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Is Real Estate a Wise Investment in 2022?


The COVID-19 pandemic has led to a housing boom across the United States as Americans who work remotely seek out space for a home office or a better quality of life. In this article, Mark Pierce discusses whether the boom will continue in 2022 and offers tips on how to advise clients who are considering real estate as an investment.

Jan 12th 2022
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The pandemic-era housing boom has made real estate an enticing investment prospect for many people. Accountants, in their role as investment advisors and financial planners, are tasked with advising their clients whether to enter this market. Prudential concerns center on the sustainability of the housing boom and the risk of entering a market that may be at its peak. At the same time, there exists a real risk of missing out on an opportunity to generate significant cash flows and asset price appreciation. Balancing these concerns with an understanding of the economics of the housing boom is crucial to an accountant’s ability to give wise counsel to a client. 

What is Driving the Housing Boom?

The residential real estate market is experiencing a sustained period of housing price inflation, the likes of which we had not seen since 2006. Median housing prices seem to smash records every month. In November 2021, the median sales price rose 13.3 percent, to $353,900, from the same period in 2020. Home prices are up in nearly every metropolitan area in the United States, and in most cases, prices have increased by percents in the double digits.

The housing boom started years ago in discrete pockets across the U.S., such as in parts of the Sun Belt and in states including Idaho, but over time, it has spread across the country. The boom has increased in part because of remote work, which allows a person to work from anywhere. This has led many people to move to less populated states or more suburban or even rural areas in search of more space and a better quality of life. 

Driving the surge in prices is a decline in interest rates that began after the Great Recession. Buyers responded by taking out mortgages for new homes and, in many instances, these were bigger homes. The demand for larger homes has intensified during the pandemic, as people are looking for space that can accommodate home offices. When the numbers are tallied, housing prices in 2021 are likely to beat those from 2020. 

According to The Wall Street Journal, in 2021, Americans borrowed more money to finance home purchases than at any point in history. Mortgage lenders issued a staggering $1.61 trillion in purchase loans, an increase from $1.48 trillion the previous year, beating the record of $1.51 trillion set in 2005. 

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