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Reasons to Invest in (or Steer Clear of) Real Estate in 2022

Always wanted to invest in real estate? 2022 could be your year. Let's go over the pros and cons of investing in real estate in 2022.

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This story originally appeared on MarketBeat

Think you're interested in purchasing real estate investing for next year? 

Depositphotos.com contributor/Depositphotos.com - MarketBeat

The pandemic spurred on one of the most remarkable rising housing markets in the history of the U.S. This year, home prices reached a record 19.9%. Up until then, the highest jump was 14.4%, which came prior to the Great Recession of 2008, according to Fortune.

Let's explore the reasons you might want to consider it and a few reasons why you might want to stay away. An even more pressing question — are you too late to hop in on the hype if you want to buy for investment purposes? Let's find out.

Reasons to Invest in Real Estate in 2022

You want to make great investing decisions going into 2022, so let's take a look at a few reasons real estate might be your best bet as an investment opportunity in the new year. 

Reason 1: Real estate prices won't reach 2021 heights.

Zillow says that despite a projected home value appreciation growth of 19.5% in 2021, home value growth will still end up at about 11% in 2022. It'll still end up being one of the strongest years in real estate history. Home sales should total 6.35 million, the highest number of home sales since 2006. 

Coming in at the tail end of the boom could mean that you won't pay top dollar like last year, but still expect that you may pay more for real estate than you historically would have.

The Mortgage Bankers Association foresees the median price of existing homes going up — at first. It believes home prices will post a 15.3% year-over-year gain to $362,000 in the first quarter of 2022 but it will fall as the year goes on. The association predicts that existing home prices may end at $352,000, a 2.5% eventual drop.

Reason 2: You need to relocate.

This reason taps into a real need — it's not just solely a money-making reason. A total of 56% of Americans planned to move in 2021, compared to 35% in 2020. The reasons? A shifting economy, a rise in remote work opportunities and a desire to relocate to less densely populated areas. 

If you need to relocate due to any one of those reasons and more, 2022 might be your best bet due to putting the record high prices and bidding wars of 2021 behind us.

Reason 3: Interest rates are still low.

Interest rates are still low, but they will start to climb in 2022. 

The Federal Reserve announced in September that it will hold the federal funds rate at its target range of 0% to 0.25% until labor market conditions show progress and the long-term inflation outlook increases. The Federal Reserve signaled that it will likely raise rates beginning in 2022. The Fed indicated that Americans could expect three more rate hikes before 2023.

When the Federal Reserve moves its federal fund's rate, it may affect changes to the rate on the 10-year Treasury. When that rate goes up, the popular 30-year fixed-rate mortgage tends to go up as well.

You may want to beat interest rate increases by purchasing before rates increase. 

Reason 4: Demand for rentals will increase.

If you're looking into real estate to make big money through rental properties, 2022 could be your year. Rising home values will impact the rental market and price a large share of homebuyers out of the market. Until real estate inventory opens up and pricing stabilizes, rent may be too expensive for many individuals. Many would-be homebuyers may find that they can't save for hefty down payments, including in the single-family home market. 

Ultimately, many people will choose to stay in the rental market longer, which bodes well for you as a rental investor. 

Reasons to Reconsider Investing in Real Estate in 2022

On the other hand, market forces may prompt you to wait until real estate favors buyers, not sellers. Let's find out what those factors might involve.

Reason 1: You may face some competition.

You may find yourself in a bidding war because real estate will still show signs of last year's hype in 2022. In April 2021, a whopping 74.3% of offers involved bidding wars compared to August 2021's 58.8%, according to Redfin. Redfin said competition eased toward the end of the year as homebuyers grew tired of sky-high home prices and as the housing market went into seasonal slowdown mode. 

Next year, in the middle of the spring and summer — popular times of the year to buy — expect to see bidding wars erupt.

Reason 2: It'll still likely be a seller's market.

It's still likely to be a seller's market in 2022, which is unfortunate for buyers. After years of underbuilding, high demand and low supply mean that in popular areas due to remote work, you're still going to find some issues with supply, especially in spring and summer. 

Zillow research shows that in the 35 largest housing markets, a 1.35 million shortfall in new homes has occurred because of a construction slowdown after 2008. Supply chain issues have also hampered building processes, according to Zillow.

Decide Whether Real Estate Makes Sense for You

Ultimately, reading all the economic reports in the world won't help you if you need to move. If you now have a flexible work situation, you may no longer have to worry about living close to your downtown office. Zillow finds that people who now have more flexible work options have gravitated toward the Sun Belt.

However, if you want to invest in real estate through rental properties, does investing in real estate make sense for you next year? If so, put together a pros and cons list and make some decisions about what type of investment makes the most sense in the real estate areas you'd like to consider. It might not be a bad idea to talk to a real estate agent to learn about trends in the areas that interest you. Doing so can help you make the most logical decision possible.

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