It is no secret that the U.S. property market has experienced some peculiar changes over the past few years. Furthermore, it is only natural to desire the most recent information on what the market will do before making a purchase or sale, as one’s entire financial future lies in the balance.
Forecasts for the real estate market are about as accurate as those for the weather. Although experts in the field of real estate do their best to predict future events using available data, no one can ever be certain of the outcome of any given situation.
The real estate market has had an interesting year in 2022. After prolonged high inflation in the US and elsewhere, the Federal Reserve has been steadily increasing interest rates to bring inflation back to more manageable levels.
Here is a look at the 2022 real estate market trends and all you need to know about the dip and whether you should buy it.
The current state of the real estate market in 2022
The housing market exploded in 2020-2021, but it’s starting to show signs of weariness. For example, the 30-year fixed mortgage rate reached a 20-year high of 7.08% by late October, making it more difficult for purchasers to obtain reasonably priced housing.
The housing market is constantly under a barrage of skyrocketing home prices, labor shortages, rising transportation costs, as well as fears of an impending recession, putting a stopper on people purchasing property.
The National Association of Realtors reports that the number of existing-home sales declined 1.5% from August to September 2022, making this the eighth straight month of dropping sales.
What does the future hold for the real estate market?
PWC interviewed a few real estate professionals, and the overall mood was looking into the future and ignoring current pains. As one investor put it, today’s astronomical housing prices will probably look like a bargain in 10 years.
The work-from-home (WFH) trend seems ongoing, forcing property holders to repurpose between 10% and 20% of office space. That also means more residential properties must change to cater to the WFH workers.
Market Watch interviewed experts from Zillow, Realtor.com, Houwzer, Bankrate, the National Association of Realtors, and NerdWallet. The consensus was home prices would likely drop during winter, following the slight price correction in July and August. Whether the price drops will continue apace next year is debatable.
Home listings have gone back to a level before the house-buying frenzy of 2020 (up 33.5%), but home sales have declined overall. Mortgages are still unaffordable, so the whole market is at a standstill. However, with the Federal Reserve raising interest rates, demand for homes will go down, and the price of houses will do too, it is hoped.
What is buying the dip?
To “buy the dip” is a common investment and trading technique that involves acquiring an asset while its price is falling and expecting its value to rebound eventually. Investors often use this tactic to purchase assets still in good shape, but the owners sell off due to widespread economic overreaction.
Due to the considerable downside risk associated with acquiring properties and assets by buying the dip, disciplined and cautious investors conduct extensive research and analysis before making this investment choice.
In the absence of a bull market, investors who foresee an upturn in that market may decide to buy the dip during the bear market.
Bear vs bull market in real estate
Investors widely use the terms “bull” and “bear” to describe the state of the stock market, but you can use the terms to describe the general performance of real estate markets.
What is a bear market?
A bear market happens when property prices fall dramatically and stay low for an extended time. It is relevant for residential and commercial properties like office buildings, warehouses, and shopping malls.
For the most part, the real estate market collapsed between 2007 and 2009, coinciding with the height of the global financial crisis. A housing crash occurred after a collapse in the subprime mortgage sector set off a downward spiral in property values.
What is a bull market?
One of the strongest indications of a bull market is when the value of properties generally rises or is expected to rise steadily over time, encouraging purchasing of real estate assets. You only use the term when there is an extended rise in prices of the commodity, say lasting over several months or years.
Benefits of buying the dip
There are several benefits to buying property when the price drops:
High speculative growth
Buying properties at lower prices may offer significant capital gains when the real estate market stabilizes. Purchasing an asset today at a lower price could be a solid strategy for creating long-term returns if you believe asset values will eventually increase to or beyond past highs. You may have to tolerate a few losses before you realize them.
Cost minimization
Buying a property when the price decreases is an excellent way to lower the average purchase cost. It can make possible returns bigger if the price goes up.
Portfolio diversification
When you put your money into real estate during the dip, you do something very different from buying stocks or bonds or putting it in a savings account. Your equity may rise in tandem with the property’s value. If the market goes as you expect, your real estate investment will probably continue to do well, even if your stock portfolio experiences a decline.
Limitations of buying the dip
Not everyone is successful in buying dips in real estate. It is not without peril and often requires time and commitment to pull it off effectively:
Potential volatility
Even a bull market experiences a correction every once in a while. The US real estate market has been struggling heading into the fourth quarter of 2022. Like the stock market, the real estate market seems to suffer from the effects of the recent volatility.
There is no foolproof method for determining if a decline in asset price is just a short setback or an indication that prices are likely to go considerably lower. It is not easy for investors to determine if the market is facing a price correction or if this is just the usual volatility preceding the midterm elections.
Management and maintenance cost
After purchasing a property during the dip, you will have to maintain it as you wait for the market to stabilize before selling it again. You may have to carry out repairs, incur maintenance costs, and pay property tax during this time.
Even if you decide to lease the property to mitigate the costs, you must spend time managing the property or coordinating with the property manager. The time and effort needed will always increase as the number of properties you own grow.
Wrong timing of the market
Getting the timing right and taking advantage of lows in the market is not as easy as it seems. You might call it wrong and buy the property at the incorrect price.
You must be adept at recognizing data patterns, which isn’t as straightforward, even if you have expert knowledge of indicators or use computer-based analytics to decipher to make reliable forecasts about the future.
No appreciation
The significant risk in buying the dip is that the asset’s value may not rise or takes a long time to recover. You might get stuck in your financial position, or the acquisition might suffer a significant loss when attempting to quit the market.
Should you buy the dip?
Buying the dip typically results in a lower overall cost of ownership of a property held over time. However, there are several arguments against taking this course of action. To begin with, it is a form of marketing timing, and studies show that it’s complicated to predict the real estate market, especially during inflation.
There are good chances that the real estate market will continue to decline over the next several weeks, if not months or years, due to rising inflation. That implies new investors might see their assets fall in value for some time.
When you buy the dip, you can also acquire property with a price decline for a good reason, which you might find out to your detriment if you don’t conduct proper research.
Investment with discipline over the long run is safer and more likely to achieve better returns than buying the dip. That’s because long-term investing revolves around a financial plan that accounts for your risk tolerance and returns objectives.
Does USP represent a way to hedge against inflation?
United States Property Coin (USP) is positioned to become an excellent way to protect your portfolio from market volatility. As a security token, USP must comply with federal securities laws and regulations, offering you the advantages of investing in real estate without many of its drawbacks.
Its developers made it to counter the instability of utility tokens, inflation-affected fiat currencies, dollar-backed stablecoins, and algorithmically-backed stablecoins. USP brings real estate investing onto the blockchain, meaning it could be used as an excellent hedge against inflation.
Typically, the value of property in the US increases over time. USP is a cryptocurrency that offers shared ownership in a diversified portfolio of real estate assets in high-demand urban markets across the US.
USP will also profit from the rental income generated by properties right now and its predicted appreciation in the future. Token holders will receive dividend payouts in the form of more USP tokens, creating a valuable asset with the potential to outperform other investments.
In conclusion, investing in USP is an excellent way to both protect your portfolio against inflation and benefit from dividends associated with real estate investment. There are numerous risks to buying the dip in the traditional real estate market, but USP offers secured investments that can help mitigate those risks. With USP, you can reap the benefits of real estate investments without having to deal with all their associated complexities.
