The COVID-19 pandemic that hit the year prior prompted
a buying frenzy that caused home prices to soar nationwide
by a record 19.9% between August 2020 and August of last year.
Yet, there were signs in the fourth quarter that the sizzling market
we saw in summer was starting to simmer down. In October 2021,
only 60.3% of sales involved a bidding war--
down from a high of 74.5% in April of last year. Though this trend
could be caused by seasonality, it could also mean that the real
estate market may have passed its peak.
So, what's ahead for the U.S. housing this year?
Here's what industry experts predict for the 2022 real estate market.
MORTGAGE RATES WILL CREEP UP
Many economists expect to see mortgage rates to incrementally rise throughout
2022 after hitting record lows in late 2020 and early last year. Freddie Mac forecasts
the 30-year fixed-rate mortgage will average 3.5% in 2022, which is up from around 3% last year.
The Mortgage Bankers Association predicts that rates will increase up to 4%
by the end of this year.
"Mortgage lenders and borrowers should expect rising mortgage rates over the next year as stronger
economic growth pushes Treasury yields higher," Mike Fratantoni, chief
economist for the Mortgage Bankers Association, said at their 2021
Annual Convention & Expo in October.
Keep in mind that even a 4% mortgage rate is low when compared to historical
standards. According to real estate industry blog The Mortgage Reports,
"Between 1971 and December 2020, 30-year mortgage rates averaged 7.89 percent."
What does this mean for you? Low mortgage rates can reduce your monthly payment
and make homeownership more affordable. Fortuitously, there's still time to secure a
historically-low rate. Whether you're looking to purchase a new property or refinance a pre-existing
mortgage, you may want to act now before rates rise again.
I'd be honored to connect you with one of my brokerage's affiliated lenders to help start the process.
THE REAL ESTATE MARKET WILL BECOME MORE BALANCED
Last year we experienced one of the most competitive real estate markets. Ever. COVID-19 concerns
and a shift to working remotely caused a huge increase in demand. Simultaneously, many existing
homeowners delayed their plans to sell while supply and labor shortages ceased new construction.
This led to a market of extremes that benefitted sellers and frenzied buyers.
According to George Ratiu, director of economic research at Realtor.com, "Prices and sellers reached
for the moon [last] year. It looks like we are now about to move back to Earth."
Data from Realtor.com released this past November showed that listing price reductions had more than
doubled since February of last year. Plus, the average days on market (the index of how long it takes to
sell a property) has slowly been increasing since last June.
What's the source of change in real estate market dynamics? The market usually slows down in fall and
winter, but economists suspect a fundamental shift in supply and demand.
At the National Association of Realtors' annual conference in November 2021, the group's chief economist,
Lawrence Yun, told attendees that he expects new construction to cause an increase in supply and an
end to the mortgage forbearance program.
"With more housing inventory to hit the market, the intense multiple offers will start to ease," Yun said.
Consumer demand is predicted to wane slightly in the coming year, too. But climbing mortgage rates and
record-high home prices have made homeownership unaffordable and often unattainable for a growing
number of Americans. In a recent Reuters poll, nearly 80% of property analysts said they're anticipating
housing affordability to worsen over the next several years.
What does this mean for you? If you struggled to buy a home in 2021 then you may feel some relief this year.
An increase in property supply and a decrease in consumer demand could better situate you to secure your dream
home. And serendipitously if you're a seller, it's still a great time to cash out your huge home equity gains!
Plus, with more properties on the market you should have a better opportunity to find your next home.
Please don't hesitate to reach out for a free buyers or sellers consultation, so we can further discuss your property
needs and goals.
HOME PRICES ARE LIKELY CONTINUE TO CLIMB, BUT AT A SLOWER PACE
Throughout the U.S., home prices rose an estimated 16.8% last year. But, in 2022 the average rate of appreciation
is expected to slack.
Danielle Hale, chief economist at Realtor.com, told Yahoo! News, "Home-asking prices have decelerated in the second
half of 2021 with median listing price growth slipping from a peak of 17.2% in April to just 8.6% in October."
However, experts disagree about how much more property values can continue to increase this year. Goldman Sachs
suspects that home prices will rise by 13.5% while Fannie Mae and Freddie Mac are predicting a 7.9% and 7% respective
rate of appreciation.
Though not all analysts are as bold. The National Association of Realtors forecasts a 2.8% rate of appreciation for existing
homes and 4.4% for new builds. The Mortgage Bankers Association suspects the average home price to decrease by 2.5%
by the end of this year.
According to Hale, "With prices near all-time highs and mortgage rates expected to rise, we expect this slowdown in prices to continue."
What does this mean for you? If you're a home buyer who's been waiting patiently for property prices to drop, you may be SOL.
Even if market prices drop ever so slightly (and many economists expect the opposite) any potential savings you may encounter
will be offset by the increasing mortgage rates. At least with a decrease in competition this year you'll have more choices and less
chances of a bidding war when searching for your perfect slice of paradise. No matter what, myself and my brokerage can help you
get the most out of your money in today's market.
RENTS WILL CONTINUE TO RISE
In addition to home, gas and used vehicle prices, in 2021 rent prices rose drastically. According to CoreLogic, in September 2021,
rents for single-family homes went up 10.2% nationally year over year. Economists at Realtor.com also anticipate
rent to increase another 7.1% this year.
"Homes are expensive now...but for most people, the comparison that is most important is how that cost of homeownership is going
to compare to the cost of renting," Jeff Zucker, Zillow Senior Economist, told CNBC in November.
Tucker noted that rent is also less predictable than a mortgage, and it's more likely to rise with inflation.
Actual assets, like real estate, are frequently used to offset inflation because property values usually increase with inflation. When a
new homeowner takes out a mortgage, they often secure a standard housing payment for the next 30 years.
Conversely, renters are unfortunately at the mercy of the market. And, renters don't reap any of homeownership's benefits, like tax
deductions, equity or appreciation.
George Ratiu of Realtor.com told CNBC that he suggests to buyers to consider their timeline and budget. If a buyer plans to stay in the
home for at least three to five years then he believes that scenario would warrant purchasing the home.
While remaining cautiously optimistic, this year is shaping up to be a better year for buyers.
"I think 2022 has the promise of providing less competition, a lot more homes to choose from and, as a result, a lot more approachable prices," Ratiu said.
What does this mean for you? Both property and rent prices are predicted to continue to rise. But when you buy property with a fixed-rate mortgage,
you can rest easy knowing your monthly mortgage payment will remain the same. Whether you're buying a home for the first time or looking for another
investment property, I can help you make the most of today's real estate market.
WE'RE HERE TO HELP GUIDE YOU
While national real estate numbers and predictions can offer a 'big picture' forecast for 2022, real estate is local. And as a local market expert, I can help
guide you through the idiosyncrasies of our area.
If you're thinking of buying or selling property this year, please contact me now to schedule a free consultation. I'll help work with you to develop an action
plan to meet your real estate goals this year.
Happy New Year! Now, let's find your perfect slice of paradise!