Real estate markets in 2021 showed historic gains as prices soared on low inventory.
Looking ahead, these six drivers will impact housing markets in 2022.
The trend toward the south and the intermountain west accelerated as employers became
more flexible with work-from-home options and higher-ed has expanded online learning.
Migration that favored large urban centers with high concentrations of employment and
education is now leaning toward recreation, tourism, and open space.
Materials and Labor Shortage
Lumber prices shocked the real estate world in the spring of 2021. Now, steel prices are setting
records and materials are in a rolling shortage. On the employment side, 23% of employees
are expected to change jobs in 2022. Key people and key materials remain in short supply and
working out supply logistics will take time.
Rising stock markets and rising real estate values coupled with direct capital infusion from
federal government stimulus means there is more money than ever circulating in the economy.
This expansion of capital is searching for investments. Unfortunately, every time capital is
placed in the stock market or the real estate market, a seller has capital returned that needs to
be re-invested. This is driving prices up and returns down.
Both short-term and long-term interest rates will be determined by Fed policy. Expectations
are that Fed stimulus will be withdrawn and short-term interest rate increases are imminent. If
these actions slow the economy or impact employment gains in California, New York, or Illinois,
expect the Fed to pump the brakes and resume more accommodative policies.
Along the I-15 corridor, more demand, materials and labor shortages, more capital to invest, and
low interest rates mean higher real estate prices in 2022. While the CPI hit 7% for December,
housing measured only a 4% increase while home prices rose over 20% in most markets in 2021.
Inflation is higher than reported.
One of the most difficult real estate challenges is affordability. It is compounded by rising home
prices and limited supply. Affordability can be improved by rising wages, falling home prices, or
lowering interest rates. In 2022, wages, home values, and materials are all expected to rise. It is a
challenging time for housing affordability.
While we won’t solve the affordability problem in 2022, we do know that over a lifetime, owning
beats renting consistently. Long-term housing stability and closing the wealth gap in the United
States both point to home ownership.
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