So, a Housing Bubble in 2022?
While a handful of local markets appear overvalued, most analysts believe the US doesn’t face a housing bubble in 2022.
Realtor.com forecasts existing home price growth of 2.9% in 2022. While existing home inventory listed for sale dropped 18% in 2021, they expect it to rise slightly in 2022. Meanwhile, Realtor.com estimates housing starts will rise by 5%, compared to 15% in 2021. Nowhere near enough to meet the increase in demand for single-family homes.
If a recession hits, that changes the calculus. Far fewer people will feel comfortable shelling out huge sums for homes. The University of Michigan Consumer Sentiment index sits lower than it has since 2011, largely due to inflation worries.
However, US gross domestic product (GDP) keeps improving. Most analysts predict continued economic growth as the world emerges from its pandemic woes.
In short, most housing markets across the US appear strong and healthy. Lending practices remain tighter than in 2006, despite loosening over the last five years.
How to Invest in a Housing Bubble
Worry a housing bubble is about to burst?
While I don’t foresee a real estate bubble imminent in 2022, you might. Understand what investing through a bubble should look like, and how to protect yourself.
Buy Discounted Properties, Rather than Trying to Time the Market
First, don’t attempt to time the market. Market timing usually comes down to luck, and most of the time you’ll miss out on large market moves in pursuit of short-term gains.
If you wait for the next dip to buy, it could be years away. By that time, even the low point in the dip could mean higher prices than today’s values. Alternatively, if you rush to jump into a rapidly appreciating market, you risk buying in the midst of housing bubble mania.
Instead, dispassionately look for an investment that you can buy at a discount from market value. See our guide to finding deals on real estate even in a hot market for specific tactics, and look for motivated sellers. You can use an online tool like Propstream to find them instantly (full Propstream review here), or stick with classic strategies like driving for dollars or buying foreclosures.
For those of you who invest in stocks, think of it like value investing. Even in 2006 when home prices peaked, there were still plenty of undervalued markets and individual homes. From peak to trough of the housing crisis, the state of North Dakota averaged only a 2% decline in property value.
Look for markets with steady but reasonable gains, rather than sharp spikes in home values. Sudden leaps in pricing often mean a divergence between incomes and home values.
Your real estate investments make up one part of a larger portfolio. Just like selecting stocks, you don’t want to speculate a large part of your portfolio.
Invest for Cash Flow
Most of all, to survive a housing bubble you’ll want to identify properties with strong rental cash flow. Rents tend to remain stable or even increase through any economic cycle. Even during the Great Recession and housing bubble of 2008, rents did not decline – they simply grew less quickly than they did previously. In a recession and real estate bubble, some homeowners end up becoming renters, which fuels demand for rental housing even as buyer demand dips.
The moral of the story: aim to buy properties that become real estate cash flow machines! Properties you can buy below-market value, but for the right reasons. It can be a real estate market that’s not seen by investors, small communities or a location that ignores typical recession factors.
Fortunately, you can calculate a property’s cash flow before buying. Use our free rental property calculator to run the numbers on any property, and never buy a bad deal again.
For more tips for investing in any phase of the housing cycle, see our tips for making money during housing market corrections.
Does the U.S. face a housing crash in 2022? I believe the odds are low, at least as a nationwide housing bubble in the US. The economy continues to expand, and the supply of homes doesn’t meet current demand. Subprime mortgages make up a much smaller percentage of the total outstanding loans on the market.
Still, do your due diligence when evaluating potential deals. Make sure you have a firm understanding of the local market. When you know the local market and the prospective property well, you can predict your cash flow and returns accurately.
And in doing so, protect yourself from losses in the next recession or housing bubble.♦
Do you think your home city is in a housing bubble about to burst? Why or why not? Share your thoughts below!