Finally, we have some good news for home buyers in 2022. This article will spell out some facts that are benefitting home buyers right now and a scenario that may help in 2022.
For the past several years home buyers have been competing with other home buyers in addition to personal investors and investment companies seeking return. Yields in the bond and stock market have been hard to come by in recent years, so Wall Street money started flowing into real estate.
With bond yields rising some money is starting to flow into bonds even though that is risky in a rising interest rate market. When rates rise, the price of bonds falls, so investing in bonds is risky until rates settle out. Just the same, some money is going in on bonds.
For stocks, the price multiples were so high it was hard to get any yield and investors were simply banking on higher prices in the future. Now that the stock market has been correcting in 2022, we may see money start flowing into stocks later this year. Yield is much easier achieved at lower price multiples, and we are seeing that. The only wildcard is future earnings and their impact from inflation and possible recession.
2 Scenarios
If money starts flowing into stocks again it could do one of two things. It could take money out of main street and back into Wall St. Or it could further fuel Wall St money and make its way back to main street via increased shared investment into real estate. The answer probably depends on how far the stock market eventually falls and what the opportunity is there. We didn’t see Wall Street money come over into real estate big time until stock valuations became quite high.
These investment companies have been scooping up homes and placing them in rental programs by the bunches. All these sales are competition for home buyers and essentially take inventory off the market. If this trend slows, it could help home buyers in 2022.
We are seeing increased inventory on a weekly basis. This past week single family inventory grew another 81 homes in Lee County while pending inventory dropped 38 homes. That is a difference of 119 homes in one week. Not only is current inventory increasing, but future inventory may too if investors slow down their purchasing.
Wall St Vs Main St
The decline of stock market value may lead to this. If investors start selling funds like Blackrock (BLK) whose stock is down 17.13% in the past month there may be less future investment in homes. If Wall Street determines that real estate is about maxed out in price due to rising interest rates, they will simply evaluate their purchases on total returns of rent vs price and leave out expected future price appreciation due to almost free money.
Buyers have been getting hit by rising prices and rising interest rates. Rates are still probably headed higher, but price increases could slow down as inventory grows. Not only is inventory growing in SW Florida, but it is also growing in many markets across the country.
If the US enters a recession as interest rates continue to rise, it could further slow home buying. In this case, home buyers will have more choices to choose from, and perhaps lower home prices to offset those rising rates.
We believe in almost any scenario home buyers are better off getting in now before rates rise higher. Mathematically, if rates rise another 1.5% to 2%, it will take a drop of about 20% in home prices to make up for that, and we do not see that happening.
If you are trying to buy or thinking about buying, we may have more options for you than a month ago. Simply go to www.LeeCountyOnline.com to see All the inventory updated in real-time. Or call 239-489-4042 for a buyer specialist.
If you are thinking of selling, go to www.SWFLhomevalues.com to see your home’s current value online, or call 239-310-6500 for a Top Dollar Specialist!
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