Over the past two years, the real estate market has experienced several ups and downs. What is next for this market? As we embark on a new year, we at ANCHOR Realty, NE, wanted to offer you, our valued current and future clients, our outlook on the real estate market in the upcoming year.
Like most economists, we anticipate the Federal Reserve raising the Fed Funds rate, undoubtedly impacting interest rates and the real estate market in 2022. The following is our prediction of things to come in the 2022 rental housing market.
We expect that higher interest rates will drive up the desired rate of return on rental real estate. This will translate into either higher rents or lower prices — or a combination of both. We tend to favor the view that the more likely outcome is a drop in the price of rental properties, which will translate into a higher rate of return to investors.
We also believe that higher rates will result in higher financing costs and will be yet another factor in a slowdown in demand for investment real estate, again resulting in a drop in prices. With time, the rental housing market will become more profitable for investors, especially when homebuyers are faced with skyrocketing mortgage rates and search for alternatives.
As the rental housing market continues to recover from the pandemic, we anticipate that rents will stagnate or experience a severe slowdown with inflation pressures. As a result, valuations of investment properties will also remain the same or decline.
Given the above, our advice to clients is to be patient and give the real estate market time to adjust in this post-pandemic world, including adapting to rate increases as well as increases in the rate of inflation. Even though we feel that investors will be able to receive high yields on their rental properties in 2022, we believe that, unless you find a great deal, the best move is to wait until the summer before considering any new real estate purchases. Patience is key in this volatile market.
We wish you and yours a happy and prosperous new year! As always, don’t hesitate to
contact us to further discuss your
real estate investment goals or to inquire about our
property management services.
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