What is the outlook for investors in 2022?
What can we expect to be some of the most influential factors in real estate, debt and other investment markets over the months ahead? What is most likely to drive and guide investment activity, and impact various types of performance?
While there are plenty of unknowns, and no one knows for sure exactly what will happen and when, these are among the most important elements to keep in mind.
It seems almost inevitable that mortgage costs will rise over the next year.
This includes both interest rates and lender fees. There are a variety of factors creating pressure behind this.
This includes rising labor costs, underlying inflation, risk levels, and the need for lenders to keep up earnings when originations may not be as strong as the previous couple of years.
Inflation in general has been one of the most impactful factors over the past couple of years. Unless there is a major reversal in recent policies there appears no reasons to believe inflation will slow or reverse course in the next year.
This will increasingly impact everything around investments and real estate. Insurances, labor, materials, and other operating costs are all going up.
This may prove beneficial to some. Though it is also likely to ultimately lead to more consumer distress.
There has been a blitz of new taxes and tax hikes over the past year. Like inflation, it seems logical to expect even more new taxes and tax increases over the next year. And all of them will compound the effect of each other.
Finding new ways to avoid exposure to taxes and save on them is going to be a massive driver of money and investment decisions this year.
All of this inflation, as well as more demand for real estate and mortgage debt investment could likely continue to put upward pressure on property prices.
Price trends may certainly diverge as some pass their peak in this cycle, and others see an acceleration in transaction activity as a result of this and other recent events.
Inventory levels are another major lever in this equation. Though, with builders dealing with inflation and shortages, it is quite probable that publicly visible inventory will appear lean, further driving up prices.
Of course, behind the scenes there are likely to be plenty of acquisition opportunities for well connected investors.
All of the above suggest more property tax defaults are probable this year. While competition for these types of investments has recently been compressing their yields, there could be some opportunities in the space over the next year as inventory volume rises.
If more distress kicks in then house flipping and wholesaling may bring some of the best opportunities. If that distress continues to be staved off or hidden by stimulus, and rents continue to grow by double digits, then income properties may become even more desirable.
The Need For Safety & Passive Income
More or extended crises and frothiness in other sectors and asset classes is only making the desire for safety and passive income more prominent for investors. Expect this to continue to drive investment into residential real estate, as well as mortgage loan notes.
Find out more about investing in secured debt and real estate, go to NNG Capital Fund