The real estate market in the USA is one of the most stable and profitable markets in the country, but it is still subject to frequent changes. As we have seen in 2021 and will continue to see in 2022, various factors can greatly impact the market.
To stay informed and ahead of the competition, it’s important to understand the ten major factors that will influence the real estate market in the US for the current year. By identifying and analyzing these trends, you can make strategic decisions to navigate the market and achieve success in your real estate investments.
1. Remote work and mobility
The shift to remote work and mobility has had a significant impact on the real estate market in the US. With more companies allowing their employees to work remotely, where they choose to live has changed. This has resulted in an increase in demand for properties in suburban and rural areas, as people look for more space and a more affordable cost of living.
Statistics for 2020-2021 show that the population in rural areas has grown by 23-25%. This trend is expected to continue in 2022 as well, with rural properties becoming more expensive and urban properties seeing a decrease in value. However, it is important to note that not all urban areas will see a decrease in property value, as some urban populations are moving towards larger spaces and better neighborhoods. This trend is expected to continue in the near future as well.
It’s crucial for real estate investors to stay updated on this new trend, and to identify the types of properties that will be in high demand. By keeping a close eye on the market, real estate enthusiasts can make more informed decisions and benefit more from the changes in the market.
2. Technology and innovation acceleration
Technology is advancing at a rapid pace and it is having a significant impact on various industries, including the real estate industry. The way buildings are designed and constructed is evolving to meet the changing needs of businesses.
One of the major impacts that technology has had on the real estate market is how people search for homes. More and more, younger, tech-savvy millennials are turning to the internet to find properties. Additionally, many sellers are using 3D and virtual reality software to create interactive tours of their properties, which not only showcases the property but also the floor plans.
Real estate technology is also streamlining the process of buying and selling properties by cutting out the need for intermediaries through property tools, listing facilities, and direct communication channels for buyers and sellers. Additionally, technology is being implemented in the building, management, and marketing of real estate properties which leads to reduced costs and better returns on investments.
Another technology that is gaining traction and is increasingly being used in real estate transactions is Blockchain technology. As more buyers are interested in transacting through cryptocurrencies, it is important for real estate agents and sellers to keep an eye on this technology.
Overall, technology is having a profound effect on the real estate industry and it is expected to continue to shape the industry for many years to come. Real estate professionals who stay informed and adapt to these new technologies will have a significant advantage.
3. ESG being the Agenda
The Environmental, Social, and Governance (ESG) agenda has become increasingly important in the real estate industry. The heightened focus on ESG issues has been driven by recent events such as pandemics and environmental disruptions, which has also led to increased investment in ESG funds and indices outperforming standard benchmarks.
As a result, there are changes in how investments are made in the real estate industry. New legislation is emerging and is affecting the nature of real estate investments, and at the same time, there is a growing awareness among consumers about the importance of environmentally friendly and socially-conscious properties. These types of properties are now seen as more valuable, resulting in higher prices when sold and higher rent when leased. Though the up-front cost of constructing Green buildings is high, it is much cheaper in terms of long-term operating costs and generates higher capital value, resulting in high rental income and quick occupancy rate.
Given these factors, ESG agendas are expected to have a significant impact on the real estate industry in 2022, particularly as the pandemic has not yet been fully mitigated. The recent political and social events like “Black lives matter” and “Greta effect” are also fresh in the public’s minds and are making people more conscious about the environment and sustainability. Real estate professionals will need to keep these considerations in mind and adapt to the changes in order to remain competitive in the market.
The logistics industry is set to disrupt the commercial real estate market for years to come. With the rise of eCommerce and online shopping, people are relying less on physical stores. As a result, more funds and investments are being allocated towards industrial properties, specifically warehouses and logistics centers, rather than traditional retail spaces.
This trend is also impacting the residential real estate market. With easy access to home delivery services, people are moving to smaller and mid-sized areas where affordable housing with larger space is available, and there is no need to rely on traditional shopping methods. This has led to an increase in population in these areas and a rise in demand for properties that cater to the logistics industry. Therefore, as an investor or seller, it’s important to keep an eye on the logistics and e-commerce trends and make strategic decisions in the commercial and residential real estate market.
5. Infrastructure: Profound Watchlist
The recent passing of a $1 trillion infrastructure bill by the US Congress is set to have a major impact on the real estate industry. Properties located near newly developed and modern infrastructure, such as highways, airports, and public transit, will likely see a significant increase in value and competition among buyers.
The trend towards environmentally-friendly cities and neighborhoods with features like greenhouses and electric vehicle charging stations will also play a major role in shaping the real estate market. As tenants, businesses, and employees move towards electric modes of transportation, properties in municipalities and cities that are implementing these developments will be highly sought-after, particularly by millennials. Real estate owners with properties near charging hubs or providing charging opportunities will be able to capitalize on this trend and profit handsomely.
In 2022, we can expect to see the beginning of these changes and the real estate market will be shaped by them in the coming years. Investors and developers who stay ahead of these trends will be the ones who come out on top. Therefore Infrastructure variation should be on the profound watchlist for the real estate market.
6. Housing Supply and Affordability
Research has shown that the housing supply has not kept pace with the population growth. This means there is a shortage in housing availability and rental housing services. This has affected affordability in different municipalities and cities. People are compelled to pay housing rent with half of their salary and the rest on other expenditures, which directly or indirectly affects the national economy.
There are various reasons behind the housing supply constraints. For urban areas, the main reason is the shortage of land. Another reason is the zonal restrictions in various localities where single-family housing developments are given more preference.
But where there is a constraint, there is opportunity. This information is highly valuable for real estate developers and dealers. Many states have been changing zonal restriction policies. Huge demands are popping up for more housing development to lower supply constraints and increase affordability. The year 2022 will see drastic changes in the real estate industry regarding housing supply and affordability because it has been a serious agenda from local to state to national level. So various policy changes and improvements are out due.
7. Political Polarization
Political polarization is going deeper in the United States, and it is known to everyone. This hard truth affects every field of society, and the real estate industry is no exception. Without concentrating on divided issues and their pros and cons, some of their results should be discussed fairly without bipartition. The debate for and against will go on forever if we dwell in people’s minds inflicted by many viewpoints, values, and paradoxes.
The immigration issue is a hot topic in politics. It has a direct effect on our economy and the real estate industry. The political friction has caused unregulated policies on this issue which has brought inflection on the labor market of the real estate industry. This has brought constraints on housing production, delayed deliveries, and prices going up. Real estate and its different forms like hotels, restaurants, personal services retailing, and medical offices have many immigrant workers. Therefore, if this issue is not regulated productively, we will see more escalation of problems in the real estate industry in 2022 and more years.
8. Economic structural change
Economic structure change is a common discourse in Economic studies. It has a practical effect on the real estate industry. Smart investors of real estate consider three major factors – real estate market cycles, transformation forces, and structural changes. Economic structural change is the difference or changes occurring that have been before and those long-lived in the economy’s structure and have a profound impact.
Trends deflection, for example, jobs trends inflection from one industry to another, may cause a shortage of human resources in the former. As the overall economy directly impacts the real estate market, economic structural change is an important factor to look out for. The space needs of businesses, households, and community services create the demand for real estate.
In 2022, even though there might be an uptick in demand for real estate as the economy is balancing positively, challenges do occur if you do not effectively calculate changing trends of property performance due to economic structural change. Understanding and forecasting the overall market cycle and estimates of rents, vacancies, operational expenses, and discount rates are vital to turning investment toward opportunity.
9. Adaptive Reuse
Adaptive reuse is readjusting existing properties to new demand and changing their purpose of use. It is a common concept in the real estate industry where restructuring properties is more cost-effective than demolishing and developing a new one.
Different factors have made adaptive reuse popular, mainly in urban areas. Changes in residential choices, business needs, societal needs, and environmental considerations have made such a process effective on a large scale. This process has many benefits cost-saving, less cost than demolishing and building a new one, time-saving, low tax rate, availability of federal and local funds, energy conservation, and decreased public and social costs.
The year 2022 will see many properties going through adaptive changes as there are heavy changes economically and socially. Many people leave dense urban areas for remote and large areas, and changes in these people’s behavior will lead to the adaptive reuse of properties at a frequent pace.
10. Divergence of capital markets
Public capital markets greatly impact the real estate industry because of their divergence between real estate buying and selling. Previously dominated by individuals and privately held entities, the real estate industry is seen a heavy inflow of investment from financial intermediaries. The fast pace of public companies buying and selling properties will change the structure of the real estate industry, evaluating how, where and what kind of properties to be built.
Debt capital markets and real estate investment trusts (REITs) are becoming more aggressive in acquiring commercial properties. They have a huge advantage of funds over individuals and private entities. Therefore, this factor is also important to take into consideration for 2022.
In the overall analysis, there are both challenges and opportunities in the real estate industry for 2022 and further. Effective analysis and a clear understanding of changing trends will evaluate the performance of real estate investors and enthusiasts, whether they do or do not turn their investment into opportunity and value.