2022 Real Estate Market Prediction as Interest Rates Rise

So if you’ve been following the news you’d know that as of right now, we are sitting at a record high inflation rate of 7.5%

We’re not going to explain how inflation works in this article, but basically the inflation rate is measured by the Consumer Price Index, which measures the cost of everyday goods that people buy.

Having said that, it’s important to point out that the 7.5% inflation rate that you might be hearing on the news DOES NOT include the inflation rate of the real estate market. Housing prices are not factored into the inflation rate and instead are tracked separately. If you look at housing prices separately, the median home price went up 16.9% across the US in 2021, which is the HIGHEST growth we’ve had on record. 

The main reason behind inflation is the fact that 80% of all US dollars in existence were printed in the past 2 years alone. Let that sink in for a bit. That means every 4 out of 5 dollars did not exist 2 years ago. All this money printing led us to have the highest inflation rate we’ve seen at 7.5% as the value of the dollar continues to go down.

Now in order to reduce that inflation down from 7.5%, the FED is going to be increasing interest rates to make it more expensive for people and businesses to borrow money. The idea behind that is as interest rates go up and as it gets more expensive, there will be fewer people buying homes due to the increased cost, and the idea is that this will slow down the inflation rate to a normal level.

Now here is what I believe will happen.

The economy is a very complex structure made up of many different levers.

Interest rates are just one lever in the economy. 

What that means is that although interest rates are going to affect the market down because it’s going to be more expensive for people to borrow money to buy properties, HOWEVER, there are many other factors that affect the real estate market, not just interest rates.

Let’s look into the other factors that will impact what’s going to happen with the market in 2022:

  1. Affordability 
    1. As interest rates go up, expensive cities such as San Francisco and New York will be impacted more by interest rates rising because a 1% mortgage rate increase on a million dollar house is roughly $450 more per month, while an additional 1% on a 300k house is only $134 extra per month… which means expensive cities and markets are going to be more negatively affected by this. On the flip side, affordable markets are going to get a bigger inflow of buyers and investors as people look to park their money somewhere where it's more affordable.
    2. Wages have gone up significantly over the past year due to a shortage of workers, and what that did is it increased the median household income in the US from 66k a year to 72k a year, meaning the average family in the US is making 9% more money than they did before, which in turn will help people afford to pay HIGHER costs even as interest rates go up, they’ll be able to absorb those higher expenses and not be as severely impacted. 
  1. Population growth
    1. Population growth directly affects the cost of housing because as demand goes up, people have to pay more to get a place to live, whether that’s a rental or a purchase. Markets that are more affordable are going to benefit the most because people who can’t afford to live in expensive markets anymore will be more likely to migrate to those cheaper markets, which in turn is going to increase the demand for housing in these areas and disproportionately drive prices up in affordable markets faster.
  2. Increase Rents:
    1. As houses become more unaffordable due to interest rates rising, there will be more demand for rentals, which is why I’m personally investing in apartments because the high barrier to entry and the high mortgage costs to buy a house will cause people to rent even longer and create more competition for rental units. 
  3. So how is all of this going to affect the real estate market?
    1. To sum it up, housing and real estate in general will continue to go up significantly in 2022 all across the U.S.as people want to hedge against inflation and invest in a stable asset class.
    2. Markets that are more affordable such as Texas, Florida, Tennessee, Arizona, etc. are going to benefit the most due to continuous rapid rent and population growth.

If you are considering investing in Real Estate and want to get access to our future investment opportunities, please book a call with our team to be added to our list of investors for free. We will have nothing to sell you on the call, it’s simply an introductory call to see if you meet the criteria to join our investor database. If you are interested in booking a call, go to https://theabbasgroup.com/call

Discover How to Invest Passively in Real Estate with our FREE Step by Step Webinar: