Housing sector

How does the housing sector react to rising interest rates and falling supply?

Pierre Debbas, managing partner of Romer Debbas LLP, discusses how real estate investors should position themselves with the Fed predicting a rate hike in March, and how the real estate sector will change once the world fully reopens.

What were the main real estate trends that emerged from 2021?

Ironically, being in the second year of the pandemic, we have seen several sectors of the real estate market flourish. The most important trends have been historical housing market appreciation and demand, with the multi-family housing market also booming. The pandemic has created widespread relocation for millions of Americans who have realized they don’t need to live near their place of work given the virtual world we’ve embraced. In addition, our population has become even more accustomed to online shopping in view of the pandemic, which has also led to a record year for industrial real estate.

In 2022, what will be the key trends and issues shaping the industry?

The main trend this year will be the continued growth of the housing market and whether we have created a new normal for housing or whether a bubble has been created.

Interest rates have gone up and supply has gone down, what impact is this having on the housing sector? Will there be another housing bubble?

Rising interest rates will inevitably impact the housing market, but right now we are seeing a rush in demand as buyers try to capitalize on getting a low interest rate before that rates do not increase. Given the lack of supply, the fact that lending standards have been sound, and given that we’re not in a subprime lending environment like we were in 2008 and 2009, I don’t foresee another housing bubble . Additionally, down payments and cash transactions are at all time highs, creating a significant amount of equity in the housing market.

With the Fed signaling that a rate hike is on the way in March, how should real estate investors position themselves? What will be the impact of rising rates on the industry?

Investors rush to take advantage of low interest rates; Given that rate increases are expected to take effect gradually, we should continue to see continued investor interest until rates rise to the point where they negatively impact prices. If interest rates actually go up 100 to 200 basis points, I think you’ll find that will translate into lower prices, but nothing catastrophic for the market.

How do you rate the metaverse and the rise of digital real estate?

As we enter the third year of living in this virtual world, I think it’s safe to say that several aspects of how we operate in the wake of the pandemic will be permanently implemented in our society. One of these major aspects is remote work and virtual dating, which will drive demand for the metaverse and digital real estate.

What are the main headlines and stories you pay attention to in this space?

What will happen to the commercial real estate market? Retail was in a precarious position before COVID and has only suffered more as a result of the pandemic. What will landlords do with all their vacant commercial space and will retail rebound? The other headlines I watch are whether the housing market will continue to boom and how long this bull run will last.

When the world fully reopens, how do you see your industry changing or reacting?

The real estate industry is arguably the industry that most wants the world to fully reopen. The retail and office sectors cannot recover until the world reopens. The question is, what will it look like? The workforce will never be back in the office five days a week and this will lead to a change in the way we perceive and use office space and retail demand in major cities.

Will the hybrid working model lead companies to reduce their office space? Will businesses really go remote? I think you’ll see the majority of businesses implementing a hybrid structure, which may result in a slight reduction in the square footage they need and a minority of businesses going entirely virtual. This will certainly result in lower office rents in the future, but offices should stabilize once the world returns to some semblance of normality.

This interview originally appeared in our TradeTalks newsletter. Sign up here for weekly access to exclusive market analysis from a new industry expert. We also highlight TradeTalks’ must-see videos from the past week.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.