Looking Back at 2022 Predictions

In December of 2021, Michael Perna released a video giving his predictions on what we would see take place in the real estate and financial markets of 2022, but how close was he after all was said and done? In this article we’ll take a look back at 8 predictions versus what the actual outcome was.

Rent Prices

Prediction: Rent costs will continue to rise in 2022.

Actual: True. Rent costs increased dramatically across Metro Detroit and the United States as a whole throughout 2022 before beginning to slightly decrease in Q4 in some areas. 

There are several factors that can cause rent prices to increase with the largest contributors to increasing rent prices seen in 2022 being skyrocketing home values, high inflation and low inventory supply. As home values increase (especially when interest rates simultaneously increase) it makes it less affordable for many families to purchase a home, forcing them into the renters market. When there are more people looking for rental properties in an area than there are available units, landlords are able to charge higher rents because there is more competition for the units. With inflation causing the cost of necessities like utilities, groceries, and other goods and services to go up, landlords may also need to increase rent prices to cover their own costs. Additionally, landlords may need to increase rent prices to cover their own expenses, such as property taxes and maintenance and repair costs.

Market Share

Prediction: Millennials will continue to make up the largest market share in and around the Metro Detroit area in 2022.

Actual: True. Millennials moved from accounting for 37% of all purchases and home sales in 2021 to at one point 51% of all transactions in 2022. As interest rates increased in the second half of the year that number scaled back just a bit to 47%.

Millennials are taking up a large share of the real estate market for a variety of reasons. One factor is that due to the rising home prices we have experienced, it may make it more difficult for millennials to afford to rent and encourage them to consider buying a home instead. Low interest rates on mortgages as seen in 2021 and early 2022 also made it more affordable for millennials to buy a home. Many millennials are reaching an age where they are looking to settle down and start a family, which may drive them to consider purchasing a home rather than continuing to rent. Additionally, many millennials have good credit scores and may be able to qualify for a mortgage, making it easier for them to enter the real estate market. Finally, the internet and other technology has made it easier for millennials to access information about the real estate market and to find & research properties, which may make them more likely to enter the market.

Luxury Market

Prediction: The luxury market is going to explode in Metro Detroit in 2022.

Actual: True and False. The luxury market shot ahead as expected in early 2022, but then took a sharp dive for sales in the third and fourth quarters.

There are a number of factors that drive the sales of luxury real estate. One of the main factors is economic prosperity. When the economy is strong and people are feeling financially secure, they may be more likely to purchase luxury properties. Another factor is the availability of credit. When interest rates are lower as seen in early 2022, lenders are more willing to provide financing for luxury properties making it easier for qualified buyers to purchase these types of properties. With mortgage rates increasing during 2022, loans became more expensive in making luxury homes less  affordable even for many qualified buyers. The benefits of staying put in an existing home with a lower interest rate and mortgage simply outweighed making a new home purchase with a sharp increase in monthly payments.

Inflation Rates

Prediction: Inflation rates are out of control and will continue to rise through the first half of 2022. 

Actual: True. Inflation rates continued to climb throughout 2022, peaking at 9.1% near mid-year before slowly beginning to creep back down.

Inflation is typically managed by central banks, such as the Federal Reserve, through the use of monetary policy. This involves adjusting the supply of money in the economy, as well as the interest rates at which banks can borrow and lend. By increasing the supply of money, central banks can help to stimulate economic growth and lower unemployment, but this can also lead to higher inflation. On the other hand, decreasing the supply of money and raising interest rates as has been done several times in 2022 can help to curb inflation. But, it can also slow down economic growth and increase unemployment. Central banks typically aim to keep inflation at a stable and manageable level by using a combination of these tools to fine-tune the economy. However, we still have a long way to go before getting back to normal. As of November 2022 we are still sitting at 7.1%, a far shot from the “acceptable” inflation rate of about 2% that policymakers typically like to see.

Skilled Trades

Prediction: Construction, supply chains and skilled labor issues will persist through 2022

Actual: True. The construction industry has been battling supply chain issues since 2020 and continues to do so today.

These supply chain issues have caused the continued rise of material prices with the mounting inflation rates only compounding these difficulties. Of course with the large number of different materials needed for building, some material prices are doing better than others. For example, cement and concrete prices have continued to climb and were up nearly 14% in the third quarter of 2022, while steel and lumber prices decreased. Supply chain issues for items like semiconductor chips have also contributed to longer lead times for HVAC equipment. Skilled labor shortages have also been an ongoing issue throughout 2022, causing much longer than normal wait times for construction in general - whether new or repairs.

Interest Rates

Prediction: Interest rates are going to go up in 2022.

Actual: True. While there was a little up and down as expected, interest rates largely increased throughout the vast majority of 2022.

The Fed has made several interest rate hikes in 2022 in their continued battle against the out of control inflation rates. We started the year off at just over 3% for a 30 year fixed mortgage, which surpassed 4% in mid-March, followed by 5% in mid-April. While interest rates crept up near 6% in June, they fell back down to 5% by August, only to shoot up over 7% in late October into November. They have since fallen back below 6.5%, but where they go from here depends largely on the Fed being able to successfully gain control of inflation rates in 2023.

Stock Market

Prediction: The stock market will not fare as well in 2022 as seen in 2021

Actual: True. Pretty much no stock was safe from a decline in value during 2022.

There are many factors that can contribute to a decline in the stock market. One of the most common is economic downturns or recessions, which can lead to reduced profits for companies and lower demand for their products and services. Political instability or uncertainty can also lead to market declines, as can natural disasters or other events that disrupt business operations. In addition, changes in interest rates or inflation can impact the market, as can shifts in investor sentiment or changes in regulatory environments.

Prior to the stock market decline, the COVID-19 pandemic caused a worldwide economic recession. While the direct effects of the recession largely dissipated by 2022, the recession led to an increase in inflation and a global supply chain crisis. In addition, the Russian invasion of Ukraine in February 2022 contributed to the decline of stock markets globally. The combined outcome of this has led to the Nasdaq 100, which is heavily weighted towards technology companies, to decline by nearly 33% in 2022. The S&P 500 recently hit a two-year low and the Dow Jones Industrial Average has also fallen by more than 20%. 

Crypto Currency

Prediction: The entire crypto market will balloon 50% to 70% in 2022 as more people jump in

Actual: False. Crypto values as a whole have plummeted in 2022.

A year ago, Bitcoin and Ethereum reached their highest values to date, with Bitcoin reaching around $67,000 and Ethereum reaching just shy of $4,900. At that time, the market capitalization of the entire cryptocurrency asset class reached a record-high value of over $2.8 trillion. However, since then, both Bitcoin and Ethereum have declined by about 65% from their highs, and the total market capitalization of cryptocurrencies is now just over $1 trillion, a significant decrease from its previous peak. Despite experiencing rough patches in the past, the overall trend of cryptocurrencies has been upward over the past decade. However, the current market conditions are far from their all-time highs, leaving many with large losses and wondering if there is indeed a bright future ahead for crypto currency.

While Mike was spot on in most categories, it would have been hard to determine just how large of a hit the stock market would actually take, let alone the gigantic losses seen in crypto currency values. It’s important to note that Mike is a real estate professional and not a financial advisor. Any thoughts given on stocks and financial related matters should not be taken as financial advice and always be discussed with your financial or investment advisor.

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If you’re looking to buy or sell anytime in 2023, give us a call today at 248-494-4698