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10 New Real Estate Trends & Forecasts for 2022/2023 and Beyond

The latest real estate trends are best described as a mixture of both positive and negative developments. For starters, the prices of real estate property continue to skyrocket, which is being driven by a variety of factors. This, too, has been heavily affected by the COVID-19 pandemic. Other factors include the ongoing economic downturn and the emergence of a new buyer demographic (Forbes, 2019), in the form of Millennials. Hence, some sectors are not that comfortable with the increase in home prices, expressing worries that a housing crash may be on the horizon.

Here, we present to you the latest real estate trends for 2021/2022, including research results that have many pundits remaining confident of the real estate market. You’ll also understand what experts and normal homebuyers think and feel about the US real estate market in general. 

Furthermore, you’ll get to learn the changing buyer preferences and the onset of new tech that are expected to make further alterations in the real estate market. After this reading, you should be able to better plan any real estate purchase that you may have lined up. 

key real estate trends

It may come as somewhat counterintuitive but in the midst of the COVID-19 pandemic, new-home buying was strong (Realtor Magazine, 2021). And experts believe that it may well continue in 2021.  In particular, single-family constructions made 2020 the best year for home building since the Great Recession. Moreover,  it was 11% higher than in 2019.

The market also saw ultra-low mortgage rates and changes in housing preferences. This includes the demand for home offices, larger spaces, and outdoor amenities.  These have driven the increase in the US.

Source: St. Louis Fed, 2020

It may be normal for people to find this surprising. But the numbers show that the homeownership rate in the US has generally risen since 2016. Developments and their drivers are bound to impact both buyers and sellers who continue to be cautious yet harbor certain levels of risk. Besides, many property owners have also been using property management software to boost profits in their portfolios.

This is an exciting time for the real estate industry as disruptions bring about new opportunities.

1. COVID-19 Impact: Homeownership Rising

In the first quarter of 2019, US homeownership rate was at 64.2%. By Q1 of 2020, the figure rose to 65.3% with Q3 of the same year ending up with 67.4%. This reflects the demand of consumers to have their own homes. And, it may just well be that health and safety concerns are the main drivers. Remote working and the easing back to social life may also be a part of it. This can be inferred from the aforementioned increase in housing preferences like demands for home offices, outdoor amenities, and larger spaces.

This rise is likely to continue this 2021 by 5% according to Robert Deitz, National Association of Home Builders chief economist. And, the rise also means that the market will hit more than 1 million housing starts for the first time in many years. However, it is not all green pastures for the industry.

Existing-home inventories are at record lows as owners hold out because of the pandemic. Moreover, builders are trying to cope with new challenges that could affect their sales drastically in the first few months of the year. This is, in general, related to rising construction costs. Lumber prices have skyrocketed since. February 2021 price sits at $940 per thousand feet board. This is up 169% since mid-April of 2020.

Other challenges, according to builders include:

  • 96% – shortages or delays in getting building materials
  • 78% – local jurisdictions have trouble processing approvals in a timely manner
  • 76% – workers and subs may not be willing to report to sites
  • 69% – new ordinances will make construction and development more difficult
  • 46% – lots are not online because of prior suspension of development activities
  • 34% – inadequate public infrastructure
  • 30% – difficulty getting financing

Of course, these can be alleviated by the right outlook, tools, and actions. One thing that can help construction professionals are top construction management tools. These tools can help them organize projects, bill clients, get supplies, and so much more.

rise in lumber prices due to covid-19

Impact of COVID-19 Takeaways

  • Homeownership rates have increased and will likely continue at a 5% rate this 2021.
  • COVID-19 has brought about new housing preferences for home offices, larger spaces, and outdoor amenities.
  • Lumber prices are at a record high since the Great Recession.

2. Taking Advantage of Low Mortgage

The economic decline of 2018 has increased real estate investment in the US during the pre-pandemic period. The industry received $470.7 billion, registering a 19% uptick in capitalization. Domestic institutions’ decision to boost their net holdings is seen to contribute to this development. Increased domestic activity is cited as the primary reason for the improved investment flow to the sector, which effectively turned around two consecutive years of decline. Additionally, new tech such as real estate management platforms has been boosting property owners’ management capabilities.

This has been the story before the pandemic. In fact, global institutional-grade real estate has been projected to expand by 55% from 29 trillion in 2012 to about $45.3 trillion in 2020. It has also been projected that institutional-grade real estate will be worth $25 trillion in developed countries and $20.3 trillion for developing countries.

This same story is likely to continue after the pandemic, especially in the US housing market. Also, COVID-19 seemed to have been a huge factor. This is because mortgages decreased because of the outbreak (MarketWatch, 2020).

In the US, many new homeowners during the pandemic claimed that COVID-19 played a role in pushing them to purchase homes (LendEDU, 2020). About 54% took advantage of the low mortgage rates. Another 15% stated that they wanted to move out of locations getting hit badly by the outbreak. Only 26% answered that the outbreak did not have an impact on them becoming a homeowner.

The long-term trend of increased investments looks to have been accelerated by pressing circumstances. And investors are keen. In fact, almost 15% of housing stock in the US is made up of multifamily housing, which is popular as it can generate a steady cash flow (Infutor, 2021). Single-family dwelling units, on the other hand, make up about 81.5%. The market, despite being a little slower, is still picking up.

But not all are enthusiastic. About 30% of new homeowners during the pandemic regret their home purchase for financial reasons. Another 10% stated that they should have waited because of social/life reasons. And 7% claimed that they were not prepared for ownership. However, 43% of new homeowners during the pandemic did not regret their decision.

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Do you regret purchasing a home during COVID-19?

Survey of New American Homeowners

Do you regret purchasing a home during COVID-19?
No, felt made the right decision: 43

No, felt made the right decision

%
Do you regret purchasing a home during COVID-19?
Yes, should have waited for financial reasons: 30

Yes, should have waited for financial reasons

%
Do you regret purchasing a home during COVID-19?
Yes, should have waited for social/life reasons: 10

Yes, should have waited for social/life reasons

%
Do you regret purchasing a home during COVID-19?
No, other: 8

No, other

%
Do you regret purchasing a home during COVID-19?
No, felt prepared for homeownership: 7

No, felt prepared for homeownership

%
Do you regret purchasing a home during COVID-19?
Not sure/rather not say: 3

Not sure/rather not say

%

Source: LendEDU, 2020; Pollfish, 2020

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Low Mortgage Trend Takeaways

  • Prepandemic projections were optimistic.
  • The COVID-19 outbreak caused low consumer spending and drove mortgages lower.
  • Many took advantage of low mortgage rates and became new homeowners.
  • Some new homeowners during the pandemic regret their decisions to purchase because of financial and social reasons.

 3. Steep Rise in Home Prices

Before the pandemic, home prices were expected to increase at a slower rate, unlike the market jump of 2017 and 2018. The number of home listings was likewise seen to increase by only 1%. However, as mortgages have plummeted because of low consumer spending brought about by the pandemic, home prices are seeing a steep rise. In effect, this development nullifies the benefit of low mortgage rates.  

Experts forecast home prices to increase another 3.6% until February 2021, and annual home value growth will increase up to 13.5% by the middle of the year. By the end of 2021, a 10.5% price growth will be registered.

With safe and stable housing a bigger concern because of the pandemic, the Center for Disease Control and Prevention (CDC) released a moratorium that stops landlords from evicting renters who are not yet able to pay and do not have a safe housing alternative after eviction.

A study that analyzed state policies on the issue found that on a scale of one to five, 10 states have scored zero. These include the states of Texas, West Virginia, South Dakota, North Carolina, and Nebraska. The states with the best scores were Minnesota (4.03), Washington (3.50), Connecticut (2.88), Hawaii (2.85), and Vermont (2.48).

With the economy recovering, it is imaginable that more housing policies will be put in place. This is not just to alleviate the short-term concerns of health but also to increase resilience to future outbreaks. The government may well place more policies in the future and these can disrupt the market. What they will be, we still don’t know. However, we should stay vigilant and not make rash decisions on investments.

steep rise in home prices due to covid-19

Home Sales Trend Takeaways

  • Mortgage rates are decreasing while prices are increasing. This could end up in a housing affordability crisis.
  • The housing market has seen a high pace of sales growth. It is a sellers’ market and buyers are facing more competition.
  • Because of extraordinary factors brought about by the pandemic, there might be more government policies rolled out not just for short-term alleviation but for future-proofing against outbreaks.

4. Millennials As Home Buyers

Millennials, believe it or not, are dominating the residential real estate buyers market. Members of this generation have been finding stable jobs, with household incomes reaching $88,200. Most Millennials prefer middle- and upper-middle-class homes and account for 38% of the market. 

So what should sellers do to tap into this burgeoning market? One thing for sure is to leverage the use of the Internet. Millennials are known to research online first before making purchase decisions. Sellers should also offer homes that are sustainable and have plenty of usable space. Also,  consider offering properties located in bustling cities where the cost of living is more affordable. For buyers, the current market means improving communication with sellers, being straightforward with what they want in a home, and enlist the aid of a real estate professional.

On the other hand, leading sellers in 2020 were the Older Boomers (1946 to 1954) at 23%. Younger Boomers (1955 to 1964) and Gen Xers (1965 to 1979) came a close second making up 22% of the sellers.

Source: NAR, 2020

Millennial Home Buyer Trend Takeaways

  • Millennials have been securing stable jobs, contributing to their home purchasing capability.
  • Millennials prefer mid- to upper-middle-class homes.
  • Millennial homebuyers make up 38% of the market.
  • Marketers are advised to leverage the Internet as a way to reach the Millennial market.

5. Affordable Homes Still Needed

Before the pandemic, house rents still beat home purchases by a large margin in 59% of the housing markets in the US. Residential real estate prices are not helping as they continue to displace wage increases in 80% of markets. High home prices were expected to drive demand for rental housing.

However, as low mortgages come into play because of the pandemic, more and more people are looking into having their own homes. But as prices become higher, previously-owned homes are still the dominant choice in the market. In fact, the National Association of Realtors found that 87% of home buyers chose previously-owned homes. The top reasons include better overall value (33%) and better price (31%).

Moreover, 38% of all buyers were previously renting a house or an apartment.

Among the types of homes purchased, 83% is accounted for by detached single-family homes. A good 50% of these homes were located in the suburbs, 22% in small towns, 13% in urban and rural areas, and 2% in resorts or recreation areas. This shows the preference for more affordable environments.

The trend will likely continue in the future, especially as green and simple living is also picking up steam. In fact, a considerable number of global city residents at 66% want to move to smaller low-cost cities yet offering a high quality of life (Gensler, 2020).

 

Affordable Home Trend Takeaways

  • House renters account for 38% of new homeowners during the COVID-19 pandemic.
  • High prices nullify the benefits of lower mortgage rates.
  • 87% of homeowners accounted for buyers choosing previously-owned homes.

6. Shift to Second-Tier Cities

Real estate investors and buyers have been setting up shops in second-tier cities because of the high real estate prices in first-tier ones. Investments in these cities have increased significantly, contributing to higher real estate prices. Large companies have likewise been leaving first-tier cities, moving to second-tier locations. These capital movements are seen to result in economic growth and greater value for real estate properties in second-tier cities.

The influx of investments to second-tier cities is expected to more or less equalize capitalization rates in both markets, resulting in an increase in the value of real estate property in second-tier locations.

The trend was strong even before the pandemic. Now, the trend is getting stronger. As one survey indicated, 15% to 28% of large city residents are likely to move out of the city. And, consistently, more than 60% claim that the pandemic has influenced their desire to move.

Because of this shift, it is highly likely that real estate markets in both first-tier and second-tier markets are to equalize. This will also likely pull more investors into second-tier cities, making local real estate markets more vibrant.

Shift to Second-Tier Cities Trend Takeaways

  • Investors move to the second-tier housing market.
  • The mass movement to second-tier cities is being driven by high home prices and the pandemic accelerated it.
  • Economic growth is forecast to follow the shift in real estate investment location
  • Capitalization rates in both first- and second-tier real estate markets are expected to equalize.

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7. Use of New Technology

The real estate sector is no stranger to technology. The industry is expected to continue adopting new tech in the coming years. Technologies that are expected to find applications in the sector include smart home tech, online home selling platforms, and apps. An uptick in the number of startups and high-technology companies servicing the sector is also on the horizon, with many paying close attention to making transactions faster.

Artificial intelligence is likewise expected to play a role in real estate with building organization, design, and management being eyed as potential areas of application. Also, machine learning is increasingly being used in public spaces concerning property design and urban planning. Even office space construction has been benefiting from AI use. Making matters even better is the fact that many property owners have been embracing the best facility management solutions to help them handle their properties.

Indeed, 2020 data show that consumers are going digital as well. A significant 44% of new homeowners look online first for properties for sale. Also, 12% used the internet to find information about the process of purchasing a home. What is also very salient is that <1% of new homeowners looked at print materials like magazines and books to find properties and learn about the buying process.

homebuyers trust the internet

New Technology Trend Takeaways

  • Both real estate buyers and sellers are seen to continue using new technologies.
  • Technologies like online home selling platforms, apps, social media, and smart home technology are now being used by members of the sector.
  • Technology firms and startups servicing the industry are expected to increase.
  • AI will play a major role in real estate.

8. Mortgage Interest Rates Go Up then Settle

Before the outbreak, mortgage interest rates had been rising after years of stagnation. They were projected to continue to do so at a rate of 4.4% for 15-year mortgages and 5% for 30-year mortgages. The US Federal Reserve decided to temporarily increase short-term interest rates as a way to stabilize inflation and the economy as a whole. Higher interest rates reflect people’s continued willingness to borrow and spend.

After the outbreak, though, mortgages dipped and the trend was reversed. This, however, is seen by experts as just a phase. Soon, they predict mortgage rates will continue to rise. In Q2 of 2020, mortgage interest rates for 15-year rates slipped to 2.7% from 3.87% in Q1 of 2019, 30-year fixed-rate dipped to 3.23% from 4.37% in Q1 of 2019, and 5-year ARM dropped to 3.19% from 3.87% in Q1 of 2019.

By the end of 2021, mortgage interest is expected to be at 3.4%. It isn’t as high as before but it will likely go back to the mean or close to it after the pandemic. But considering the extraordinary situation of a pandemic, rates may become volatile.

Source: HUD.gov, 2020

Mortgage Interest Rates Trend Takeaways

  • Mortgage interest rates have dipped but they will rise and settle.
  • People will still be willing to borrow and purchase homes.
  • Home sellers must plan in advance in view of volatile mortgage interest rates.

9. More Listings for Luxury Homes

The real estate inventory of high-end homes is expected to continue to grow. Conventionally, the availability of more luxury homes is seen to result from the incentives that sellers get from high home prices. However, we are in unconventional times with the pandemic. And it plays a big part in the increasing demand for luxury homes.

In the three months ending on November 30, 2020, luxury homes saw a 60.7% YoY increase. And new listings grew 31.5% during the same period. The median sales price of these homes is $899,000, a product of a 9% YoY change from the previous year. Luxury houses have a median of 55 days on market. In this category, however, it dipped -27 days YoY.

High-end residential real estate may see another bump up in prices. But this may soon settle to lower price points once the pandemic ends. As always, the law of supply and demand rules the market, with luxury home prices being driven by high inventory levels. This could prove to be good news for investors who want to cash in on luxury homes, which seem undervalued at this point.

luxury homes market 2020

Luxury Home Trend Takeaways

  • The market for luxury homes is expected to expand.
  • The number of luxury home listings has and will continue to increase.
  • Pandemic dangers and fears may continue to fuel growth.

10. Use of Amenities to Attract Customers

Property owners, landlords, and even builders are seeking to capitalize on amenities to attract new tenants. The staple gym and parking access, it seems, are no longer of critical importance as they are expected of most properties. Now, property owners are looking into offering unique amenities like communal gardens and movie theaters, among many others.

Since the outbreak, the multifamily sector puts additional focus on adding outdoor amenities as Americans are encouraged to have gatherings outside because of the virus (REBusinessOnline, 2020). This includes rooftop amenities and outdoor terraces.

Smart homes are also making an entrance, courtesy of savvy real estate investors. Investors’ push to provide amenities may very well signal the need to identify amenities that could add value to their properties. They should likewise revisit their marketing strategies as amenities alone cannot attract tenants. All property offerings must be advertised while old tenants should know of any new amenities in the offing.

Some owners of smart real estate are already getting ahead of the competition: starting with IoT sensors, around 49% of them see the virtue of sharing the data with their tenants in order to work out the best amenities and enhance the overall customer experience (Deloitte, 2020).

data analytics in real estate

Use of Amenities Trend Takeaways

  • Real estate players seek to attract tenants using amenities.
  • Unique amenities will be demanded for new homes.
  • Owners of smart real estate are employing IoT technology to work out the best amenities with their customers.

Trends as Basis for Property Purchase

The real estate market is truly a mixed bag at this point, taking into account the pandemic and the new normal. However, the sector is seen to be healthy in the next few years. With the rise in homeownership, real estate listings continue to endure, reinforced by the emergence of the Millennial demographic and pandemic-related fears. Meanwhile, small businesses that maintain properties have been investing in top property management tools. These allow them to keep a tight ship. 

And we’re just about done here. The trends presented here are expected to serve as a guide for both home sellers and buyers. And this is true, considering the fact that many fund managers and investors have redefined their investment strategies in response to developments in the market. If you are planning to purchase property, you can utilize the data from these real estate market trends to make sure that you get the most value from your real property purchase.

 

References:

  1. Donenfeld, A. (2019, May 19). Five trends that will impact real estate investing this year. Forbes.
  2. Tracey, M. D. (2021, February 10). New-home buying rush likely to continue in 2021. Realtor Magazine.
  3. Federal Reserve Economic Data. (2021, February 2). Homeownership rate for the United States. Federal Reserve Bank of St. Louis.
  4. PwC. (2021, February 2). Real estate 2020: Building the future. PwC.
  5. Passy, J. (2020, November 19). Mortgage rates drop to new record low as coronavirus cases climb. MarketWatch.
  6. Brown, M. (2020, September 1). 55% regret taking out a mortgage during coronavirus. LendEDU.
  7. Infutor. (2021, March 17). Infutor. Infutor.
  8. National Association of Realtors Research Group. (2020). 2020 homebuyers and sellers generational trends report. National Association of Realtors.
  9. Jong, S., Gambrill, J., & Wood, W. (2020, November 23). The rise of second-tier cities. Gensler.
  10. Hiller, K. (2021, January 5). Pandemic puts outdoor amenities, middle markets into Multifamily spotlight. REBusinessOnline.
  11. Berry, J., & Feucht, K. (2020, December 3). 2020 commercial real estate outlook. Deloitte.
Jenny Chang

By Jenny Chang

Jenny Chang is a senior writer specializing in SaaS and B2B software solutions. Her decision to focus on these two industries was spurred by their explosive growth in the last decade, much of it she attributes to the emergence of disruptive technologies and the quick adoption by businesses that were quick to recognize their values to their organizations. She has covered all the major developments in SaaS and B2B software solutions, from the introduction of massive ERPs to small business platforms to help startups on their way to success.

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