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Real Estate Returns in 2022: What to Expect

Since 2020, the real estate industry has been on an up-and-down ride. From an initial drop in prices due to the lack of demand to a sudden surge because of investors taking advantage of the lack of demand. It’s safe to say that both 2020 and 2021 are very interesting years for the real estate industry. But it’s almost 2022, so let’s take a look at what next year has in store for us.

We Will See More Foreclosures

Here’s an interesting thing: there haven’t been a lot of foreclosures in the past two years, largely thanks to the foreclosure ban that encompasses the whole country. However, this only extends until July, which implies that foreclosures will most like climb in the coming months.

As a matter of fact, foreclosures have already started.

Since July 2021, foreclosures have been increasing significantly, with an increase of around 35% from the second quarter of 2021. However, when compared to 2020, this increase is a long jump of 68%. These foreclosures are going to continue far into 2022, especially with more homeowners pulling off their exit strategies through exit forbearance plans. Hundreds, if not thousands, of borrowers, are meeting the end of their forbearance very soon, and this will result in a higher statistic of loans defaulting.

Real Estate Value Increase Will Start to Wane

At the start of the pandemic, we saw a significant drop in real estate prices, which then started skyrocketing as more and more people realized that this was the best time to buy. In August alone, real estate prices jumped to a solid 18.5%—significantly larger than August 2020. But this spike in prices is projected to end very soon. While a price decline is less likely to happen, what is more likely to happen is that the prices will start stabilizing. Industry experts predict a relative 1% to 2% increase from September, while others predict a measly 7% increase by the middle of 2022.

If you’re looking for an investment property now, it may be wise to wait until a few months from now when markets should stabilize, which will happen very soon. You can set up your projected real estate investments through your real estate company, but ultimately, it’s best to trigger the purchase when things have mellowed out. And mellow out it will—investors just have to wait for it.

We Will See a Spike in Mortgage Rates

Despite real estate value evening out, we might be seeing a spike in mortgage rates. The Federal Reserve is going to start reducing their mortgage security purchases due to the rampant inflation, which will increase mortgage rates. The effects are already being felt, as the fixed rate for 30-year loans has significantly jumped in the past few weeks.

Every mortgage company is working hard to adjust their rates for their clients, especially since mortgage rates will continue to climb despite the reduced pace of property value increase.

Loan modifications and short sales are the only exceptions to this trend because they are performed before interest rates increase, and for that reason, they will likely stay relatively unchanged for the rest of 2022 and 2023. The prospect of higher mortgage rates could be a headwind for some homebuyers who want to buy now before rates rise further. But these potential buyers are expected to shift their focus from new construction projects to condos, which have traditionally been less affected by interest rate hikes than single-family homes or apartments.

Property Shortage Will Still Be a Thing

We’ve already established that the price increase and hike will most likely stabilize, but one thing will remain throughout 2022: there will still be a property shortage. There is a rather severe lack of properties for sale, which is the primary reason why the real estate value is increasing. The source of this lack is manifold. Millennials are now at a point in their life where they can (and have to) buy real estate, and the older generations aren’t exactly slowing down when it comes to scooping up properties.

2022 won’t exactly reflect a whole lot of inventory when compared to the previous years, but many experts are confident that it won’t be as bad. The lack of houses and properties for sale is projected to recede around the middle of 2022, as the inventory is slowly filling up through a constant stream of new listings.

The trends that started in 2020 are still going to continue to 2022, albeit with the market more prepared than before. Next year, we’ll see better investment and purchasing decisions from investors and homebuyers, and the market will grow bigger as a result.

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