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My Analysis Of The Real Estate Market 2022

With rising interest rates, skyrocketing home prices, record levels of inflation, a weird labour market, and record low housing inventory, could we be facing another 2007/8 crash? Maybe... Here are my thoughts

David Garner
David Garner
Published On: May 10th, 2022

The Real Estate Market 2022

There is absolutely no doubt that some regional housing markets in the US are already highly overvalued after record increases in houses prices through 2020/21.

Add to that the rising cost of borrowing as the Fed continues to push up interest rates, and you certainly have a recipe for some kind of change.

But will the market just cool off, or will we see another 2008-style crash? and how do we position ourselves accordingly to protect our wealth, and even take advantage of new opportunities?

In this article, I’m throwing in my 2 cents, and telling you exactly where I see the market heading, and also where I see the biggest opportunities through 2022/3.

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The Current State of Play

In the past two years, home prices in the United States have risen by 34.4%, with most of that (19.8%) coming in the past 12 months alone.

That, by anyone’s measure, is surely unsustainable. It’s four times times the annual average (4.6%), and considerably more than the biggest annual jump pre-2008 (14.7%).

But does that mean the entire market is about to come tumbling down?

Houses prices Have increased at the biggest annual rate since pre-2008, leading many analysts to suspect the bubble may be about to burst

Certainly, some commentators have been shouting ‘bubble’ for some time. And they’re probably right. But in reality the problem is largely regional.

With 330 million people living in about 140 million homes across a land mass of 3.8 million square miles, and many different types of real estate, it would be wildly inaccurate to say all markets are suffering the same.

So, let’s take a look at some of the biggest regional bubbles, and take a guess at what might have driven them so hard…

A Regional Problem

Personally, I would call a housing market a bubble if locals cannot afford to buy.

That is to say, when the combination of house prices and the cost of borrowing weighed against local income levels makes buying a home unlikely or impossible.

With no local buyers, rising prices are not sustainable.

A good measure of this comes from The Real Estate Initiative at Florida Atlantic University. Every month, these guys calculate how overpriced or under-priced homes are in the largest 100 housing markets.

According to the university…

“A positive score represents a premium, implying that the average property in a metro is selling above its historical implied price. A negative score represents a discount, implying that the average property in a metro is selling below its historical implied price.”

The bad news is, the latest data (March, 2022) showed that all 100 of the biggest housing markets are overpriced.

Worse still, almost half of the markets measured (44) were more than 30% overpriced, and the worst 13 markets looking to be more than 50% overvalued compared to what local economic fundamentals can support.

The house price problem is laregly regional, with some markets overpriced by more than 50% accoring to Florida Atlantic university

So why has this happened inn such a short period of time?

Well, when you dig down into the data, it seems like Covid may have something to do with it.

The U.S. postal; service received about 36 million change of address requests in 2020. That’ pretty consistent

Those areas that saw large levels of interstate immigration during the ‘work from home’ boom equally saw house prices skyrocket as wealthier economic migrants from tax-heavy and high living cost states moved in.

That’s basic supply and demand in action right there.

Some of the highlights include Boise (overpriced by 75%); Austin (66%); Ogden, Utah (63%); Las Vegas (60%); and Atlanta (60%).

At the same time, markets that saw folk leave town to head for pastures new look least overheated, including, New York City and San Francisco, two traditionally booming markets which are now overpriced by just 3% and 13% respectively.

But does this mean the whole national market will suddenly crash? Highly unlikely!

An influx of wealthier buyers from out of town seeking to capitalize on the 'work form home' boom have pushed up prices in some markets

According to Mark Zandi, chief economist at Moody’s Analytics, there is no popping bubble on the immediate horizon. Of course, those highly overheated markets will likely see corrections of up to 10% in the next 12 months, he says. But that doesn’t make it a national problem.

More likely is a general cooling of the national numbers as regional corrections bring down the national average.

But there are definitely still some great opportunities for investors. In fact, current market conditions are creating some of the best opportunities in real estate since the fallout of 2008.

The ‘Good’ News

Despite the regional overheating, there is still solid fundamental support for the housing market.

Low inventory, reasonable levels of household net household debt, strong buyer demographics, and rising incomes in certain market sector all converge to paint a much rosier picture in some market segments.

Housing Inventory

When any product is scarce, prices rise as buyer compete. That’s economics 101, and today’s housing market encapsulates this perfectly as record low inventory is keeping market hyper-competitive.

I’ve seen this especially in our own affordable housing program. Our properties are selling even before renovations are complete. There simply aren’t enough houses to go around.

With housing inventory at record lows, buyers are competing for available homes, pushing up prices in bidding wars like never before

According to the Federal Reserve Bank of St Louis, there were just 381,950 active listings of single family homes, condos and townhomes in the United States in March, compared to 1,549,830 in January 2017. That’s an astonishing drop of 75% in the number of homes for sale!

Total housing inventory is just as bad, with 950,000 units available for sale in March, compared to an all-time high of more than 4 million!

With so few houses to buy, it’s little wonder the best properties are selling fast and for top dollar!

Mortgage Rates

Now, considering rate are on the up and up, it seems like there might be no good news to speak of here.

With rising houses prices and rising mortgage rates, you have mortgage payments that are higher than ever.

The mortgage payment on the average median home price is up 37.8% year-on-year according to Redfin analysis of MLS data. That means it now costs more than $2,300/month in April, compared to about $1,650 in 2021, and roughly $1,400 in 2020.

But while the Fed certainly plans on more rate rises to come this year (and next probably), the good news is that it looks like banks may have already priced this into their mortgage products. 30-year borrowing rates are already hitting an average 5%, compared to a low of 2.65% just 18 months ago.

it looks like banks may have priced in upcoming fed rate hikes already. If so, the cost of borrowing in unlikely to rise much more

Of course, this is still  a bad thing for someone wanting to buy their first home, but for the most part existing borrowers already have low rates locked in. In fact, analysis by Black Knight shows that most existing mortgages are locked in at between 2.5% to 4% (38.6 million loans), with relatively few (5.2 million) at higher rates of 5% to 6.5%.

So, while there is no doubt in my mind that this higher cost of buying will help to cool those overheated markets, that is no bad thing in my opinion, and if you are in a market where buying is still feasible at 5%, it’s unlikely to get much worse than that.

Household Debt

One of the better things to come out of Covid is that households spent the time and money repairing their balance sheets, putting them in a far better position in terms of net debt.

While the total amount of debt held by households has gone up, hitting almost $16 trillion, much of the new debt was originated when new loans were the cheapest they’ve ever been.

This means the cost of servicing household debt is about 9.3% of disposable household income. that’s the lowest it’s ever been, comparing very favourably indeed to the all-time peak of 13.2% we saw in Q4 of 2007, just before the housing market imploded, taking the global economy with it!

On average, household finances are stronger than they've ever been, with net debt at zero, and debt servicing costs lower than ever

Households now also hold more cash than debt on their balance sheets for the first time in 3o years, bringing net household debt to zero!

Of course, much of this cash sits with wealthier households, so it’s not like everyone on your street has millions in the bank. But in theory, household finances are the strongest they’ve ever been on average.

Let’s see how inflation and the rising cost of living eats away at all that disposable income though!


The United States is in an exceptionally strong position when it comes the the age of it’s population relative to other superpowers, especially in Asia and Europe.

In Japan for example, 28.2% of the population are aged 65 or over. There are very few younger folk looking for their first home. China and many European countries are not far behind.

This is a problem for the workforce, the cost of welfare to the state, and the housing market, all of which require more young people to enter at the bottom as older people exit at the top.

The Us has large Gen Z, Gen Y and Millenial populations who account for 63% of homebuyers, ensuring consistent future demand for homes

The United States compares very favourable with just 16% of it’s population considered ageing.

In fact 12.5% of the entire US population is aged 26 to 34, making them prime first time buyers, and a further 25.5% are aged 35 -54 putting them right in the thick of the real estate market, trading up to larger homes as their financial position improves.

When you consider that people aged 36 and younger buy the most houses in the US, accounting for approximately 34% of all sales, according to statistics from the National Association of Realtors, the overall current and future demand for homes looks very healthy indeed.

Household Income

Finally, let’s take a look at household income. Inflation and rising interest rates aren’t so bad if folk are earning more money, too… right?

Well, on average, wage growth has not kept pace with inflation. But that isn’t the full picture, not by a long shot.

Wages for low income earners have increased by almost 15% year-over-year, almost double the rate of inflation

In fact, wages for low income earners (<$20/hr, non-supervisory roles) are have risen almost 15% year-over-year, far faster than mid and high wage groups which sit around 5% to 6% higher than this time last year.

That’s great low income earners, and when combined with the other factors noted above also gives us some clue as to where we might see the best opportunities in the US housing market through 2023.

What Does It All Mean?

We’ve covered a lot of ground here, far more than I thought I would when I first started writing this article. But I suppose that’s the point. The housing market is complex, with millions of moving parts, and every regional and local market is different.

So what does it all mean?

My personal opinion, based on the information to hand right now, is this:

  1. House prices in overheated markets will (quite rightly) correct towards affordability as the rising cost of borrowing combines with overpriced houses and a rising cost of living in general.
  2. Inventory will remain low, supporting price stability in markets where prices are not unreasonable and demand remains high.
  3. The most consistent opportunity will be in the demand for good quality affordable housing for low to middle income earners to rent and purchase.
  4. There will be opportunities to purchase off-market direct from distressed sellers, as well as more foreclosure sales.

For me and my business, we will continue to purchase off-market discounted properties in the affordable homes space. Buying below market value and adding further value through good quality renovation insulates us from general market movements to some extent.

We also aim to capitalise on demand for affordable homes by continuing to provide financing options to help low to middle income earners transition from renting to homeownership in the neighbourhoods they want to live in.

For our investors, we will be offering a limited number of private lending opportunities secured against renovated and tenant-occupied homes in our own portfolio.

That’s it form me. I hope you’ve found this article useful and informative, and remember, it’s just my opinion, if you have a different one I’d love to hear it, so get in touch.

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