It’s been two years since the pandemic. Some people are doing well, some haven’t managed to get back up on their feet, while some are just getting by. Travel, social, and face-to-face businesses are all hurting, and so are some companies whose supply chains are being disrupted. 

Even though it seems like the economy is getting used to the idea of “just living with it,” everyone is now affected by inflation. Inflation is caused by changes in the labor market, the supply and distribution systems, and the amount of money in circulation.

So, what exactly does this imply in terms of the housing market? Given how fewer people travel, get together with friends, and work in the office, hospitality and lodging will continue to struggle until 2022.

In today’s post, we’ll be looking into some real estate trends to watch out for the rest of 2022.

1. Rising Interest Rates And Inflation

Everyone expected inflation and interest rates to rise at some point. For about 15 years, we’ve been in a historically low-interest-rate environment, with slow economic growth and negligible inflation. But there seemed to be no reason to believe that things would change now. 

Then the pandemic arrived, and this comfortable economic equilibrium was turned upside down. After the economy stopped growing in 2020, it got back on its feet in 2021 and increased by 6.9%, which was the fastest rate in decades. Even though the rapid recovery is good news, the fallout from the pandemic will still have an impact on the economy until the end of 2022. This is because of inflation caused by rising consumer demand, which is happening because government stimulus payments and higher wages have put more money in the hands of consumers. 

At the same time, there isn’t enough supply of goods and services to meet this demand because the supply chain is broken, and there aren’t enough workers. The Fed appears cautious as it seeks ways to control inflation without harming growth, but interest rates are likely to continue rising for the remainder of this year. 

So, what does all of this imply for real estate investors? Forecasts are mixed, just like the pandemic economy. Rising mortgage rates are likely to hurt the sales of both residential and commercial property. 

Furthermore, rising inflation has already resulted in significantly higher costs throughout the real estate industry, including increased costs for building materials, energy, and utilities. Simultaneously, rising rents have assisted landlords in recouping these expenses in real-time. 

Property values are also expected to grow as a result of a lack of supply (as building costs rise, development slows) and increasing income returns. Overall, real estate rents have risen much faster than mortgage rates and charges, resulting in advantageous acquisition pricing and financing.

Property values will increase in tandem with higher net operating income. When net operating income goes up, property values will go up, too. The bigger question is whether cap rates will go up with inflation or stay low because real estate is such a good investment.

2. You Wouldn’t Want To Miss The Sun Belt

The latest report on housing starts from the Census Bureau shows that large metro areas are losing a lot of business to smaller cities. Based on its most recent data in December 2021, 811,000 newly built homes were sold in the United States. Fifty-six (56%) of those homes were in the South, and only 3% were in the Northeast. This isn’t a new trend, but the pandemic has definitely sped it up as younger workers try to find a much better balance between work and life and as older workers retire at a near-record rate.

The top eight “markets to watch” are in the South. These markets have excellent growth prospects, are affordable, are getting lots of new jobs, and have a warm climate. These are the eight great places to invest in real estate:

1. Nashville, Tennessee
2. Raleigh/Durham, NC
3. Phoenix, Arizona
4. Austin, Tex.
5. Tampa-St. Petersburg, Florida
6. Charlotte, North Caroline
7. Dallas-Ft. Worth, Texas
8. Atlanta, Georgia

These smaller markets in southern states are growing at an exponential rate, so it makes sense that the things that made people want to move there as it remains attractive in 2022.

3. Single Family Rentals Will Remain Strong

According to research, the prices of homes for sale went up 19.5% in 2021 and are expected to go up another 11% in 2022, even though mortgage rates might go up. This market is so hot that many young families who would rather live in a single-family home can’t afford to buy one. 

Enter the SFR (single-family rental) market. Big institutions that see long-term investment opportunities are driving a surge of professionally managed portfolios of homes into a niche rental market where mom-and-pop rentals used to be the norm. 

Blackstone, which is one of the most prominent real estate investors in the country, is backing a new REIT that will focus on renting out single-family homes. This is no longer a fun distraction. 18% of the single-family homes sold to investors in Q3 2021 show that the SFR trend is here to stay.

According to a recent study by the National Association of Realtors, the vacancy rate will fall to 4.8 percent in 2022 (from 5.1 percent in 2021) and rents will rise by an average of 10%. 

The continuously growing number of people who work from home is one of the primary reasons for the rental market rise. When people realized they could work from anywhere, many took advantage of the opportunity to relocate away from high-cost-of-living areas and into areas where they could live a better life.

Key Takeaway

From the looks of it, the rest of 2022 will continue to be an excellent year for experienced investors who know how to take advantage of these trends that the pandemic has sped up. Volatile markets always have some of the best opportunities, but they also have some of the highest risks for people who aren’t used to keeping up with new trends. People who are interested in this market should pay attention to these trends and how they change over the next year.