Is another large collapse in real estate on the horizon? Given all the headlines about a possible recession, rising inflation, significant interest rate increases, and the stock market sell-off, where are we headed? The news may be better than most people expect, say two of America’s top real estate economists.
What to expect as we look forward to the second half of 2022 and beyond.
Here’s what Appleton-Young and Tuccillo say is ahead in the Real Estate Market!
Inflation is expected to slow down. Inflation was 8.3 percent in April, down from 8.5% in March. However, supply restrictions are steadily easing. Prior to settling back down, interest rates may rise more. Inflationary pressures mean that we won’t see mortgage rates fall below 3% any time soon.
The war in Ukraine, China’s lockdown, and the persistent energy supply issues are still major wild cards in the global economy. In order to return to our pre-war state, it will probably take us at least two years. Inflation expectations are routinely surveyed by the New York Fed. People’s expectations are what fuel inflation.
According to recent polls, most people believe that inflation would be 6.3% by 2022, which is a decrease of 2% from now. Even so, that’s much beyond the Fed’s 2% target, which is likely to prompt an overreaction from the central bank.
New York Fed poll results show a modest increase in consumers’ three-year expectations, which had previously been low but are now slightly raised at 3.9%. For the Federal Reserve, there is some support for a return to Paul Volcker’s era of low interest rates. https://www.federalreservehistory.org/people/paul-a-volcker
To combat inflation, Volcker raised interest rates and reduced employment. Like the pandemic, there is a price to lower inflation, and the burden falls more heavily on low- and middle-income families. It’s a balancing act for the Fed, which has two goals: low prices and low unemployment.
The economy will continue to grow at a moderate pace, and the unemployment rate is expected to remain stable. Over the remainder of the year, job creation is expected to continue.
It’s predicted the Fed will raise interest rates to a maximum of 6%. An continuing shortage of supplies and construction personnel is preventing the building industry from keeping up with current demand.
Because local regulations aren’t loosening any time soon, we’ll have to deal with them for a while. Despite the current increase in interest rates discouraging purchasers, buyers will return to the market when rates drop, say to 4.5%.
The markets can turn on a dime or perform a gradual squeeze. One of the issues we’re dealing with right now is that.
Appleton-Young reiterated the importance of the housing market in building inter generational wealth, saving and having a strong asset.
That goal is getting further and further away for many people in this market. We must get more people on the ladder to home ownership by building smaller and more affordable housing and loosening up on overly restrictive zoning.
Tuccillo’s final takeaway is that all market conditions may not be stormy as once thought.:
But they will be very interesting. Over the next 18 months to two years, we’re not going to see a collapse. I don’t believe we will see stagflation. I just think that every day, there will be something else to worry us. And we’ll be worried, and the markets will be skittish, and the housing market will be skittish. But if you look at the underlying long-term trends and fundamentals, we’re fine.
I respect and believe the analysis presented in this article today, but the Biden Administration’s actions to reduce housing costs may completely muddy the waters with additional consequences. We have measures in place to assist with the challenges we face, and I believe America will right itself! In my opinion, burdening America with more debt service without renewable sources of replenishment will only delay recovery. Let’s see how America handles this before enacting legislation that will only delay recovery!