Year-ahead prognostications are an alluring read, a chance to glean insight from expert calculators of all matters social, political and economic; a jump, perhaps, on the uninformed competition. They are no less tempting to issue, based on the multitude of guesses publicly ventured. In the fields of real estate and economics, the world looks much less volatile in 2022 by most accounts.
Diving into economic futures that drive real estate decisions: Inflation will slowly ease from 6.8% down to 2-3% by year's end (Kiplinger), 2.6% says the Federal Reserve Bank. GDP should grow by 4%, per the FRB (down from 5.5% in 2021), Morgan Stanley thinks 4.6% is the number. Unemployment will drop to 4.3%, according to the FRB, or below 4% by midyear, says J.P. Morgan. Mortgage rates should rise to the high 3's or low 4's (The Mortgage Report), more like 3.5%, says Bankrate. Home prices will increase by 5.7% (NAR), while commercial real estate will appreciate by 10%, and transaction volume should increase by 15% (Urban Land Institute). Good news all around!
Yet there is a bias in all these estimates; namely, it avoids the corners we cannot see around. Predictions not only give a sense of understanding of the world, but of comfort in a world that is manageable, predictable, less volatile. In short, not the world we know. No fault to economists, who process sprawling and complex data to divine trends, but predicting social upheaval or sudden shocks may be an impossible task. Yet these one-time events change the fundamentals dramatically. Very few would have predicted a pandemic, a home-grown attack on the Capitol building, "supply chains" becoming a household cause for concern, an 18.7% rise in the Dow, household savings and unemployment hitting simultaneous all-time highs, riots, inflation approaching 7%, or (even worse) that Peloton stock would crash. All unexpected, and each had a dramatic effect on our lives and businesses. Such events occur with regularity, yet never fail to surprise us. Our misuse of the term "unprecedented" since 2020 has been, well, unprecedented. But desirable surprises occur as well, from vaccines to iPhones to technology that revolutionizes living.
At the close of 2020, inflation for 2021 was predicted at 2.2% (Statista), and 2.1% (UCLA), the Feds predicted GDP growth of 4% (5.5% was the actual). An economists' consensus obtained by the FRB, made well into Q1 of 2021, hoped that unemployment just might fall as low as 5.1% by early 2022 (it ended '21 at 3.9%). The S&P 500 posted a 27% gain last year, beating the most bullish estimate of 17% by JP Morgan. What to make of these miscalculations? The world did not become suddenly unpredictable, we have been assailed repeatedly by unforeseen events (ask your grandparents). Moving forward, China, Russia, climate change, viruses and natural disasters seem unlikely to follow a script in 2022, just to name a few, and then there are the unknown unknowns.
At the risk of sounding optimistic, two ideas seem pertinent. The first is that risk offers rewards: one person's crash is another's buying opportunity. You can avoid risk, but there is little upside. Investing at the height of the pandemic (behind us, right?) seemed foolhardy as the world crumbled, yet home prices gained an astounding 20% in 2021, retail real estate vacancy hit a 10 year low of 5.9% (Forbes), apartment building rents soared (WSJ), and while downtown office buildings sagged, industrial property outperformed them all (Motley Fool). In short, long term investment paid off, even amid unprecedented catastrophes. The second is that understanding the world is complicated, and not easily summarized. While soundbites and numerical estimates make for a digestible synopsis, a meaningful understanding of the world requires long form study, and avoidance of quick conclusions.
The world may, perhaps, be less volatile in 2022. The stock market, economy and the real estate market may recede or surge, judged in the minute confines of a single trip around the sun, but in the long term, markets will rise, economies will grow, and investments will appreciate, probably even in 2022.