on real estate and mortgage financiers. Here are four real estate trends that smart investors will keep an eye on well into 2022.
1. Mortgage rates will go up
Economists expect mortgage rates to rise as the Fed tightens monetary policy. The Fed has decided that it must respond to rising inflation, which in November reached an annual rate of 6.8%, its highest level since 1982. At the same time, the unemployment rate has fallen dramatically – to 4.2% in November.
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Amid the recovery in jobs and accelerating inflation, the Fed has announced that it will reduce its purchases of assets used to stimulate the economy earlier than expected. Investors also expect higher interest rate hikes than assumed at the beginning of the year. Bank of America forecasts two rate hikes in 2022 and three more in 2023 and 2024.
These anticipated rate hikes will subsequently drive up mortgage rates. According to Fannie Mae‘s Economic and Strategic Research Group, mortgage rates will average 3.3% in 2022, down from 2.99% today. Meanwhile, researchers at the Mortgage Bankers Association (MBA) expect interest rates on 30-year fixed loans to rise to 4% over the next year.
2. The issue volume will decrease drastically
Mortgage lenders don’t like rate hikes because they ultimately cause business to collapse. When interest rates go down, people buy houses or refinance their current houses to save those low interest rates. We saw that last year and through 2021.
If interest rates rise, mortgage lending will slow, which MBA predicts in 2022. The MBA expects total lending to decrease 33% to $ 2.59 trillion over the next year starting in 2021. This decline will hit the refinancing operations the hardest, which will fall 62% to $ 860 billion as a result of the MBA projects.
This will undoubtedly hurt lenders in 2022. In an interview with CNBC, Marina Walsh, vice president of industry analysis for the MBA, said, “Many lenders will rely more on their service business to help them meet financial goals.” As a result, lenders who enjoyed a boom in revenue and net income with interest rates falling are likely to see a slowdown in the next year. Some of the lenders who might feel the pinch include Missile companies (NYSE: RKT), PennyMac Financial Services (NYSE: PFSI), and Credit deposit (NYSE: LDI).
3. Home demand will exceed supply
Despite rising interest rates and falling mortgage lending, the demand for housing is likely to remain robust. According to researchers with Goldman Sachs, “Of all the bottlenecks afflicting the US economy, the housing shortage could be the longest.”
Current demand has reduced the supply of available housing to its lowest level since the 1970s. Goldman says an imbalance between supply and demand will lead to multi-year housing boom.
The company expects states to deregulate land use, which should help accelerate construction activity. She expects housing construction to increase the supply of housing by 1.65 million annually. Taking demolitions into account, an increase in net supply of 1.4 million is forecast. The persistent imbalance between demand and supply could prove beneficial to builder stocks, such as DR Horton (NYSE: DHI) and Consoles group (NYSE: PHM).
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4. Home prices will continue to rise, but more slowly
From August 2020 to August 2021, home prices rose nearly 20% – a record increase in a year. Experts believe that robust demand will continue to drive prices up, albeit not at the same pace.
Goldman is forecasting a 16% price increase from October 2021 to December 2022. This is in the same stadium as Zillow‘s prediction; The online real estate giant expects home prices to rise 13.6% from October 2021 to October 2022.
However, other researchers do not believe that prices will rise that quickly. Fannie Mae and Freddie Mac predict a rise in home prices of around 8% and 7% respectively. Meanwhile, the MBA is one of the few to forecast a decline, with prices falling 2.5% by the end of next year.
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