Market Update | 2021 Year End

01  From 2019 through 2029, most millennials (born between 1981 and 1996) will shift into the 35-44 age group, the prime age for 1st-time home buying, the largest generation since the baby boomers, (72.1 million). At today’s home ownership rate of 65.4%, that’s a lot of housing demand! (Barrons)

02  Three thoughts on U.S. retail sales rising 8.5% during this year's holiday shopping season: 

 

03  At the peak in the housing bubble in 2006, the median home price in the U.S. reached $230,300 with 30-year fixed mortgage rates at 6.76%, assuming a 20% downpayment. The monthly payment for that mortgage was $1,196 or 29.8% of the $4,071 in monthly income that a household with two working persons generates at the median. Today housing prices are up over 53% with a median home price of $353,900, but household income is up 40% and mortgage rates are cut in half at 3.07%. That implies a $1,204 monthly payment, 21.4% of today’s median monthly income of $5,627. Mortgage rates would have to almost double to revert to 2006 affordability. Long story short, housing affordability is still higher than historical averages of the 1980s and 1990s (28.1% of monthly income), when mortgage rates were much higher.

 

04  Despite supply chain issues, Holiday sales were up 10.7%, compared with the pre-pandemic 2019 holiday period, the biggest jump in 17 years, another indicator of a superheated economy.  Online sales were up 11% from a year ago and 61% from 2019. Department stores registered a 21% increase over 2020.  Both online AND bricks-and-mortar sales rose equally. Apparel sales were up too, possibly marking the end of the sweatpants era..... Margins for retailers were up too.... (CNBC)

05  In the old days—like 2019— most homes were still getting built with single-purpose rooms, like the living room, den, kitchen, bathroom or bedroom. As more of us work remotely, that kind of siloed thinking doesn’t work as well. Anyone who had to work from home over the past 2 years probably realized it’s not as easy as it looks to convert a den or basement space to an office. In 2022, look for purpose-built “Swiss-Army-knife” rooms, like the den that becomes a gym that hides a playroom that repurposes into a conference space. Clever use of room dividers, smart storage inside furniture pieces, and everything modular and on wheels will make it a snap to rearrange and repurpose a room. Furniture itself might pitch in; IKEA is working with Brooklyn startup Ori on robotic furniture that changes with your needs, like a bed that disappears on command or a closet that moves when you need space. (MANSION)

06  The WORLD economy will surpass $100 trillion in 2022.....It was $87.3 trillion in 2019, hence a jump of 14.5% in 3 years. It was below $85 trillion in 2020. THAT"s how much demand has jumped, which should explain to anyone quite easily why we have supply chain disruptions, shortages and inflation.

2022: The Year Of The Investor Buyer?

 

1.  Rising sales prices are just one part of the equation: equally robust rising rents are fueling much better returns on investment. In a low interest rate environment that is attractive. In a rising interest rate environment, one can be certain rising rates are a result of a robust economy which fuels employment and occupancy levels.

2.  Many tax laws that benefit real estate that were in jeopardy in 2021, appear to be safe moving forward. The many tax advantages of investing in real estate include 1031 exchanges, depreciation, longterm capital gain, etc.

3.  With so many people still having trouble committing to one city for the longterm, there will always be a strong market for tenants.

4.  As interest rates rise, affordability - especially for first-time homebuyers - will become even worse. And all-cash buyers will have even more power.

5.  Many homebuyers may feel markets are over-heated and due for a correction, thereby encouraging them to rent while they 'wait and see'.

6.  Those who have re-located to low-tax states to save some bucks - often big bucks - will miss their 'home towns' and all they offer that is difficult to replicate elsewhere. Instead of owning they may choose to rent in their home towns and use those properties less than 182 days of the year. By renting they may make local tax collectors believe they have truly relocated. Big bucks renters may be a growing tenant segment, especially in full service buildings with hotel-like amenities.

7.  Inflation always drives investors to bricks. Real estate is mostly an outstanding hedge against inflation. Even when inflation is 2%, compounded over 10 years that escalation is around 22%. Maybe not a big wealth creator, but certainly a great wealth preserver....something many investors are seeking now when equities are at all time highs.

8.  Investment real estate will always have FOUR primary benefits - income, longterm capital gain, tax benefits and inflation hedge - which when COMBINED make for a very attractive investment.