Home Prices And Rents

Since the start of the pandemic, one thing has been consistent: home prices going up. With historically low interest rates, record number of homebuyers, and record high home prices, it is certain to say that real estate has been a safe haven. It has been a stressful time for some, a time of great profits for others, and everything in between. Something that we are all sure of: no one saw real estate being this much of a safe haven. For those who do not know what a safe haven is, it is described as “a type of investment that is expected to retain or increase in value during times of market turbulence,” (Investopedia). But with real estate being a safe haven asset, the question is: Home Prices and Rents: Will They Fall?

Home Prices In 2022

While some seem to think that the real estate market is normalizing, others believe it is not. With the release of October real estate data coming in above forecasts, it does not look to be normalizing. At least the rapid increases in prices we have seen are slowing. The biggest what if for home prices and rents is: Will inventory increase to slow the market? There is a great divide between if prices will continue at historic paces or will start to decelerate. According to realtor.com, it is widely anticipated that the market will slow down from the frenzy of the real estate market since March 2020. However, they also believe that prices will not come down, but remain elevated as inventory is squeezed and rates rise.

The consensus is that the 2022 real estate market will remain in favor of the sellers. This could be one of the longest seller’s markets in recent history as real estate is still desired at a rate that cannot be kept up with. According to realtor.com ‘s Chief Economist Danielle Hale, the competition should be a bit less intense in the coming months than we have recently seen.

Home Prices Will Remain High But Slow

Home prices in 2021 soared to historical highs. While they look to remain at record highs and continue to increase, it will be slower. The real estate market looks to show some breadth, easing stress for buyers. According to the same realtor.com research, economists are projecting price increase of around 3%. As we saw with 2021, this could be a low ball estimate. No one anticipated the near 13% national price increase this year, so we could be surprised by another bull run in real estate.

The main factor of this research is that prices will not come down. There is a lot of Facebook and Twitter economists out there predicting a crash, so be careful where you get your information. If you are looking for help navigating the real estate market in coming months, make sure you use a real estate professional. Premier Homes Team is ready to help anyone who has questions or concerns over the real estate market.

According to Hale, “The pace of price growth is going to slow. . . which will bring in more buyers. With prices high and mortgage rates beginning to tick up, people won’t be able to be as aggressive in what they are willing to pay.” To sum up this quote, buyers will be able to obtain homes at more reasonable price increases.

Inventory Issues

One of the hardest parts to predict in the current real estate market is inventory. And bad news for buyers, especially first-time home buyers, inventory doesn’t look to increase too much. Economists are predicting that the number of homes for sale will only tick up .3%. This will continue to make buying a home, especially for the first time, extremely difficult. Not only is inventory still at record lows, but investors are also buying up the lower end of the price range for real estate. Couple investors with builders having a hard time lowering costs and inventory looks to remain unchanged. Single-family home constructions look to only increase 5% in the coming year.

The home shortage that has been a decade in the making will only make prices remain high. If you look at basic economic principles, high demand and low supply creates a higher equilibrium price point. Sales will continue to rise after hitting a 16 year high over 2021. Economists are expecting sales will increase by up to 6% again this year, pricing out lower end buyers in the process. Attractive homes with great curb appeal and that were well maintained still look to go under contract in less than 3 weeks.

Home Prices And Rents: Which Will Outpace?

Home prices aren’t the only thing that will continue to increase, but rents will as well. But the question is, which will increase faster? Unfortunately for renters, who are already having trouble saving, rents will outpace home price increases. With home prices looking to increase around 3%, rents look to increase at more than double that rate. Predictions for rent increases are slightly above 7%. With rents outpacing home prices, it will make the leap from renting to homeownership even more challenging.

The main reason for this is the main reason for home price increases: inventory. Until inventory catches up or demand decreases, prices will continue to rise. One bright side of all this is rising mortgage rates. While mortgage rates might look scary above 3%, they are still historically low (I will write about this until it is understood). When mortgage rates ultimately increase, demand will begin to slow as buyers will have less buying power. However, homeowners will have staying power, or equity, if they choose to take advantage of it.