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Article by Roan James
The COVID-19 pandemic has affected virtually every industry, including real estate. As discussed in our ‘How COVID-19 Has Changed the Real Estate Landscape’ article, residential real estate has faced numerous uncertainties –– such as shifts in the prime months to sell properties or the fluctuations in suburban real estate prices due to people leaving cities. The viewing and buying process of homes has also slowed during this time. However, the huge shifts in how and where people spend their time have also caused a desire for more and better space to move around in. Partly because of this change, the outlook for residential real estate investment looks good in 2022.
Below are some additional trends you should look out for.
1. Homebuilding levels will increase
Various factors have led to an increase in demand for homes — such as recession-induced low mortgage rates, remote work and online classes enabling people to relocate anywhere, and a wave of first-time millennial homebuyers entering the market. However, The Wall Street Journal reports that as of June 2021,the U.S. housing market is in need of 5.5 million more units. This is due to roughly 20 years of underbuilding.
It’s also expected that ground-up construction for residential real estate is expected to increase by 7% this year. All these mean that 2022 will likely be a good year for homebuilders. As such, you can consider taking Ground-Up Construction Loans to finance anything from single-family homes to townhouses.
2. The housing market will cool
Housing prices saw a record high in 2021 —between August 2020 and August 2021, prices appreciated by 19.9%.However, Fortune predicts that this won’t be sustained in 2022. Case in point: October 2021 saw bidding wars for only 60.3% of the sales as opposed to April’s 74.5%. This is thanks to homebuyers who are pushing back on the high prices. After all, as the financial reference platform Ask Money talks about in one of their articles, buyers should do their research and negotiate the costs of a property. And with the help of areal estate agent, they will easily be able to find a house that fits their budget and ideal.
Meanwhile, the Federal Reserve may increase mortgage rates from 3.3% to 4% throughout the year. The home building boom is also adding more options for buyers to choose from. These factors can slow home price increases, meaning you may have fewer buyers for your properties. If you’re having difficulty finding buyers, you can consider taking on Rental Loans in the meantime, whether for long-term or vacation rentals, so those properties can still generate income for you.
3. House-flipping may be tight
Fix-and-flippers rely on accurate predictions on future value to help them redesign the properties under them. But there are a few factors that can make house-flipping a bit tight this 2022. These include improving house inventory and cooling prices. As of the second quarter of 2021, profit margins for flippers were at 10-year lows, with the ROI being down by 33.5%. Add to this is the difficulty in supply and increase in the price of material and labor shortages from the pandemic. However, house-flipping can still be a lucrative investment when done right.
If you’re looking for ways to finance your house-flipping project you can take on Rehab Loans. But remember that the challenge for fix-and-flippers is to complete a project that’s appealing to house hunters while not exceeding potential sales prices — even after repairs and renovations were made to add value.
There is much to watch out for in residential real estate. 2022 may well be a good year to start residential ground-up construction projects or even take on new challenges to keep your properties competitive in terms of prices — such as the case in renting or house-flipping.
For more articles on real estate investing, check our blog here on Temple View.