By: D. Sidney Potter
Typically, I would start real estate predications in an itemized fashion, in descending order, but given the world-wide plague, which is the elephant in the room in articles like this, it was best to put this in historical perspective in terms of how real estate is affected by a pandemic. The following was surprising and interesting as well, with the first quote abstract being micro based, and the second abstract being macro based.
“Zillow found in (2020-2021) that nearly two million renters unable to afford homes in metro areas could now afford to buy farther out because they no longer had to commute to work. As a result, many renters became homebuyers and home and rental prices diverged around the time the pandemic hit the United States. But lower-income households more likely to rent were also more likely to have experienced job loss in hard-hit industries, such as retail trade, accommodations and food services. Those facing financial pressures turned to alternatives, including “doubling up” or moving back in with their families, according to Zillow research. That shift, in turn, added to a decline in rental demand (in select markets). US Census Bureau, October 4, 2021
“How do pandemics affect urban housing markets? This paper studies historical outbreaks of the plague in 17th-century Amsterdam and cholera in 19th-century Paris to answer this question. Based on micro-level transaction data, we show outbreaks resulted in large declines in house prices, and smaller declines in rent prices. We find particularly large reductions in house prices during the first six months of an epidemic, and in heavily-affected areas. However, these price shocks were only transitory, and both cities quickly reverted to their initial price paths. Our findings suggest these two cities were very resilient to major shocks originating from epidemics”. Housing Markets in a Pandemic: Evidence from Historical Outbreaks, ResearchGate.net, January 25, 2021
Notwithstanding, below are my 2022 predictions for commercial and residential, based on an aggregation of predictions (many of which are contradictory), that I commonly agree with in terms of foreseeability and probability.
Home Appreciation & Home Affordability
As a general comment, and notwithstanding the historical perspective above, the bad news is that if you waited on the sidelines for a home purchase in 2021, you missed out on 15% to 22% of appreciation, depending on what market; and the good news, is that if you purchase a home in 2022, the appreciation won’t likely be as much – since the market and you, have lessened the probability of making the same mistake twice. Another upside, is that in 2022 the demand will slacken somewhat for homes. Meaning that if you are on the precipice of affordability on a home you want in 2022, the lack of appreciation velocity will keep your dream home and/or forever home still within the crosshairs of affordability.
Commercial Real Estate Outlook
I wrote intermittently in 2021 during promotion for my third book, The Broker, on the ongoing maladies that face the commercial real estate brokerage. In general, you can expect the four sectors of commercial real estate to experience the following:
*Industrial will remain hot. This is very obvious, given that retail purchases for consumers today can occur in a “no touch” environment, all of which requires available warehouses (which is industrial), to store its good. Not complicated.
*Multifamily will stay hot. People will always need a place to live, and hence rents will drive up given the shortage of affordable housing – and despite the late pays on rent for a large segment of the population.
*Retail will continue an uneven roll. Most prognosticators I spoke with are overly optimistic about this sector, but I am prudently pessimistic. The demand for businesses to open shop is simply not there, in my professional opinion.
*Office will continue to be a mixed bag. Once again, many real estate forecasters – which are mainly economists employed by the pension funds and REITS (Real Estate Investment Trusts), are optimists for office, but that is only because they are paid to push their product, which is high maintenance office buildings that demand cash flow.
The general feeling is that rates on the 30-year long bond will rise from roughly 3% to 3.5% by about the end of the year. These rates will continue to make home buying very attainable for much of the market, and especially so if you think of the historical lows for interest rates. In short, it’s in everybody’s self-interest (no pun intended), to keep interest rates low.