Where Will Real Estate Prices Go in 2022?
Dec 26, 2021
The real estate market is constantly changing, and it can be challenging to predict where prices will go in the future.
Several factors could push real estate prices up, but some can drop real estate prices.
In this blog post, we'll take a look at both the boom and bust scenarios for real estate investing in 2022!
Boom Factors
"WFH" Life
When the pandemic started, millions of people moved out of major cities across North America into neighboring towns.
The "WFH" Life caused considerable swings in smaller markets.
People expect the WFH life to continue with more and more people now accustomed to the WFH lifestyle.
Interest Rates
Interest rates have been kept low to stimulate the economy, and real estate prices have increased because of it.
As a result, there is talk about somewhat raised interest rates.
But the consensus is that rates will remain low, especially compared to the historical averages.
Government Intervention & MMT
2021 was a record year for money printing throughout North America.
The Bank of Canada and US Federal Reserve printed $75 billion each month to stimulate real estate prices.
This is huge considering that it equates to one-third of the entire Canadian economy!
Modern Monetary Theory (MMT) has ushered in a new reality where governments can create new money "out of thin air" and "spend it" into existence.
With more and more "money" chasing the same amount of goods and services (i.e., real estate), there's no reason why real estate prices wouldn't continue to increase when denominated in "dollars."
Bust Factors
The "Price" of housing
The real estate market is not impervious to crashes.
People could argue that the real estate bubble started years ago and has yet to pop.
For example, the average house price in the US is over 300K; in Canada, the number is over 700K.
Wages & Living Expenses
The real estate market is closely tied to the economic cycle.
With real wages stagnant and actual living expenses rising, it's becoming difficult for people to own homes.
Knowing that people rely solely on income from their job (wage earners) unless they inherit or win a lottery.
Interest Rates
Both a boom and a bust factor (arguable the largest one).
If actual interest rates rise to historical levels above 5-6%, many people will find themselves in severe financial trouble.
A 1% increase in rate would represent nearly a 20% increase in the monthly payment for anyone with a variable mortgage.
If rates increased to historic levels, many would have a challenging time making their monthly payments.
The real estate "market."
Speculation is a massive driver of real estate prices.
And it's unlikely that investors would continue to speculate on real estate with rising interest rates.
Without speculators buying up properties, the inventory levels could rise to cause real estate prices to drop.
Conclusion: It seems likely that both scenarios occur real estate prices continue to rise in the short term, but real wages increase as well.
There is a chance of real estate becoming unaffordable for many people.
Meaning there could be a significant crash if interest rates rose too quickly or real estate repealed MMT.
What do you think? Where will real estate prices go in 2022? Will it be boom or bust?
Marcin Drozdz
The information contained herein is for general guidance on matters of interest only. This information contained herein is not intended to provide you with any advice on financial planning, investment, insurance, legal, accounting, tax, or similar matters and should not be relied upon for such purposes. www.marcindrozdz.com is not a financial or tax adviser. You should assess whether you require such advisers and additional information and, where appropriate, seek independent professional advice. www.marcindrozdz.com, its subsidiaries, and affiliates are not responsible in any manner for direct, indirect, special, or consequential damages however caused arising from your use of the information contained herein.
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