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The US real estate market is decisive Unpredictable the past few years. Many investors and industry analysts (myself included) thought housing prices would trend downward at the start of the pandemic, but the exact opposite has happened.
Home prices have skyrocketed, rising more than 20% in 2021 alone. Mortgage rates are rising faster than ever in 2022. Also, the number of homes for sale in the United States today is historically low.
Image Source: Getty Images.
With all that said, here are my three real estate market predictions for the last two months of 2022. There are so many moving parts that affect home prices, mortgage rates, investment valuations, and more that it’s impossible to say for sure what will happen.
1. Mortgage rates start to moderate – even with Fed rate hikes
Mortgage rates aren’t directly tied to increases in the Federal Reserve’s benchmark rate, but they tend to move in the same direction over time. In 2022, Federal Funds rates will rise by 300 basis points (3%), and 30-year mortgage rates will rise from about 3.2% to he 7.1%.
YCharts 30-Year Mortgage Interest Rate Data
Note, however, that this is happening even when employment and consumer spending are strong and the economy is not in recession. If a recession hits and mortgage demand starts to plummet, even if the Fed continues to raise rates, there’s a good chance interest rates will reverse.
Right now, I don’t think interest rates will plummet to anywhere near where they started the year, but my guess is that 30-year mortgage rates will end the year in the 6% range. 6.5% range.
2. House prices will remain high
Rising mortgage rates have certainly made housing less affordable, but housing supply has also been historically low. Inventories of existing homes for sale in the US are about the same as they were at this time last year (when prices skyrocketed) and are about 30% below comparable 2019 levels (pre-pandemic).
US Existing Home Inventory Data from YCharts
Admittedly, house prices have fallen a bit from their all-time highs in mid-2022, but they’re still about 40% higher than they were in early 2020. Demand dynamics may prevent a significant price drop.
3. Real estate will be the weakest sector in the stock market
The real estate sector has been a major underperformer this year. Until October 28th, S&P 500 By 2022, it will decrease by about 19%, but Vanguard Real Estate ETF (VNQ 0.64%) is down 29%.
It’s not that the underlying business isn’t doing well. For the most part, real estate investment trusts (REITs) are designed to remain profitable and predictable in any environment. But a rising interest rate environment is generally a negative catalyst for income-oriented stocks like REITs.
Without a long economics lesson, the general idea is that when risk-free interest rates rise (like those offered by US Treasuries), so do the yields of “riskier” investments such as stocks. It tends to go up, which is what causes the stock price. drop down. Investors wouldn’t be surprised if the real estate sector ends the year on a weak note as they expect the Fed to lift him another 75 basis points in November and at least another 50 basis points in December.
i don’t have a crystal ball
Just to be clear, there are absolutely no guarantees that these things will happen. It’s also quite possible that I’m completely wrong on one or more of them. But one thing is for sure, this is one of them. Even if only slightly The predictable real estate market of my lifetime. All I can do is consider trends and overall economic conditions. Invest accordingly.
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