Homebuyers have had a hard time purchasing properties this year. Home prices have gone up on a national level.
The Federal Housing Finance Agency House Price Index shows that US home prices rose in the third quarter of 2020. Home prices were up 4.2% in the last quarter.
The good news is that inflated home prices shouldn't last forever. Will prices remain high in the future? We know what we know.
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Will the home price go down over the next year?
Without a crystal ball, it's not possible to predict how home prices will change in the future. There's a good chance they'll stay high for a couple of reasons.
1. The mortgage rates are low.
Mortgage rates are still near historic lows as we close out 2021. The Federal Reserve has indicated that it will raise rates in the future, and it can affect mortgage rates.
Even if mortgage rates go up a bit, they'll still remain competitive. In the new year, buyers will continue to clamor for homes.
When demand for a given commodity is high, prices tend to increase. Home prices may not budge much from their current level because buyer demand should stay strong.
2. There is a limited inventory.
Since the beginning of the year, the U.S. housing market has been short of inventory. The number of homes for sale in the US fell by more than a million as of the end of November.
Whenever the demand for a product exceeds the available supply, prices can go up. The product in question is homes. Since inventory is unlikely to increase in 2022, prices could stay high.
Why don't inventory pick up? We can't make that call. It's been slow so far because homeowners have held off on selling due to economic uncertainty and the Pandemic-related concerns.
The omicron variant has the ability to wreak havoc. An explosion of cases in early 2022, which could lead to some restrictions and shutdowns, could lead to an increase in unemployment and a worsening of economic conditions. There's a good chance that would-be sellers who have held off on listing their properties will continue to do so in 2022.
If home prices stay high, what should real estate investors do?
You may be interested in adding more income properties to your portfolio. It may not be the best time to do that.
While property owners are getting away with raising rents, you may not be able to command enough money from tenants to compensate for the inflated price you'll pay for a home. It's better to look at ways to maximize the properties you already have. That could mean changing the property from a long-term rental to a short-term rental.
Home prices should come down in the future. It is possible that that won't happen in 2022, so investors will need to be prepared.
