In late January, Fed chair Jerome Powell announced that the central bank would not be raising interest rates, though the move is almost certainly coming at a later date, based on inflation’s effect on the economy. “It is not possible to predict with much confidence exactly what path for our policy rate is going to prove appropriate, and so this time we haven’t made any decisions about the path of policy,” he said. However, the equity and bond markets are predicting (and thus pricing in) two rate hikes in 2022, which seems clearly related to the corrections and increased volatility of late.
In a follow-up after the meeting, Powell added that current market conditions were ‘consistent with maximum employment,’ although concerns over Omicron remain at large.
Meanwhile, rates ticking up in the latter half of 2021 and in 2022 have seemingly not yet been an issue in the housing market. According to the FHFA House Price Index, home prices rose 1.1% in November and are up 17.5% year-over-year. Separately, the Case-Shiller Home Price Index showed an 18.8% gain for the year in November. Eye-popping numbers after such a strong comparison year in 2020.
“The double-digit sales gain in December was likely due to motivated buyers who were seeking to sign sales contracts before interest rates move higher at the start of 2022,” said NAHB Chief Economist Robert Dietz.
2022 Q1 Trends
As spring approaches, here are our projections for housing trends:
- Expect a minimal slowdown in existing home sales
Government handouts have reached their peak and Americans’ savings simply cannot match last year’s monumental appreciation rates. Nearly a quarter of first-time homebuyers paid for down payments with stimulus cash, according to a Redfin survey. Fannie Mae reports a climb in the average back-end debt-to-income (DTI) ratios of borrowers, suggesting some buyers are being priced out of the market.
- Multifamily and apartment units should see a continued rise in occupancy
Because of the aforementioned housing numbers, workers returning to offices in big metros are often obligated to rent, and thanks to vaccine efficiency, Covid fears have begun to subside. Yesterday, both AmEx and BNY Mellon announced their offices are reopening- albeit under a more ‘flexible’ model. Collective, the two finance giants employ over 100,000 people.
- Supply chain delays persist but new construction continues
America’s largest homebuilder, D.R. Horton, released a big jump in Q4 2021 earnings: Attributable net income was up 44% to $1.1 billion compared to $791.8 million in the same quarter of fiscal 2021. With 29,300 homes in backlog, 54,800 homes in inventory, a robust lot supply, and strong supplier relationships, volume growth is set to double this year, the builder said in a forward-looking statement.
Our Aloha LTD Income Fund is expected to have another solid year in 2022, continuing its uptick in annual return, with an 8% goal, along with a reduction in its risk profile. Reach out to us for further information.
Steve Sapourn is an active real estate investor, Aloha Capital’s co-founder, and portfolio manager. At Aloha, Steve has overseen more than 1300 real estate investor loans in 35 states. He has managed alternative investments in a variety of asset classes for over 25 years. He has deep experience in designing low-risk portfolios that reliably outperform benchmarks. Over his career, Steve has served as portfolio manager for a Fund of Funds, where he analyzed hundreds of alternative investment strategies. In addition, he has developed and implemented quantitative trading strategies in the futures, stock, and volatility markets. Steve’s long and diverse career benefits Aloha’s investors.