The U.S. real estate market has been drastically changed by the effects of COVID-19. In the years before the pandemic, demand had already begun to outpace supply, but this problem became much worse very quickly when a global pandemic upended the market. The strong seller’s market is likely to continue throughout 2022. Learn more about interest rates, the factors that affect a real estate market, and how the corporate lawyers at Structure Law Group can help your business navigate these challenges.
One of the key factors driving the real estate market has been low interest rates. Interest rates have, in fact, been at record lows for several years now. Low interest rates allow homeowners to borrow money at a low cost. Low mortgage rates lead to more homebuyers, which has slowly tipped the real estate market in favor of sellers. But there has also been inflation in 2022. For the first time in years, interest rates across the economy are starting to rise. So how will this impact the real estate market in 2022? Forbes spoke with three economic experts about their predictions for mortgage interest rates in 2022. Though their estimates ranged between 3.4 percent and 4.0 percent, all three experts predicted an increase in mortgage interest rates by the end of 2022. Rising interest rates tend to discourage some sellers from buying. While the rates can take some of the pressure off the current sellers’ market, it is important to understand that it is just one factor in a complex economy. Other factors will also determine whether 2022 sees a weak or strong real estate market.
What Factors Predict a Weak or Strong Market
As with any market, real estate is controlled by the forces of supply and demand. Both sides of the market were greatly affected by COVID-19. On the supply side, new home construction slowed at a time when it was needed most. Both supply chain issues and labor shortages have prevented home builders from adding to the market supply that is so desperately needed. Some of these problems have been alleviated, but the backlog of work persists, and there is no shortage of demand from consumers.
Why is demand so high? As always, the U.S. population continues to grow, and they need somewhere to live. The job market of a local area is also a strong predictor of the real estate market. Silicon Valley has long been a hotbed of innovation, technology, and high-paying jobs. The strong job market also creates demand for homes. When this demand runs into supply issues, the real estate market heavily favors sellers.
Is Real Estate Headed for a Bumper Year?
So what will happen to the real estate market in 2022? Though it is impossible to know for sure, it is not likely that the short supply of houses will catch up to the high demand any time in the next few months. Rising interest rates can “cool off” some of the demand. Supply shortages are likely to improve throughout 2022, which can also help cool off demand. But it is clear that business owners must strategically buy and sell real estate assets to protect their corporate interests. The experienced California corporate lawyers at Structure Law Group can help your business navigate the challenging real estate market of 2022. Call (408) 441-7500 to schedule a consultation or contact us online.