The state of California’s pandemic reaction officially halted in 2022 after two years of erratic economic waves. Real estate experts can start retracing the Pandemic Economy’s steps as the year comes close to getting ready for the property market of 2023.
The pandemic forced state lawmakers to establish moratoria on evictions and foreclosures and to hand out individual stimulus payments in 2020–2021. These activities led to quickly growing inflation, including asset price inflation and consumer price inflation, and the supply chain disruption brought on by the pandemic.
Mortgage interest rates were possibly the pandemic era’s most significant impact on the housing market.
The Federal Reserve (the Fed) discontinued its pandemic period monetary policy of supporting and determining interest rates on home mortgages after taking steps to lower interest rates to record lows in 2020–2021 by withdrawing from the mortgage-backed bond (MBB) market at the end of 2021.
After departing, the bond market again handled funding and rate setting for fixed-rate mortgages (FRM). Mortgage rates increased, resulting in matching bond market MBB yields, which, unlike Fed financing, are based on the rate of the 10-year Treasury Note plus a risk premium rate currently set at double historical norms in anticipation of a recessionary rise in defaults.
Furthermore, interest rates on long-term debt obligations, like the 30-year FRM, reflect how successful bond market investors believe the Fed will be in reducing consumer inflation right now. Bond market investors accept lower yields when the Fed is winning its battle, as it is starting to look likely heading into 2023, and FRM rates follow.
In the first three quarters of 2022, mortgage rates spiked as mortgage borrowing and, consequently, buyer purchasing power fell. As purchasers are now in control, this led to a cascade of new behaviors in the marketing of real estate services that will last for the next two to three years.
The Rising Mortgage Rates
We arrive at the critical market fundamental of the year due to these falling dominoes: As consumer purchasing power diminishes, so does support for home sales.
Sales volume peaked early in 2022 after a pandemic-distorted year of high home sales volume in 2021. Sales volume is anticipated to go below 2019 levels in 2022, the last “normal” year for sales volume, even though year-end data have not yet been released.
The commercial real estate industry is also losing strength due to Pandemic Economics.
The vacancy rate for industrial space climbed in 2022 and is expected to return to pre-pandemic levels in 2023, indicating a “fair deal” environment for both landlord and tenant.
Before the industrial market can stabilize, the high demand for space caused by the pandemic period needs to be eliminated, which is causing the increase in the vacancy rate.
There is some movement, though, for vacant commercial premises. A rise in commercial-to-residential conversions is simultaneously reducing the housing crisis and providing a new lease of life for vacant retail and office space.
