Macroeconomics

January 10, 2022

Lots of News / Noise Last Week – 2022 Will be a Solid Year in Real Estate!

Last week, I spent a significant amount of time reading research, listening to podcasts and trying to make sense of the 2022 real estate market. My listening platforms are John Burns Real Estate Consulting, a variety of investment banks’ research and my Bloomberg subscription.

First, you have to love John Burns and his team, predicting new home supply, existing home sales units and appreciation in 50 markets, year by year, up to 2024. I do not know of any other economist that is so bold and so often accurate.

Several 2022 investment banks articles focus on:

  • Omicron impact on the economy
  • Volatility of the equity markets – especially the last few months
  • The Federal Open Market Committee (FOMC) policy impact on mortgage interest rates
  • Inflation as transitory or a sustainable influence

The Omicron variant, although currently at a peak, shall pass in my opinion and likely faster than the Delta variant. The hardest hit sectors will be service industries, restaurants and entertainment, and the airline industries, followed by semiconductor suppliers’ dependent on a China supply chain – since many factories are dormant again.

In U.S. real estate, the equity markets, mortgage interest rates and inflation have always had an interdependency. Equities have been on a 10-year run (except for Q2 2020). Many home buyers are fueled by rising equity, IRA, and 401K accounts. Demand continues to outperform supply.

Rising interest rates conventionally reduce a buyer’s purchasing power, thereby reducing the clients that can afford a property. However, Burns reports huge 2022 increases in Government-Sponsored Equities (GSE) and Federal Housing Administration (FHA) loan limits – for the highest priced markets, loan limits approach $1 million.

In addition, since Q2 2020, the "where I work and where I live dependency" for many households has decoupled and changed drastically. Strong employment markets and flexible remote work permit buyers to purchase homes in markets which they can afford vs. where their job is located, thereby widening the affordability box.

For perspective, I received my LinkedIn 2021 Year in Review report last week. It refers to the #GreatShuffle where we all rethink how, why and where we work. In my network alone, more than 12 percent of my contacts changed jobs in 2021. In addition, remote job opportunities increased 2X since 2020.

Real estate is a great hedge to inflation if you own it now vs. buying it in 24 months. One investment bank’s podcast called for moderate inflation, 2022 Gross Domestic Product (GDP) of 3.5 percent and an unemployment rate down to 4 percent from almost 15 percent in Q2 2020. All very positive, if not strong indicators.

We will trade more than 6 million existing homes in 2022. A small percentage of that will be sold to iBuyers for flipping and Institutional Buyers for rental purposes.

Your local real estate markets may indeed vary, but likely close to the trends in our 50 largest markets. “Good” real estate companies and professionals are becoming “great” – separation is occurring.

In recent real estate professionals’ surveys by 1000Watt and Realm the feedback was very consistent that these professionals would do the same or more business in 2022 vs 2021. 90 percent of the 1000Watt responses reflected this optimism. The Realm report quotes, “As we move into 2022 there is intelligent optimism and renewed energy among REALM's members for another record-breaking year.”

The markets remain vibrant. How you focus through the news and noise will 100 percent influence your performance in 2022.

This is Where We Are Now.


 

 

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