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Real Estate Investment Outlook: June - December 2022

Larry Baker, Realtor®

Real Estate Investment Outlook: June - December 2022

 

At the start of the year, our real estate market held promise for smart investors—those who understood trends accelerated by COVID-19 and knew how to take advantage of them. Here we are in June, mid-year in a market that has ushered in a whole new set of circumstances. It’s a good time to examine, understand and strategize for emerging trends.

Unsettled and volatile markets offer some of the best opportunities for real estate investors, but also some of the highest risks unless you take new trends into account in your decision making. Here are three key trends to look for in the remaining months of 2022.

Rising Interest Rates
Our historically low interest rate environment had a run that lasted about 15 years. Already this year, the Fed has hiked its benchmark federal funds rate from near 0% to the neighborhood of 1%. More rate increases are expected, with the federal funds rate projected to surpass 2.5% or even 3% by the end of 2022. Rising mortgage rates, whether for private or commercial properties, are projected to put a damper on sales volume. At the same time, rising rents will help investors recoup these expenses.
Looking Ahead: Real estate rents have gone up faster than mortgage rates and costs, resulting in favorable pricing and financing for investment purchases.

Rising Inflation
Rising inflation has already caused higher costs throughout the real estate industry, including higher costs of building materials, energy, and utilities. Inflation is at its highest point in 40 years. Some real estate investors fear inflation, but others take advantage of it. Numerous studies have shown that in the event of high inflation, rents rise—delivering a rise in cash flow for investors. Investors hedge or leverage inflation  because inflation is what pushes rents up.
Looking Ahead: Real estate is an asset if it has cash flow (rents). When you invest in a cash-flow-producing property, your investment is a stable asset that beats recession. 

Single Family and Multifamily Rentals
For-sale home prices rose 19.5% in 2021 and are expected to rise another 11% before the current year closes. The red-hot market is pricing some families, who would prefer single-family homes, out of the market. These would-be buyers are postponing purchases and remain in the rental market, growing the demand for single family rentals and smaller multifamily rentals.
Looking Ahead: Sophisticated investors will look at putting their investment dollars in single family and multifamily rentals, formerly a niche market that is becoming highly attractive.

For those who are starting out, the best time to invest is yesterday, but tomorrow will never be too late. With an understanding of the trends affecting the investment market, you’re on your way to growing your personal wealth.

Sources: Forbes, NerdWallet, The Mortgage Reports

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LARRY BAKER

Realtor® | Real Estate Investment Specialist

Ram Real Estate Group

Coldwell Banker Realty

larry@rakeshram.com

(513) 703-7774