Stock Market Could Crash Another 20% If U.S. Plunges Into Recession

As a growing number of investment banks and company chiefs warn that the likelihood of a recession is increasing, analysts at Morgan Stanley are telling clients that the stock market—despite reeling from a steep selloff in recent weeks—has plenty of room to fall before hitting levels consistent with recession-era lows, which would be especially bad for cyclical industries like travel and hospitality.

Despite major stock indexes plunging more than 20% below recent highs, markets are still only down by about 60% of the average drawdown compared with previous recessions (which denote two consecutive quarters of negative GDP growth), Morgan Stanley analysts told clients in a Tuesday note.

As the Federal Reserve works to combat decades-high inflation with interest rate hikes that will likely stunt economic growth, a recession “is no longer just a tail risk,” analysts led by Michael Wilson wrote, putting the odds of one over the next year at 35%, up from 20% in March.

They estimate the S&P 500 could plunge as much as 20% to 3,000 points, from current levels of 3,770, if the U.S. falls into recession, citing earnings that tend to fall an average of 14% during recessions—a marked turnaround from record profits and 25% growth last year.

“The bear market will not be over until recession arrives—or the risk of one is extinguished,” the analysts said, adding that market weakness will likely continue over the next three to six months in the face of “very stubborn” inflation readings.

With high prices deterring some consumer spending, Morgan Stanley says stocks tied to discretionary spending, like those in retail, hotels, restaurants and clothing, are at higher risk of a downturn, while those tied to the internet, payments and durable household goods (like appliances and computers) are less at risk.

The note comes the same day Tesla CEO Elon Musk said the U.S. economy will “more likely than not” face a recession in the near term, echoing concerns raised by several other top business leaders and financial institutions following last week’s steeper-than-expected hike in key interest rates, which tend to deter spending by making borrowing more expensive.

Morgan Stanley’s not alone in raising recession odds this week. In a note to clients Monday, Goldman Sachs’ chief economist, Jan Hatzius, said the firm now sees “recession risk as higher and more front-loaded,” given the Fed’s more aggressive rate hike, putting the odds of a recession over the next two years at 48%, up from 35% previously. The investment bank estimates tighter financial conditions could drag down GDP as much as 2 percentage points over the next year.

Restaurants are most at risk of a pullback in spending, according to a Morgan Stanley survey of some 2,000 consumers. Roughly 75% of respondents said they’ll cut back on dining out over the next six months, while 60% said they’d do so on deliveries and takeout from restaurants. Though driving much of the inflationary gains, essential items like gas and groceries should see more resilient spending, with roughly 40% of consumers saying they’d cut back on either.

Major stock indexes plunged into bear market territory last week ahead of the Fed’s largest interest rate hike in 28 years, and the gloomy sentiment has ushered in waves of layoffs among recently booming technology and real estate companies. “We don’t believe the Fed can stop the issues that are causing inflation on the supply side without absolutely wrecking the economy, but at this point, it looks like they are resigned to the fact that it must be done,” says Brett Ewing, chief market strategist of First Franklin Financial Services. Goldman Sachs has warned clients it expects another 75-basis-point hike in July.

I’m a senior reporter at Forbes focusing on markets and finance. I graduated from the University of North Carolina at Chapel Hill

Source: Stock Market Could Crash Another 20% If U.S. Plunges Into Recession—These Industries Are Most At Risk

The best hope for stocks right now is a recession that crushes inflation and allows the Fed to slow, stop or even reverse rate hikes.

Why it matters: Down 20.5% so far in 2022, it’s the ugliest year for the S&P since 1962. The drop vaporized $9 trillion in paper wealth, delivering a psychological shock to millions whose retirement is mostly in stocks.

Driving the news: Facing persistent inflation, the Fed delivered its largest rate hike since 1994 on Wednesday.

  • The increase is the monetary-policy equivalent of stomping on the country’s economic brakes — sharply increasing the risk that growth contracts.
  • Despite the recent beating shares have taken, the Fed’s announcement was greeted with open arms by investors. The S&P 500 rose 1.5%. The Nasdaq rose 2.5%. Interestingly, the Russell 2000 — which is more closely tied to short-term ups and downs of the economy — rose less, at just 1.4%.

The big picture: A huge rate hike that raises the risk of recession may sound like a bad thing for stocks — but with inflation still rising, it isn’t.

  • Essentially, investors are saying they prefer a big, sharp Fed-induced economic shock now if it quickly gets inflation under control. In theory, that could allow lower rates to return after inflation is vanquished.
  • Low interest rates have been crucial to the performance of stocks over the last decade.

Context: While Americans have a habit of looking at the stock market as an economic indicator, the linkage between economic growth and stock market performance is surprisingly weak, and, some academics say, nonexistent. The most extreme example of this reality arose during the bleakest moments of the COVID-related recession.

  • In April 2020, the U.S. economy was essentially on life support. Unemployment that month was 14.7%. There were, quite literally, bread lines miles long.
  • That month the S&P 500 posted its best month in 33 years, rising nearly 13%.

What gives? Well, in late March 2020, the Federal Reserve had to cut interest rates to zero and restart money-printing programs do deal with the COVID crisis. (The Federal government also began dumping what would ultimately be trillions of dollars into the economy to keep people afloat.)

The intrigue: But don’t recessions hurt corporate earnings? Wouldn’t that make stocks fall?

  • Earnings are one ingredient in stock prices, and they can definitely fall during recessions. But recently, interest rates — essentially the yield on the 10-year Treasury note — have played a more important role in establishing stock prices than earnings.
  • That’s because those interest rates largely determine the valuation multiple — otherwise known as a price-to-earnings ratio — investors use to determine the price they’re willing to pay for those future earnings (effectively, the price of a stock).
  • TL;DR: Higher rates = lower valuations, and vice versa.
  • So, even if earnings are expected to fall, stock prices can still rise, if valuations rise enough. Those valuations are largely determined by interest rates — and those rates are largely determined by Fed decisions.

The Federal Reserve made an aggressive new move in its campaign to bring down inflation Wednesday, raising its target interest rate by three-quarters of a percentage point, the steepest rate hike since 1994 — and indicated another similar move could be coming next month.

Driving the news: In addition to increasing their target for short-term interest rates to a range of between 1.5% and 1.75% Fed officials projected that their target rate will reach 3.4% late this year, far higher than the 1.9% they envisioned in March. Mortgages, car loans and credit card debt are all about to get more expensive.

Yields on U.S. government bonds — known as Treasuries — rocketed in recent days, as Friday’s inflation report convinced many that a combination of persistently high inflation and aggressive Federal Reserve interest hikes, is on the way. The yield on the 10-year Treasury note surged to nearly 3.50% in recent days, a level not seen since 2011……

  Matt Phillips

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How Multifamily Syndications Can Protect Your Assets Better Than Single-Family Homes

While it can seem easy to get into real estate investing with single-family homes, many investors choose to skip the single-family route altogether for an investment in syndication. Multifamily syndications pool funds from passive investors to purchase large apartment complexes while providing greater asset protection than single-family homes.

Apartment Buildings Offer Safer Debt Than Single-Family Rentals

Most single-family real estate “gurus” preach that it’s fine to personally guarantee mortgages in your own name to qualify for lower interest rates and down payments. However, there is a downside to securing a mortgage in your own name.

If the investment fails or there’s a market downturn and the lender forecloses, you are personally on the hook for that debt. Often, lenders come after your other assets to make up for their losses. Even if you are successful in negotiating debt forgiveness with your lender, the IRS considers the forgiven debt taxable income, which you will end up paying taxes on. For some, this leaves bankruptcy as the only way out.

This type of cross-collateralization is the reason many real estate empires, mom and pop landlords, as well as young investors like myself lost it all in the 2008 housing bust.

While many single-family landlords still turn a blind eye to these risks, it is not a worry for investors in apartment syndications. Since occupied apartments are income-producing businesses, lenders provide loans without a personal guarantee, collateralizing the debt with the asset itself. Furthermore, the loans are only signed by the fund managers, reducing investors‘ risk to the amount they have invested only.

Syndications Protect You From Your Investment

Imagine that you own a single-family rental. Your tenant’s guest gets drunk, falls off the deck, and dies. The family of the deceased wants to sue you personally. If the property is owned in your own name instead of an LLC, then the rental is cross-collateralized with your other personal assets. The family’s attorney can quickly do a search of the public county tax records, identify you and any properties in your name, add up your estimated net worth, and gladly come after everything you own.

There are two ways single-family investors try to protect themselves from this liability, but in my opinion, neither are good options.

1. The first is to transfer ownership of the property to an LLC, which would limit the lawsuit to equity in that one rental. However, if your lender finds out about the transfer, they can exercise a “due on sale” clause and immediately call the balance of the loan due. This can leave you scrambling to refinance the property and, if you can’t secure a new loan in time, perhaps because it happened during a market downturn, the bank can take the property through foreclosure.

2. The second option is to carry a $1 million liability insurance policy. While they believe insurance will protect them from lawsuits, some attorneys see these as big paydays. In the case of litigation, the landlord will find themselves paying out of pocket for a long and expensive lawsuit in hopes of a settlement, all the while crossing their fingers in hopes their insurance will pony up for the settlement without a fight.

Syndications offer a couple of layers of protection against this. With multifamily syndications, each investment is purchased in dedicated LLCs. Furthermore, investors are limited partners in a securities offering, protected with liability limited to their investment.

Syndications Protect Your Investments From Each Other

Once single-family investors build a large portfolio of rentals, they can package them into one LLC and get a portfolio loan that doesn’t require a personal guarantee. While this protects them personally from lawsuits, it exposes the equity in all the properties within the LLC to each other. If one of the rentals is sued or fails to perform, it can’t be foreclosed on individually, which drains the cash flow and equity of the entire portfolio.

Syndications are all held in their own LLCs without the requirement of a personal guarantee. If one undergoes a lawsuit, underperforms or forecloses, there is no personal effect on the investor, their credit or their other properties.

Syndications Protect Your Investments From You

Many investors buy real estate to build an inheritance for their children and grandchildren. It’s a sad day when a legal judgment removes wealth from generations of a family. When held in the right type of entity, multifamily syndications can help protect the inheritance you’re building from personal judgments against you.

Imagine that you caused a fatal car wreck, are sued and lose. If you are unable to pay the resulting judgment, the court may require you to list all your assets and exercise charging orders in which it can force the sale of your investments. To protect against this, investors choose to form holding companies in states that do not enforce charging orders, such as an LLC headquartered in Wyoming, making them far less attractive for lawsuits.

Both single-family homes and multifamily syndication investments can also be placed into trusts, which can help your heirs avoid probate court, minimize estate taxes and help keep your financial affairs private.

Syndications Are Not Right For Everyone

Though multifamily syndications offer a number of asset protection advantages, they are not right for everyone. For example, if you want the freedom to liquidate your investments as needed, syndication is not right for you. Investments in syndication are held until the sponsor sells or refinances the investment, which you, as an investor, have no control over. For greater liquidity, you may want to consider other income-producing real estate investments such as REITs. Talk to your CPA to see which investments work best with your goals.

Invest With Peace Of Mind

Planning for your financial future in a shaky economy can be stressful. When you choose investments with asset protection built-in, you are making a step toward a more secure future.

Patrick Grimes is the founder of Invest on Main Street, a private equity firm managing passive multifamily investments in emerging markets. Read

Source: How Multifamily Syndications Can Protect Your Assets Better Than Single-Family Homes

Critics by HighPicksCapital

There are two types of syndication investors, accredited and non-accredited (sophisticated). Many current property syndications allow both types of investors to participate as limited partners in multifamily investing deals. In most instances, there are no requirements for previous experience as a property syndication investor.

In addition, there is often no limit to the number of participating investors in a multifamily syndication. This is actually an ideal type of property deal for an inexperienced property investor. It is true that the larger the number of investors funding a property investment, the smaller the amount of financial return will be for each investor. Yet the larger the number of participating investors in an investment project, the lower the risk factor will be for each investor.

If a multifamily syndication has the status of 506(C), investing will only be open to accredited property investors. The requirements for becoming an accredited investor are set by the SEC. Accredited investors are required to have a specific net worth or annual income, either as an individual or jointly with a spouse.

The current SEC requirements for qualifying as an accredited investor for syndication property deals are as follows:

  • For the past two years, your income as an individual was more than $200,000 (or you and your spouse had a combined income of $300,000). You are also required to have the reasonable assurance of having the same amount of income or more during the current year.
  • You as an individual or jointly with your spouse have a net worth of more than one million dollars. The one million dollar amount does not include the market value of your primary residence.

Multifamily syndications with 506(B) status are open to both accredited and sophisticated investors. Although sophisticated investors do not have the high net worth that is required to qualify as accredited investors, those who are suitable for these types of investments have significant investing experience and a preexisting good relationship with the general partner (sponsor).

Some syndication investment deals may place limits on the number of participating limited partners who are sophisticated (unaccredited) investors. Often in large property investments like multifamily complexes, major syndicators will not offer as many investing opportunities to sophisticated investors as the number that are open to accredited investors. These property syndicators tend to place more value on the accredited investors due to their qualifications.

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How The Real Estate Industry Can Simplify The Investment Process

For generations, real estate has proven to be a successful way to build wealth in America. People buy a home, often build equity over time, then sell their home.

CNBC reported in December that close to 95,000 homes were flipped in the third quarter of 2021, an increase for the second quarter in a row. In the past, buying single-family homes, fixing them up and selling them at a profit has largely been the purview of those with access to capital and privy to hard-to-obtain information, such as accurate data on home valuations and the true costs of conducting repairs. These acted as barriers to entry.

My company uses the power of data and technology to bring lending for real estate investors into the digital age, and I’ve observed technology has ushered dramatic changes into the market in recent years. If the real estate industry is to continue to grow and welcome groups of investors who have traditionally been walled out, I believe key stakeholders must continue to rid the home-buying process of high fees, needless complexity and inefficiencies, as well as expand access to capital.

Artificial intelligence is already creating change among lenders.

Buying a home obviously requires money, and that typically means acquiring a loan. To do that, an investor usually needs a good credit score. FICO is one of many ​​ways lenders assess someone’s creditworthiness. Most measure factors such as someone’s level of debt, credit history, the type of credit used and new credit accounts. For years, critics have questioned whether FICO is an accurate way to predict someone’s ability to pay back a loan.

In recent years, more and more lenders have turned to alternative means to measure creditworthiness, my company included. The rise of artificial intelligence has begun to create massive change. The ability to find alternative ways to determine credit risk could open more doors to groups who have not always received a fair credit evaluation.

That said, much has been written about the problem of introducing bias into these AI algorithms. While I believe AI is still a good option, it is still important to consider some challenges associated with using AI in the lending process.

For example, AI-based engines exhibit many of the same biases as humans because they were trained on biased credit decisions and historical inequities in housing and lending markets data. In order to address these inequities, AI-based engines should be designed to encourage greater equity, rather than try to align with previous credit decisions. Lenders can achieve this by removing bias from data before a model is built, which includes eliminating model variables that directly or indirectly create fair lending disparities.

Moreover, it’s important to add more constraints to the model so that it can encourage equity. For example, these constraints can reduce the difference in outcomes for people in different zip codes who have the same risk profile. If AI-based engines are left unchecked, they can reinforce the inequities that lenders want them to eliminate.

There’s still more to be done.

Buying a home is a stressful process; identifying the right market, finding a home that fits the investor’s criteria, getting financing and closing on time can be challenging. An investor needs to study the market by researching statistics in the area, including housing prices, housing inventory, listing prices and days on the market. In addition, one must get prices for renovation materials and identify the ​​right contractors. As such, investors need adequate tools to analyze different markets and deals.

Years ago, determining a home’s value required a real estate agent. Along with large institutional investors, agents were primarily the only ones with access to this information on a large scale. Now, technology has leveled the playing field, and a real estate investor can log on to Zillow, Redfin or similar sites and learn about price, value and trends regarding nearly any property in the country. This has simplified the buying process, but more needs to be done. Here are a few areas the real estate industry could work to address:

• Developing a better experience for virtual walkthroughs: Today, there are solutions that allow for virtual inspections to avoid the hassle of scheduling an in-person visit, which can be challenging, particularly if the property is out of state. But there is an opportunity to further streamline the process by leveraging technology. Virtual reality headsets showed early promise but haven’t taken off as expected, and there’s a significant need to improve the way to get an on-the-scene feeling for a property without spending the time and money to visit in person.

• Providing more digital tools and products: Tackling the different steps and paperwork involved with buying requires a degree of know-how. For real estate investors, speed is crucial, as an investor might be in the process of acquiring multiple properties at the same time while competing with other investors. It can be cumbersome and tedious to manage the paperwork for multiple properties at the same time. For this reason, companies in the real estate space can also aim to create technology that further streamlines the process, provides transparency every step of the way and helps scale.

The area is ripe for disruption. The goal for the players in the real estate industry should be to make the process of buying and selling a home much more akin to buying and selling a car. If we do that, we can truly transform the real estate industry.

Source: How The Real Estate Industry Can Simplify The Investment Process

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Where Do Millionaires Keep Their Money?

Where do millionaires keep their money? High net worth individuals put money into different classifications of financial and real assets, including stocks, mutual funds, retirement accounts and real estate. Most of the 20.27 million millionaires in the U.S. did not inherit their money; only about 20% inherited their money. More than two-thirds of all millionaires are entrepreneurs. Here are some of the places the genuinely rich keep their money.

Cash and Cash Equivalents

Many, and perhaps most, millionaires are frugal. If they spent their money, they would not have any to increase wealth. They spend on necessities and some luxuries, but they save and expect their entire families to do the same. Many millionaires keep a lot of their money in cash or highly liquid cash equivalents.

They establish an emergency account before ever starting to invest. Millionaires bank differently than the rest of us. Any bank accounts they have are handled by a private banker who probably also manages their wealth. There is no standing in line at the teller’s window.

Studies indicate that millionaires may have, on average, as much as 25% of their money in cash. This is to offset any market downturns and to have cash available as insurance for their portfolio. Cash equivalents, financial instruments that are almost as liquid as cash. are popular investments for millionaires. Examples of cash equivalents are money market mutual funds, certificates of deposit, commercial paper and Treasury bills.

Some millionaires keep their cash in Treasury bills that they keep rolling over and reinvesting. They liquidate them when they need the cash. Treasury bills are short-term notes issued by the U.S government to raise money. Treasury bills are usually purchased at a discount. When you sell them, the difference between the face value and selling price is your profit. Warren Buffett, CEO of Berkshire Hathaway, has a portfolio full of money market accounts and Treasury bills.

Millionaires also have zero-balance accounts with private banks. They leave their money in cash and cash equivalents and they write checks on their zero-balance account. At the end of the business day, the private bank, as custodian of their various accounts, sells off enough liquid assets to settle up for that day. Millionaires don’t worry about FDIC insurance. Their money is held in their name and not the name of the custodial private bank.

Other millionaires have safe deposit boxes full of cash denominated in many different currencies. These safe deposit boxes are located all over the world and each currency is held in a country where transactions are conducted using that currency.

Real Estate

For more than 200 years, investing in real estate has been the most popular investment for millionaires to keep their money. During all these years, real estate investments have been the primary way millionaires have had of making and keeping their wealth. The trend started with buying a primary home and then other residences, usually for tenants. After buying some personal real estate, then they have started buying commercial real estate like office buildings, hotels, stadiums, bridges and more.

Millionaires often have large real estate portfolios. Once they have established themselves as a buyer in the real estate market, real estate agents start bringing them deals and they find it easy to obtain financing. Large investors have many millions tied up in real estate. Real estate is not an investment to depend on for cash, but it is a lucrative investment in the long run and a tried and true investment for millionaires because they like passive income and find that real estate provides it.

Stocks and Stock Funds

Some millionaires are all about simplicity. They invest in index funds and dividend-paying stocks. They like the passive income from equity securities just like they like the passive rental income that real estate provides. They simply don’t want to use their time managing investments.

Ultra-rich investors may hold a controlling interest in one or more major companies. But, many millionaires hold a portfolio of only a few equity securities. Many may hold index funds since they earn decent returns and you don’t have to spend time managing them. They also have low management fees and excellent diversification.

Millionaires also like dividend-paying stocks for the passive income they provide. Of course, they are also interested in capital appreciation but, for some, that’s less of a concern than generating current income.

Private Equity and Hedge Funds

Unless you are a multimillionaire, you may not participate in a hedge fund or buy into a private equity fund. Public equity is well known since its shares trade on stock exchanges. One of its advantages is its liquidity. You can readily liquidate your public equity or shares of stock. Private equity funds, on the other hand, generally gets their investments from large organizations like universities or pension funds.

Investors of private equity funds have to be accredited investors with a certain net worth, usually at least $250,000. Accredited investors can be individuals as well as organizations, but they are defined by regulations. In other areas, private equity funds do not have to conform to as many regulations as public equity does. Some of the ultra-rich, if they are accredited investors, do invest in private equity.

Hedge funds are not the same as private equity. Hedge funds use pooled funds and pursue several strategies to earn outsized returns for their investors. Hedge funds invest in whatever fund managers think will earn the highest short-term profits possible.


Commodities, like gold, silver, mineral rights or cattle, to name a few, are also stores of value for millionaires. But they require storage and have a level of complexity that many millionaires simply don’t want to deal with.

Alternative Investments

Some millionaires, along with the ultra-rich, keep a portion of their money in other alternative investments like such tangible assets as fine art, expensive musical instruments or rare books. Also, there are millionaires and the ultra-rich that have investments in intellectual property rights such as the rights to songs or movies. These can be very lucrative investments.


It is estimated that there are around 100,000 cryptocurrency millionaires out there with the majority holding Bitcoin. To try to make your fortune in cryptocurrency, you have to be willing to take on some risk and many millionaires don’t have an appetite for risk.

You can take a small portion of a millionaire’s wealth and invest in one of the different cryptocurrencies. Plenty of people have become millionaires this way. Some have lost their money. More and more, cryptocurrency is becoming accepted as a legitimate investment that deserves a look when trying to accumulate wealth.

The Bottom Line

Millionaires have many different investment philosophies, so it’s difficult to generalize concerning where they keep their money. However, all of the above are legitimate investments for millionaires. They have a desire for a reduction of their risk, so many prefer diversified investment portfolios. More than one of these investments can be combined to try to enhance wealth.

Tips on Investing

Would you like to investigate how your investments are growing? Check out SmartAsset’s free investment calculator.

Do you have questions about how to start investing? It’s wise to begin by consulting a financial advisor. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals


Source: Where Do Millionaires Keep Their Money?

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2022 Housing Market: Will It Continue To Bubble Or Will It Burst?

Every month, there are thousands of searches in Google for terms related to: “Is there a housing bubble?” Clearly, it’s a question on many people’s minds. For this to be a bubble, it’s not just about high prices; investment needs to be driving demand way beyond where it should be.

So, is there a real estate bubble?

I don’t believe there is. Home prices are unlikely to fall by any significant measure. At best, prices will rise more slowly, at a rate that outpaces inflation (just not to the same extreme as this year).

It’s worth keeping in mind that historically speaking, housing bubbles have actually been quite rare. They may feel common because we all lived through one – but the 2007 crisis happened due to a series of events and decisions (such as relaxed lending standards) that would not occur today.

Have lenders been unscrupulous in who they lend to? It doesn’t seem so. Buyers today are extremely qualified. The median FICO for current purchase loans is about 42 points higher than the pre-housing crisis level of around 700, according to data from the Urban Institute.

There were many regulations and restrictions put in place after the 2007 crisis to help maintain a healthy housing market (such as Dodd-Frank) – and many banks were fined millions and even billions of dollars for their participation in lending fraud. They’re wary of getting fined again and so they opt to hold home buyers to high standards.

Speculation was rampant in the early 2000s. Adjustable rate mortgages, which tempted buyers with low introductory interest rates that rose dramatically once homeowners were locked into paying them, were much more popular (and much less regulated).

When interest rates drop, it encourages more investors to enter the market – because they can risk less of their own cash to do so. However, experts seem to unanimously agree that interest rates are going to rise by up to a full percentage point this year. This will help discourage overly-speculative investing as borrowing becomes more expensive – helping to stave off the possibility of a bubble.

The housing market collapsed in 2007 in part because many consumers had almost no equity in their homes – people were buying homes with no money down, and the riskiest mortgages required little proof that buyers could actually afford them. When the housing market was good, it was easy to simply turn around and sell your home if things didn’t work out.

But once the market dipped, many people discovered that their loans were worth more than the homes themselves. Since they had almost no equity in their homes, this meant they couldn’t sell without going into debt – making foreclosure the only option. Today, the average homeowner has over $150,000 worth of equity in their home – an all-time high, which is good.

In the years leading up to the housing crash, new home construction outpaced demand – which contributed to home prices dropping precipitously. Since then, however, new home construction has lagged behind, failing to keep up with a growing population. According to the National Association of Home Builders, the U.S. went from averaging between 9 and 11 million housing starts per decade throughout the 1960s to 2000, to just under 7 million homes during the 2010s.

Increased building regulations, the rising price of lumber/materials/labor, and lingering hesitation due to the crash all contributed to this – and as homes became more expensive to build, home builders were incentivized to build luxury homes rather than starter homes. While the construction industry seems to have hit a recovery point (almost a million homes were built last year), it will likely take years for supply and demand to balance again.

Will Home Prices Drop in 2022?

I’ve talked to experts in multiple real estate markets throughout the country. While some areas are hotter than others, one trend remains clear: demand is high and will likely remain high. Millennials and Gen Z are “coming of age” and placing more emphasis on owning homes as they form new households.

Meanwhile, the latest data from Zillow shows that the number of homes for sale in the U.S. dipped below one million this past December. For comparison: before the crazy bidding wars of 2021, there were an additional 220,000+ homes for sale a year earlier. Demand has yet to decrease, and inventory has actually dropped.

We’re still seeing buyers waive inspections, go all-in with their offers from the start rather than escalate, and go over the appraised value – and it’s been an entire year of this.

So when can we expect home prices to drop, or at least stop climbing so rapidly? My guess is that prices are unlikely to experience a notable dip within the next 5 years. However, we’ll eventually see the market reach more of an equilibrium between buyers and sellers. We can expect such a shift once certain things take place:

  • New home construction continues to increase, helping meet demand (and/or)
  • New technologies like home printing decrease the cost of production (and/or)
  • Cities alter outdated zoning laws to better accommodate growing populations (and/or)
  • Baby boomers – who own much of the US housing stock – begin aging out of their homes

All of these things have the potential to greatly impact the housing market, but none of them are happening overnight. We also don’t know what the average mortgage rate will look like in five years, but that could have a major impact on demand as well.

If you plan on buying a home, you shouldn’t delay meeting with an agent to discuss your options. If you’re thinking of waiting until home prices drop: don’t. You might end up renting forever.

I am the cofounder and CEO of Houwzer, a modern, socially responsible real estate brokerage and home services company focused on consumers. I am

Source: 2022 Housing Market: Will It Continue To Bubble Or Will It Burst?


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