Twenty twenty-one was an exciting, albeit challenging, year for rental property investors. While the eviction moratorium put a bit of a strain on their finances for months, relief came with the federal rent assistance program. Then mortgage rates dropped to historically low levels, encouraging homebuyers to flock to the market.
As the economy shows an upward trend and the inflation rate tapers, the job market also shows signs of returning to full employment by year-end. You could be wondering where the real estate market is heading in 2022.
We’re sharing some industry insights in this post to help you navigate the real estate market this year. Use this information to see how you can boost the performance of your rental investments.
Learn What Affects Market Dynamics
Some factors cause the upward and downward swings of the market. Knowing what they are can help you make the right investment decisions.
Seasonal Changes. The real estate market has seasonal cycles that cause shifts in supply and demand. For example, high-volume transactions happen during summer, then slow down in winter.
Demographics. Changes in local demographics affect housing prices. When the local population experiences growth by natural cause or immigration, so will the housing demand.
Inflation and Interest Rates. The inverse relationship of inflation and interest rates keeps the economic condition balanced. Low interest encourages homebuying. When housing costs are cheap, more money is available for consumer spending, helping the economy grow.
Government Policies. Some legislation and federal programs that incentivize homebuyers also influence housing demand. Examples of these include tax credits, subsidies, or deductions.
Expand Your Portfolio Wisely
According to Bankrate, the 30-year mortgage rate is expected to rise 3.5% in 2022 and will remain at this level throughout the year. Despite the increase, it is still an attractive rate which makes buying a home a lot less expensive in the long run.
Home values will grow as well this year. Zillow predicts they will go up by 11%, still lower by 8.5 points from the previous 19.5% prediction in 2021. It will remain a seller’s market with a total of 6.5 million projected home sales this year.
Zillow recommends you take advantage of the market’s seasonal cooldown in early fall. During this time, sellers typically cut back their prices, and fewer homes are listed on the market. This is one way of taking advantage of the low mortgage rate in buying lower-priced homes. It is also a sound approach to maximize your investment.
If you can afford it, now is the right time to buy. Remember, though, that this investment requires financial commitment, so don’t be pressured to buy just because you can afford it. After you buy a property, you must be ready and willing to manage it to ensure it meets your goals and turns a profit.
Knowing where people are relocating is also a factor to consider when deciding where to invest. Changes in work dynamics gave many people the option to move to the suburbs. This move created an uptick in the local population, driving real estate demand. There are many good locations, but we’ve narrowed down the choices for you and shared our insights on the best five cities to invest in real estate.
Know Factors that Can Influence the Business
The rental market will continue to experience rising demand. The average American cannot afford the current median home price set at $316,368. According to Statistica, the high cost of homeownership is why renter-occupied homes in the US have increased since 1975. Recent statistics also show that there are now 44.1 million households renting their homes. All these indicate that the rental business is still feasible and sustainable for many years to come.
Below are the market drivers for the positive long-term outlook of the rental business.
The Urban Exodus
The new normal demonstrated how the work-from-home model could be successful in most business operations. It gave way for workers to adopt a work-life balance and favor it to continue post-pandemic. It also allowed them to move to areas where they could explore other personal interests. Buildremote cited 72 large companies permanently adopting the hybrid work model, such as Facebook, Microsoft, Amazon, and Apple, to name a few. Remote work also showed benefits for companies, providing them significant savings and improving their employee retention by 10%.
Boomers Shifting to Rentals
Boomers currently aged 57 to 75 years old are showing preference to rentals. Retirees and empty nesters left with large spaces are now selling their homes and moving to smaller, independent living homes. Without the burden of homeownership, they can now navigate their senior years with ease. They can engage in lighter work while also taking occasional travels. The Census Bureau estimates that there will be a total of 61.3 million baby boomers by 2029. During the same year, the youngest boomers will reach 65. Their changing housing needs are evident and prove that renting to this demographic is a viable investment now or shortly soon.
Millennials Still Choose to Rent
Millennials prefer to rent than feel burdened with the financial commitments of homeownership. It also allows them the freedom to move around where their lifestyle takes them. Rentcafe analyzed rent applications in 2021 and saw that 43% of applicants are higher-income millennials. This group earning an annual income of more than $50,744 leads the lifestyle renting trend. Ridding themselves of homebuying pressures, they instead rent amenity-rich apartments. Lifestyle renting gives them the feeling of success while preparing for future homeownership.
With exciting years up ahead for the rental business, it pays to know the trends that will matter significantly to the future of renters. Here are just a few:
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- Renters will choose buildings that offer more outdoor amenities to avoid Covid-related health concerns.
- Multifamily buildings that feature co-working spaces will be a unique rental attraction.
- Building upgrades will focus more on proper ventilation.
- Rentals with smart technology will be the home of choice among millennial renters.
- Cryptocurrency will be another form of rent payment in the near future.
Parting Thoughts
Despite the recent ups and downs, the rental business showed steady strength. As the economy gains momentum, we’ll be seeing a more balanced real estate market this year. As an investor, you must stay in the know to help you gear up and adapt to changes to attract and keep high-quality renters. You will also deliver top-notch service if you know the changing renter needs.
Consider partnering with a full-stack proptech company to maximize your investment. With technology that streamlines the renting process, you get an edge in growing your business even in a highly-competitive market.
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