Posted by Matt Curtis on Thursday, June 30th, 2022 1:42pm.
Real estate is at an inflection point. Harvard University just released its 2022 State of the Nation’s Market report for the housing industry. Topics that are discussed regarding the current housing market for the U.S. in 2022 include interest rates, housing stock, and the rapid increase in housing costs. The report also notes an inflection point in current real estate and the challenge of inventory, which is not believed to change any time soon.
The report explains that we hit a record price appreciation in March, which was 20.6%, and apartment complexes are currently seeing a double-digit appreciation of 12%. With the price appreciation slowing down and moderating, along with home values dropping, the rate at which they're (can we elaborate on “they’re” - are we talking home values or price appreciation or record appreciation?) increasing starts to slow. I believe that the nation going to continue to see apartments and rent in that double-digit appreciation range. I believe that the nation will continue to see double-digit appreciations for apartments and rent prices.
I believe that is because the higher interest rates are going to decrease the demand for buying homes. However, the housing demand is going to shift from purchasing homes to purchasing apartment complexes and renting homes. This is going to continue to create an imbalance in that supply and demand, thereby increasing prices. If you look at smart money, a lot of investors are thinking the same thing. Several Wall Street and hedge funds are currently buying up many single-family homes right now as they're making that bet.
People are saying that the U.S. is in a housing boom right now. I would argue that we've not had price appreciation as much as we've had dollar devaluation with 40% of the US dollars being printed in the last 24 months. My advice is next time the government offers to print you a check, tell them no. A pattern of accepting the government checks is creating a rapid rise in gas, food, and commodities. This will affect real estate prices, which is what we are now seeing in the U.S. housing market.
In this 2022 U.S. housing market report, Harvard University also noted the average down payment for first-time homebuyers is 7%. The downpayment statistics equate to $27,400 in April 2022. This number is important because it rules out about 92% of renters that have an average savings of $1,500 in the bank. This is one of the reasons I'm encouraging parents and grandparents of millennials to step in and help their children with the first down payment of their first home.
Higher prices are creating a higher net worth for homeowners right now. Looking at the housing market in the U.S. a couple of years ago, you will notice the average net worth of a renter was $6,300 versus $255,000 for a homeowner. This is a 40-times difference. I believe that number is likely even higher today with the record appreciation that we've seen. This is another reason why I'm encouraging parents and grandparents of millennials to tap into that record equity to help your millennial child and grandchild get into their first home.
New home starts reached a 30-year high in 2021. Unfortunately, that number is starting to come down as interest rates are beginning to increase. This is a key point to remember since we currently have a 5.5 million home deficit in the U.S. housing market. Household growth continues to be strong. Unless we rapidly increase this supply, the deficit is going to continue to increase.
Higher interest rates have already increased the average mortgage payment by over $600 per month. We know that Fed chairman Jerome Powell has said that he wants to decrease interest rates long-term. This statement pushes me to encourage you to go ahead and lock in your price today. Lock in your interest rate at a maximum, then refinance down as Jerome Powell gets his way and lowers interest rates back again.
Remember that buying your forever home is much preferable to buying your forever loan. In conclusion, this report says the condition of the housing market in the U.S. for 2022 is not headed for disaster. Don't believe all the hype you're seeing across the media channels. Rely on clear data to make an educated decision for both you and your family in purchasing a home this year.