Will Real Estate Ever Calm Down? How to Invest in this Wild Sector in 2022

There's no secret that real estate was a dizzying rollercoaster in 2021. If you didn't dip into real estate investing last year, here's a quick summary of what happened: 

The pandemic completely bent the home-buying process last year. Low mortgage interest rates combined with an inventory shortage combined with a desire to move far away from the office (hello, permanent remote work!) created a churning real estate market. Houses literally sold within hours of being listed, for, in some cases, triple the asking price. 

Let's find out how to invest in the real estate sector in 2022.

What Happened in 2021 and Will it Change in 2022?

So, can we expect elevated prices, low inventory and fast turnaround? Let's find out what happened in 2021 and how it might translate to this year in terms of rising mortgage rates, changing price trends and scarcity.

Rising Mortgage Rates

The Fed has already promised to bat at inflation fires with as many as three rate hikes starting next spring. Its benchmark rate has been near zero since the start of the pandemic in order to aid the popped economy

Freddie Mac cites the 30-year fixed-rate mortgage interest rate as having only gone up 0.3% between January and November of 2021, but rates may zip upward 3.5% by the end of 2022. Realtor.com says 30-year fixed mortgage rates will rise to 3.60% by the end of 2022, compared to the 3.30% average now. However, as you can see, mortgage rates won't rise to the double-digit range (in other words, nothing ludicrous), which is good news for real estate investors.

Changing Price Trends

Experts predict higher real estate prices in 2022, though the price trend will be more moderate compared to 2021. Home sales prices should rise 2.9% this year, according to Realtor.com.

For sector investors, this means being wary of the fact that prices will continue to rise, especially in certain pockets of the country. Bidding wars also wreaked havoc on home values — hungry buyers snapped up homes at double and triple the homeowners' asking price. However, early in the year, bidding wars could still break out.

Better, But Still a Little Scarce

Buying real estate might not be easy but it might be easier than in the past year due to still-scare but lessening scarcity in inventory. Supply chain problems and a labor shortage will lessen, though Zillow research says that scarcity will still have homebuyers chasing their tails in 2022.

How to Invest in the Real Estate Sector

Want to invest in the real estate sector without actually having to plumb toilets or paint walls? (You know there are easier ways to make money.)

Try Your Hand at REITs

Real estate investment trusts (REITs) own and invest in properties. They allow you to buy shares in commercial real estate portfolios and earn money from them without having to buy or manage the property. You can buy publicly traded REITs in direct methods or purchase them through mutual funds and ETFs. Let's walk through a couple of options you may want to consider.

Annaly Capital Management Inc (NYSE: NLY)

Headquartered in New York City, Annaly Capital Management invests and finances residential and commercial assets through agency, residential credit, commercial credit and middle market lending and invests in agency mortgage-backed securities. In Q3 2021, Annaly showed GAAP net income of $0.34 per average common share for the quarter, earnings available for distribution of $0.28 per average common share for the quarter, down $0.02 quarter-over-quarter and economic return and tangible economic return of 2.9% for the quarter.

Annaly Capital Management announced quarterly dividends on its Series F Preferred Stock, Series G Preferred Stock and Series I Preferred Stock. 

UMH Properties Inc. (NYSE: UMH)

UMH Properties Inc., based in Freehold, New Jersey, owns and operates manufactured home communities. (Manufactured homes are similar to mobile homes). Due to home price rises and higher-fetching rents, providers of lower-cost housing like UMH Properties can add some zip to your portfolio. 

UMH Properties also leases manufactured home sites to private manufactured home owners. UMH owns around 127 communities, mainly in New York, New Jersey, Pennsylvania and Ohio.

The company reported total income for the quarter ended September 30, 2021 of $48 million compared to $43.1 million in 2020, representing an increase of 11%. Net loss attributable to common shareholders amounted to $3.4 million or $0.07 per diluted share for the quarter ended September 30, 2021, compared to $12.7 million, or $0.31 per diluted share at the same time in 2020, along with a 3.10% dividend yield. 

Essential Properties Realty Trust (NYSE: EPRT)

Essential Properties Realty Trust Inc., headquartered in Princeton, New Jersey, acquires, owns and manages single-tenant properties net leased on a long-term basis to middle-market companies such as Captain D's, Art Van Furniture, Mister Car Wash, Zips Car Wash, AMC Theaters, Perkins, 84 Lumber, Mirabito, Ruby Tuesday and White Oak Station. 

Earnings are forecast to grow 19.76% per year and earnings grew by 40.8% over the past year. Directors declared a quarterly cash dividend of $0.26 per share of common stock for the fourth quarter of 2021. On an annualized basis, this dividend of $1.04 per share of common stock represents an increase of $0.04 per share over the previous annualized dividend. 

Crowdfunding

Crowdfunding companies pool smaller amounts of money, and investors can use this investment method by investing just tens of dollars like Fundrise. The company charges an annual advisory fee of 0.15% and additional annual asset management fee of 0.85%.

RealtyMogul offers funds focused on growth or on generating income from commercial real estate debt, for those looking to go beyond investment strategies focused on stocks or bonds. Fees include an annualized service fee of 0.5% and an annualized asset management fee of 1% based on the REIT's total equity value. 

Yieldstreet deals in real estate debt and equity as well as other industries. The minimum investment is $500 and the fund charges an annual fee of 0.5% and a management fee of 1%. 

Consider the Trends

Before you get hyped about investing in real estate, analyze the broader market and consider other alternatives like REITs and crowdfunding. Watch your service and management fees, though — those can get you just as much as brokerage fees (for regular investments) and property taxes and homeowners insurance (for tangible real estate).