Should You Buy Real Estate in 2022?
Unprecedented inflation created challenges for the average American to afford the same lifestyle without breaking the bank or going into debt. Many Americans wanted to purchase real estate in 2021 due to the work at home phenomenon. This caused a high demand for suburban properties, which created bidding wars and ultimately many properties sold at a premium price.
During the Covid-19 pandemic, there were many economic uncertainties such as shortage in chips, delays in import/exports, fear of a market crash or recession. In 2020, the annual inflation rate was at 1.4% compared to 7% in 2021 then increasing to 8.3% in 2022. This drastic increase in inflation has created fear and chaos for many Americans who want to put their money in safe investments where they won’t lose value. Many people decided to turn towards buying real estate.
In 2021, the 30 year fixed mortgage rate ranged from 2.65% to 3.14%. With such low mortgage interest rates, many people believed purchasing real estate seemed like the optimal solution to combat the high 7% inflation rate. In 2022, the 30 year fixed mortgage rate increased to 3.22% in the beginning of the year and now at 5.89% in mid September. As mortgage interest rates increases, it has become less desirable for some Americans to purchase real estate.
However, the CPI report for August 2022 revealed shocking statistics. The most shocking number was the fact that the cost of rent is projected to increase at 8.3% in 2022 (it increased at .7% in just the month of August alone). That means the same apartment or home that used to cost $3,000 a month to rent will now cost $3,249 by the end of the year. Majority of Americans are not seeing their income rise fast enough to be able to afford the same lifestyle with such high rent inflation rates. In this situation, it would be a better investment to be locked into a 30 year fixed mortgage rather than dealing with the unexpected rental market. With a 30 year fixed mortgage for a home you own - your monthly housing expense stays the same for every month for the next 30 years. Zero inflation. Zero risk of rising housing expenses.
In conclusion, with the current rent inflation rate at 8.3% and the 30 year fixed mortgage APY rates hovering in the 5.8% range: it is still a great time to buy real estate whether it is buying your primary residence or adding another investment property to your portfolio.
Don't hesitate to contact me for real estate advice. I'm a realtor dedicated to my profession - representing Buyers, Sellers, and Lessees of Residential Property in Los Angeles County and the San Francisco Bay Area.
Sources used: U.S. Bureau of Labor Statistics. (2022, September 13). Consumer price index, Los Angeles Area - August 2022 : Western Information Office. U.S. Bureau of Labor Statistics. Retrieved September 15, 2022, from https://www.bls.gov/regions/west/news-release/consumerpriceindex_losangeles.htm 30-year fixed rate mortgage average in the United States. FRED. (2022, September 15). Retrieved September 15, 2022, from https://fred.stlouisfed.org/series/MORTGAGE30US