(The Motley Fool) With inflation soaring, interest rates rising, and growing concern over a recession taking shape, it’s no surprise to hear the real estate market is changing. Thanks to shifts in consumer preferences, changes in supply and demand, and the emergence of new real estate investment opportunities, the end of 2022 and the coming years could look a lot different than the years prior.
We asked three Motley Fool contributors what they feel is next for the real estate industry, including the biggest opportunities and hurdles for investors to prepare for in the remainder of 2022 and 2023. Here’s what they said.
Residential real estate
Liz Brumer-Smith: After two years of unparalleled rental and home price growth, it’s becoming abundantly clear that the era of the red-hot seller’s market is coming to an end. Active listings increased 19% in June 2022 and existing home sales have consistently decreased for 10 straight months. One in five home sellers lowered their price in May 2022, marking the biggest jump in home price reductions since the start of the pandemic.
The cooldown is undoubtedly thanks to rising interest rates. Rising mortgage rates, which are sitting at just over 5.7% for a 30-year fixed mortgage at the time of this writing, have made the already richly valued homes in many markets unattainable for a growing number of Americans. A recent report from ATTOM Data Solutions found that home affordability declined by 97% in the 575 counties it tracks.
Lower buying activity and more homes hitting the market are helping reduce competition, but it doesn’t necessarily mean pricing will cool. Home prices are still growing, with June 2022 marking a new record of $450,000 for the median list price, a nearly 17% increase from the month prior. Lower housing affordability will also mean that rental housing will continue to play an increasingly important role in the housing market, with rental rates likely maintaining their steady growth.
For the remainder of 2022 and likely into early 2023 it’s unlikely home prices will revert, but rather grow at a slower rate. Some sellers may reduce their prices in less competitive or supply strapped markets, but there is still a notable shortage of housing supply that will continue to put pressure on prices.
Mike Price: The long-term case for investing in farmland is clear: The amount of arable land worldwide is falling and the number of humans needing to eat is rising. This creates a reduction in supply and an increase in demand. The short-term case is fuzzier.
Most likely, farmland will continue to do well over the next six months as long as inflation stays high. When food prices go up, owners of farmland make more money and require more to sell the land. According to the Bureau of Labor Statistics, the May food at home price index rose 11.9% over the preceding 12 months; that’s the most it has risen over any 12-month period since 1979.