How real estate affects the US economy
Inflation is at its highest point since 1982, which has had large effects on many sectors, specifically real estate. Traditionally, real estate is a hedge against inflation for investors, as rental income increases with property values, property values rise with inflation, and mortgage rates remain fixed. However, for future and current homeowners, the impact of inflation is very clearly negative. Many regions across the United States are facing an underbuilding gap. With the housing unit gap sitting at 5.5 million in the last 20 years, a number that climbs to 6.8 million when losses of current units are taken into consideration. The highest levels of homes sold since 2006 were hit in 2020 and 2021. A whopping 6,460,000 homes were sold in November 2021.
A major force behind rising inflation rates was the pandemic, as it caused a supply and demand crisis and led to global shutdowns in production, leaving the national housing inventory at its lowest in April 2021. Not only was the market affected by the pandemic, but also the supplies and construction material industry also saw a shortage of supply and a rise in price, as lumber prices rose by 114% and iron and steel prices rose by 73%. Labor costs also began to rise as the housing and real estate sector faced a shortage of workers. The general lack of a balanced supply and demand system in the United States caused major inflation, leading to a future of possible consequences and hardships for the industry.
What does current inflation tell us about the future?
Experts say that these inflation trends cannot be considered transitory and that 2022 is likely to show similar trends. The future rests on the trajectory of the Covid-19 pandemic as the supply and demand system will return to normal and production will slowly recover as the pandemic slows in the United States. In terms of housing inflation specifically, prices of construction materials continue to rise, and despite potential policy implementations that could reverse those effects, experts agree that building and demand costs will remain heightened. It is predicted that the 2022 housing market will see a 6.6% increase in home sales and a 2.9% increase in appreciation.
Two main types of real estate investment, commercial real estate (CRE) and real estate investment trusts (REITs), are offered as a budding venture that may be beneficial to consumers in the future. Even the metaverse now offers investments in the real estate sector, showcasing how truly advanced and highly developed the housing market may become in future years.
