3 Real Estate Market Predictions for the Rest of 2022

(Matthew Frankel, CFP®)

The real estate market in the United States is decided unpredictable for the last two years. Many investors and industry analysts (myself included) thought home prices would trend downward at the start of the pandemic – and the opposite has happened.

Home prices have skyrocketed and will increase by more than 20% in 2021 alone. Mortgage rates in 2022 have increased sharply compared to before. And now there are very few historic homes in the United States.

Image source: Getty Images.

Having said all that, here are my three real estate market predictions for the last two months of 2022. Before we dive in, take all of these predictions with a grain of salt. There are so many moving parts that affect things like home prices, mortgage rates, and investment valuations that it’s impossible to say with certainty what will happen.

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1. Mortgage rates will begin to stabilize — even as the Fed raises rates

Mortgage interest rates are not directly linked to Federal Reserve interest rate hikes, but they tend to move in the same direction over time. In 2022, the federal funds rate will rise 300 basis points (3%) and the 30-year mortgage rate will rise from about 3.2% to 7.1%.

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30 years of mortgage rate data by YCharts

Note, however, that this also occurs when employment and consumer spending are strong and the economy is not in recession. If we hit a recession and demand for mortgages actually declines, it’s entirely possible that interest rates could reverse course, even if the Fed continues to raise rates.

Now, I don’t think rates will drop anywhere near where they started the year, but if I were to make a prediction, I’d say we’ll end the year with 30-year mortgage rates at 6%. makes up to 6.5%.

2. House prices remain high

Rising mortgage rates have certainly made homes less affordable, but housing supply is also historically low. The inventory of available homes for sale in the US is about the same as it was last year (when prices were rising) and about 30% below comparable levels in 2019 (before the pandemic).

US existing home inventory data by YCharts

It’s true that home prices have fallen slightly since the mid-2022 all-time high, but they’re still about 40% higher than they were at the start of 2020. And as far as houses for sale, supply and supply are relatively few. Demand dynamics are likely to prevent price cuts too much.

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3. Real estate will be the weakest sector of the stock market

The real estate sector has been at a low level this year. Until October 28, at S&P 500 in 2022 has decreased by about 19%, while ETF Vanguard Real Estate (NYSEMKT:VNQ) It decreased by 29 percent.

It is not that the main enterprises are doing badly. For the most part, real estate investment trusts, or REITs, are designed to remain profitable and predictable in any environment. But bullish environments are usually a negative catalyst for income-oriented stocks like REITs.

I’ll spare you a long economics lesson, but the general idea is that when risk-free interest rates (like those offered by Treasuries) rise, the yields on “riskier” investments like stocks also rise, causing stock prices to rise. becomes to fall With investors expecting the Fed to raise rates by another 75 basis points in November and at least another 50 basis points in December, I wouldn’t be surprised to see the real estate sector end the year flat.

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I don’t have a crystal ball

Just to be clear, there’s no guarantee that these things will happen, and it’s possible that I could be completely wrong about one or more of them. But one thing is for sure: This is one of them the least real estate market predictions of my life. All I can do is consider trends and the overall economic climate. Invest accordingly.

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Matthew Frankel, CFP® has no position in any of the stocks mentioned. The Motley Fool maintains a position on and recommends Vanguard Real Estate ETF. The Motley Fool has a disclosure policy.

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